Wednesday, November 2, 2011

Seven Questions to Reinvent Airlines

Corporate culture—the set of norms, values and assumptions that govern how people act and interact every day.

Airlines, as the most charming and challenging industry, the least profitable, but the most taxed industry, experience literal ups and downs since its formation in the 1920s,  though the balance sheet starts turn black in 2010,  this legacy industry is the third largest contributor to economy, have been through the lost decade, it may still have the rocky road ahead, Airline is beyond at transportation business, it’s at customer service business, it’s the economic barometer and growth engine.

It takes energy and passion to re-imagine Airline  and it need collective wisdom and societal support to re-invent Airline, we may need more radical thinking and fundamental revitalization via series of questioning:

1. Business Model Re-invention:
Q1: Can we transform Airline from commodity business into value delivery business?

Merchandise concept redefine airlines in the last couple of years, By bringing a retailer's “merchandising” perspective to the airline, airline identified a substantial opportunity to enhance the customer's travel experience via new service options. This was a significant mindset change for the industry that had focused on streamlining operations for the past 30 years with limiting customer choices, the de-bundled customer services also create critical ancillary revenue for financially struggling industry, a key mindset change was getting the airline to think of itself as an incredibly effective distribution channel and very powerful merchandising platform, it transforms into the retailer with wings.

Reinvent Customer Life Cycle Management
Airlines need shift to a customer-centric business model, focusing on individual customer needs and buying patterns.

Beyond just taking a long time to book travel, there is a more fundamental issue: does  the current distribution channels cater for the personalized service that a 21 century consumer has come to expect?  Optimize customer’s whole travel experience is one of the clear vision and goal for airlines to pursue, the key theme is about delivering choice and convenience to the customers in every segment of customer’s journey by creating a powerful framework to underpin its self-service initiatives, wide range of channels and choices to meet customers’ diverse preferences, it also help reduce the overall cost of service its customers and serve them even better, focus resource and service on customers’ touch point, and soothe customers’ pain point. Please also read: Seven Delights to Optimize Flying:

 To step further, social computing provides the opportunity to transform aspects of self-service into more real-time dialogue with customers, and offer more value-added service to reinvent customer life-cycle management with speed and re-imagine more potential revenue stream. 

Reinvent Loyalty Program
Loyal customers are truly the backbone of any successful business, given the high percentage of revenue derived from them. It costs significantly more to acquire a new customer than to retain an existing one, also understanding customer behavior is critical to build and maintain true customer loyalty.

Most airlines have strong loyalty programs that bind their best customers and keep them returning to the same carrier. The “stickiness” of the programs focus largely on revenue optimization and airline operations, and less on customer satisfaction.

The future of loyalty program is based on social computing and enterprise 2.0, social loyalty becomes especially important once airlines realize that some of their most enthusiastic flyers are also its most vocal brand advocates. So the most high-value customers are not only in term of miles flown but also in terms of their social influence online, it also explores the role that predictive analytics can play in enabling carriers to make timely, meaningful and relevant offers that drive deeper loyalty and engagement among existing customers,  acquire new customers to outmaneuver the competition.

2. Tax & Regulation Re-invention:
Q2: Should Airlines taxed as sin or pay the fair share, does government and stakeholders are happy the way it is or make the necessary change to put is on the growth trajectory?

A lot of people and companies count on aviation’s success. About 2.8 billion people are expected to fly safely in 2011. That directly creates employment for 5.5 million people worldwide.

However, many seasoned airline executives point out airlines are taxed higher than the 'sin taxes' imposed on tobacco, firearms and alcohol, about the 17 different aviation taxes and fees amounting to USD16.5 billion already paid by airlines and their passengers.  And additional USD36 billion in new taxes are being proposed recently.

The industry are lobbying government for more common approach on standard policies and liability issues to realize its real potential as well as to further contribute to the economy and putting the industry on a growth trajectory.

In addition, Governments should be persuaded to framework the infrastructure needs to be put in place to support and facilitate the distribution of passenger data on a global industry-wide basis, also to help the industry on such important issues as re-equipping aircraft for the Next Generation Air Traffic Control System.

 3. M&A Capacity & Capability Re-invention:
 Q3:  Can consolidated Airlines become more agile to adjust the capacity & capability  to make sustained profitability ?

In recent year, airlines have been consolidated through M&A activities, it builds up strategic value for the industry at the long run. either scale deal—an expansion in the same or highly overlapping  business—or a scope deal—an expansion into a new market, product or channel (usually are a mix of the two types) would help airlines grow capacity and enable more capability, but the most critical factor is to make airline agile via consolidation, modernization,  rationization, integration, innovation and optimization., etc.  

