Guest Post: A tale of two airlines and tech's role in the battle for customers

By Travolution

By Boyan Manev, vice-president business development and product marketing at airfare search solutions firm Vayant

It was the best of times, it was the worst of times. At least for two of Europe’s largest low-cost carriers, who are now looking to refresh the low-cost model as competition for the customer is set to intensify.

The rise of the low-cost carrier made millions of people into frequent flyers and shook up the airline market with powerful price-led offers and a no-frills approach to service.

In the drive to cut ticket prices, these innovative carriers basically invented the unbundled model, where everything beyond the point-to-point fare – from onboard meals to hold baggage and allocated seating – came as an optional extra: otherwise known as an ancillary.

The low fares enabled by unbundled ticketing won over passengers, particularly in the leisure market. And it certainly made a big impact on aviation, to the extent that the global industry is formally embracing ancillaries via the New Distribution Capability (NDC) process being pushed by Iata.

But in the rush to reduce ticket prices, one low-cost carrier, Ryanair, showed signs of leaving the customer behind. Ryanair took its price-led offer seriously, even [apparently] floating the idea of all-standing flights or charging passengers to use onboard toilets. Anything to push down the price of a basic fare.

Customers were prepared to sacrifice a degree of comfort for cheap flights and Ryanair’s unrelenting focus on low fares had propelled it to the status of Europe’s largest airline.

But it seems customers would only put up with so much (and, increasingly, they could find great value fares and a good end-to-end experience on network carriers and innovative hybrid models like Lufthansa-Germanwings).

In a sign that customers were falling out of love with Ryanair’s very aggressive price-led model, the carrier announced its first profit warning in a decade in September, quickly followed by a second profit warning.

In contrast, Ryanair’s rival easyJet was announcing a 51% jump in pre-tax profits – and it all came down to the customer.

While Ryanair had clung to its price-led positioning, easyJet had taken a different direction, introducing a number of customer-friendly innovations. First came allocated seating on all flights, fast-track security for holders of flexi-fare tickets and an attractive inspiration-driven online shop (InspireMe).

Together, these technology-enabled improvements meant easyJet’s customers could tailor a better travel experience, and be satisfied they were still getting a budget price. This gave the easyJet brand a new appeal to older and more affluent leisure and business customers: a profitable segment who previously refused to even contemplate flying easyJet.

The easyJet story shows that the low-cost carriers are opening a new front in the battle for the customer, introducing more choice and a more customer-shaped experience. (And where easyJet led, Ryanair is now following and has announced a raft of measures to make life easier for customers.)

As we’ve argued here before, NDC will move the whole aviation industry towards greater flexibility. Airlines will gain the ability to package and fine tune the customer experience with more precision than ever before, and offer it across more channels.

The growth opportunity is clear – but, as the tale of easyJet and Ryanair shows, to realise the opportunity airlines will need to take advantage of technology tools to deliver choice, value and quality.

Today’s demanding customers want more than a great price – they also want a great experience.

Opinion: Technology will change the rules by which the industry is run

Technology is going to continue to evolve at a frightening pace and the rules by which the industry has been run are about to change, warns Ken McLeod of Advantage Travel Centres

Every agent should have been in Dublin in October to listen to 600 airline and distribution chain representatives at Iata’s .

Sitting in the audience I realised the possibilities offered by Iata’s New Distribution Capability (NDC) are dwarfed by the challenges facing the industry as it undergoes a fundamental change to distribution, pricing and relationships.

The airline world has been evolving faster than ever.

Systems have been remarkably efficient, but as airlines become more complex and revenue management and yield ever more important, the process is becoming more difficult to control.

NDC was discussed in almost every session at the symposium. While we know change is on the way, the questions raised were what will it look like and how fundamental will it be?

Only in one of the final sessions did we hear GDS, agency, airline and corporate representatives agree that collaboration, transparency and value have to be at the heart of any change.

Diversity of opinion

The GDSs were well represented throughout and talked some sense, especially the fact that customers’ trips are not just only airline seats but also hotels, car rental and many other services.

The airlines are fixated on reducing the cost of distribution and raising more revenue through ancillary sales. However, you only have to consider some of the statements made over the three days to understand the diversity of opinion:

“Airlines have less control on pricing than almost any other industry.”

“NDC is a key component of change in revenue management.”

“It’s not about the price of the ticket. It’s about what passengers will pay in total for the travel experience.”

“There is a complete lack of trust between stakeholders on NDC.”

“The marketplace must determine solutions.”

“Who is paying for all this?”

NDC is only part of a creative and technological evolution that will impact an industry that has lived, until now, with margins of $2.50 per seat.

As one speaker pointed out: “Starbucks make that on every cup of coffee.”

No understanding at the top

It reminded me of something B&Q is experimenting with: trialling different pricing for the same products on different days of the week, with products more expensive at weekends and cheaper on quiet days.

This leads to a variety of pricing elements for loyal customers and allows the company to link offers such as two for one to certain clients.

Why is B&Q doing this now? The technology available makes it easy.

Technology is going to continue to evolve at a frightening pace. The rules by which the industry has been run are about to change.

On leaving Dublin, I had mixed feelings. On the one hand, a lot was achieved in understanding the challenges. But I couldn’t help thinking those at the top of the tree do not get the message.

My opinion is that travel management companies and agents are not ready for the change. It will happen soon, maybe gradually to begin with, but many will be taken by surprise.