Can airlines keep up with digital pace?

December 20, 2016

This is a post first published in Airlines International, 20 December 2016. 

Digitalization is forcing a paradigm shift in business models. But can airlines move quickly enough? Alexandre de Juniac, IATA’s Director General and CEO, has already made clear his focus on improving the industry’s speed of innovation.

“I value speed,” he says. “Our world is changing very rapidly. Each day brings something new—at times it’s a challenge, other times it’s an opportunity. "The key to success is being able to respond quickly. My experience in the air transport industry has been that we often struggle with speed, and, as a result, innovation can suffer.”

There are good reasons why the industry must innovate faster. Aidan Brogan, Datalex’s CEO, says competitive advantage will only flow to those that act first. “We are entering the most transformative wave of digital disruption where an evolving supply chain will compete to distribute optimized and profitable offers, and meet the customer expectation for connected, tailored, and relevant engagement," he says.
“A digital transformation is about building the flexibility and agility needed to manage a rapidly evolving aviation value chain. “The airline needs to relentlessly broaden its technology capabilities, and scale its data and infrastructure to meet that challenge.”

In one sense, then, the fundamental for success hasn’t changed. Customer service is still the name of the game. But serving them well now necessitates a fast-moving, adaptive business model. Customers are demanding innovation, be it buying a coffee or booking an airline seat.

And the demand for innovation in customer service will only accelerate. “The rate of change is increasing across all industries, and especially a customer-facing industry like aviation,” says Tim Grosser, IATA’s Head of Digital Transformation. “The way to communicate with customers is continuously changing. If you don’t innovate, your current or future competitor will. Innovation is not a choice. The mindset must be to move faster.”
The problem can be boiled down to basic math. At best, only one in 10 ideas will bear fruit and so it is essential to find that one idea as quickly as possible.

Structured process

Grosser suggests airlines need a structured process to move from idea to evaluation to implementation. Rather than focus purely on creating new ideas, airlines must also plan and control the execution of the innovation project portfolio. An idea without realization is just an idea, not innovation. The key is to define the problem that needs solving and then focus on the scope of the solution required.

Accepting failure and understanding global trends are essential. “The failure of ideas is part of the process, and brings you one step closer to finding that successful idea,” Grosser notes. “But you must focus on where you want to innovate by looking at the big challenges, which have the big payout. Also, look at new technologies and see where they are providing new opportunities.”

Partnerships throughout the process increase the chances of a positive outcome. Already, many airlines are partnering with technology providers, universities, and startups to brainstorm potential new products and test their viability.
This needn’t be a costly affair. “Not so many years ago, developing a new, technology-based product would have involved lots of resources, such as buying a server and setting it up,” says Grosser. “That took time and money. Now, thanks to cloud computing, if necessary, we could do tests multiple times a day and for a few hundred dollars. Cloud computing is a major tool for speeding up innovation.”

At October’s World Passenger Symposium, Dr Jassim Haji, Director of Information Technology at Gulf Air, revealed that the implementation of cloud technology has enabled the airline to reduce the number of physical servers 35%, amounting to a 24% cost saving in capital expenditure. These cost savings enable more investment into innovation.

And there are other methods too. No longer is it necessary to develop a product and put it out to market before you truly know whether your customers are interested. Old-style marketing and focus groups might have eventually provided an acceptable insight before. But these days, a simple icon for people to click through for more information will tell you if people are interested and if that product is worth developing.

Valuable data can be at a company’s fingertips within hours. Leading tech firms use such approaches to take an idea to a minimal viable product in just three months. Airlines are not yet at that speed but it provides a guideline for the industry’s aspirations. “Being quick and being accurate are not competing goals,” explains Grosser. “They can coexist quite happily. Being smart in innovation leads not only to speed but to a better product.”

In short, it is much easier now for airlines to experiment or change direction.

Artificial intelligence

Personalization is a key area where the speed of innovation will be crucial. Just as everybody wants a coffee made to their exact specifications, so too will the travel experience become even more customized.

An emerging trend in this regard is artificial intelligence. “This is becoming a mature concept and airlines should be looking at it closely for future development,” says Grosser. “Algorithms are capable of learning. A spelling mistake when you type in a search engine is a simple version of this.

"It will ask ‘did you mean this’ and it will probably be right because it has learned over time. So, for airlines, if the passenger books A, B, and C then most likely she will want D. That’s an opportunity to offer it now!”

Mobile is the main channel for personalization and seems set to stay that way as it corresponds with larger, global trends. Rob Webb, Chief Information and Technology, Officer, Etihad, says the global traveler’s digital experience is a key factor in purchasing decisions and mobile is working. “I wish I had invested a lot more money in mobile a lot faster,” he notes.

Many other aspects of airline distribution and operations could benefit from timely innovation. Fortunately, many airlines are beginning to invest heavily and innovation has become a main driver of business. IATA’s Simplify the Business (StB) program is assisting. It has partnered with a Silicon Valley incubation firm, Plug and Play, to drive innovation across the industry.

In 2016, StB focused on reinventing the baggage process, the future of payments, digital identity, and collaboration via open application program interfaces. This program assists both large and small airlines by pooling resources and collectively focusing on the major problems. “Tectonic changes are underway,” stresses Neetan Chopra, SVP, Emirates Group IT. “Digital business models have a completely different form.
"We are used to steady growth but these new digital artisans live in an exponential world. It is not about doing digital, it is about being digital. It is about action. Ideas should be shared but for a business it is about execution and speed."

Airlines International, 20 December 2016

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