What makes an airline agile? Taking agility to its simplest level: An agile airline is one marked by ready ability to move quickly,  adapts to business and technology change dynamics, responsive to competition, and maximizes all its assets and resources. A common denominator to agile airlines is an ability to move information to the right passenger, employee or partner with this same agility.

 4. Talent & Culture Re-invention:
 Q4: Can Airlines where organized labor has outsized leverage, with new united way to manage the inherent responsibilities and also leverage change sufficiently for long term prosperity?

  • Leadership Re-invention.
    The context of the industry impacts the type of leader or leader characteristics that are required for success. While disruptive forces such as external influences or technological breakthroughs can change the direction and potential for an industry, leaders, by their actions, can influence the evolution of an industry and aviation eco-system as well, the influential leadership can also inspire the creative destruction to revitalize the legacy industry like airlines. 

  • Culture Re-invention:  
Corporate culture—the set of norms, values and assumptions that govern how people act and interact every day. It’s “the way we do things around here.”

How to cultivate the positive culture, such as customer centric, safety driven and break up the “legacy mentalities” and encourage the new view and thinking for staff to take extra miles,  voice themselves via social networks, or corporate blogs, to ensure that these communication lines are open and people understand what sheet of music they are playing to, to win both hearts and minds.

5.  . Infrastructure &Technology Re-invention:
Q5: Can Airlines modernize the legacy infrastructure, simplify & optimize the process and ride the latest technology wave  to drive further effectiveness and efficiency?

Airline need simplify the complexity in their IT infrastructure without compromising on agility or security. To transition to the future state, airlines may need move from the traditional heterogeneous environment (typically defined by poorly integrated legacy applications) to common platforms that are closely integrated and aligned with key business processes.  The latest technologies such as cloud/mobile/social/Analytics will further transform IT infrastructure at more digitized pace, so airlines can achieve the agility needed to more quickly respond to customer demand and market changes.

By transforming into more integrated platforms, Airlines can enjoy greater business continuity, higher levels of redundancy, and enhanced internal and external service performance. Those changes translate directly into a lower total cost of ownership, a clearer focus on mission-critical objectives and a more competitive position in the demanding global economy.

New technologies,  more effective operations, more efficient infrastructure, and positive economic measures. This is the industry’s Four Pillar Strategy, defined by Tony Tyler, IATA's Director General and CEO

 6. MRO Re-invention:
  Q6: What if airlines operated their customer-facing IT with similar discipline and decision making as the maintenance function?

Besides labor and fuel cost, Maintenance is the third largest cost to run airline today, airlines today need put maintenance optimization into the long term strategy plan. 

Re-invent Airline Connection: transform paper-based, work-intensive and non-user friendly information exchange (to and from end users: pilots, mechanics, flight attendants) into more digitized, user friendly communication. 

Re-invent User and management decision: transform from decisions rely on time-late, unreliable, inconsistent and incomplete information into more real-time data, information and analytics.

Standardize Business Solution: there is a clear definition of the business problem that needs to be solved, and agreement who can solve which problems, also streamline the vendor relationship and optimize the business processes.

 7.  Alternative Energy Re-invention:
Q7: Are BioFuels well shaped to become the energy pillar for air transporation?

According to data from the International Air Transport Association, total emissions for the airline industry stood at 649 million tons of CO2 in 2010, up 3.5 percent from the previous year.  The industry has pledged to stop increasing its carbon emissions by 2020 even as global air travel increases, and to halve its carbon dioxide emissions from its 2005 levels by 2050.

The I.A.T.A. estimates that replacing 3 percent of the kerosene in jet fuel would reduce aviation CO2 emissions by over 10 million tons, at an initial cost of $10 to $15 billion in production and distribution facilities.  Aviation is working hard with a spectrum of activities to reduce environmental impact. Biofuels are seen as one of the pillars to achieving this target; I.A.T.A. predicts that biofuels could replace 6 percent of kerosene in the airline industry by 2020.

Converting 20 percent of aviation to biofuels would transform modern aviation, be a major signal that clean energy can work at scale, and offers a model for developing R&D, certification and supply chain consortia. It would take around 12 billion gallons of biofuels, and perhaps 120 million tons of biomass, distributed to 1700 or so airports around the world.

But availability of supply and its cost — biofuel is more than double the price of regular aviation fuel — are now the main impediments to its wider use.

In summary, in order to overcome the challenges, all forces such as the authentic leadership, the financing system, the committed end-user group, the technologies ready to scale and valid distribution channels need be well aligned and reinvent the alternative energy for the long term. 


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