Back to Air Transport IT Review - Issue 2, September 2010
Driving up yields in the digital world
Maximizing yields requires a fundamental change in IT
One of the first victims of a recession in the airline industry is the yields. Airlines desperate to maintain load factors inevitably start slashing fares to entice a dwindling number of customers. So it was no surprise that a large number of the delegates at the Air Transport Summit took time out to attend an Industry Insight Session on how digital technologies could help drive yields back up or "get an increased share of the wallet" as panel Chairperson, David Smith of SITA put it.
Particularly at smaller airlines good yield management can be a matter of survival in tough times. "If load factors drop you can cut the number of flights, but every airline knows that if load factors drop 20% and yields drop 20% then you are really in trouble because yields are hard to compensate for," says Soren Roos, VP of Revenue Management & Distribution at Swedish airline Skyways, which has recently migrated to SITA's new Passenger Management and Revenue Optimization system.
And according to Michael Cunningham of SITA, other airlines will need to go the same way if they are to optimize what IT can do. "To maximize yields needs a fundamental change in the IT architecture to cope with the increased shopping demands of multiple distribution channels."
At the technology level, these new distribution channels are kiosks, Internet and mobile, but these technologies have given airlines a proliferation of new touch-points to deal with. Cunningham illustrates the point. "For the first time the number of searches for travel products through social networking sites exceeded the number of searches through search engines, so that is a phenomenal change."
How can airlines leverage these new touch-points? "If you are an airline serious about online booking you will need to get into social media. For example, you will need to consider having a booking engine working inside Facebook," says Cunningham.
While embracing new touch-points may allow airlines to tap into new revenue streams, the added complexity of maintaining and managing the distribution mix will also bring a new layer of cost. If that is to be avoided Cunningham believes technology needs to be used more strategically. "A service-oriented architecture is a better approach to cope with the complexity that is coming along".
With SOA, as it is known, each business functionality, such as a payment system, need only be created once and then it can be re-used over and over again to service different applications. That, in turn, leads to faster development times and easier integration. "For example, payment implemented through each touch-point is a huge waste of resources," says Cunningham."
But it is not just about cost reduction. SOA can also play a key role in driving revenue, particularly through customer touch-points. "It enables you to take control of your customer relationships by getting all the information into one place and gives a common user experience at all the touch-points, which improves loyalty and repeat purchasing, resulting in more revenue," explains Cunningham. "This our vision at SITA and it's why we are making such a large investment in our Passenger Management system."
Gartner analyst Robert Goodwin* also believes airlines will be focusing a lot more on technologies that provide top-line improvements over the next three-years. "Our CIO Priorities survey shows there is going to be a shift from a very sharp focus on cost control, business effectiveness, and operational efficiency, to a growth mode looking at attaining revenue and gaining market share by 2013." He lists ancillary revenues, business intelligence and next generation loyalty management among those that will deliver improvements to yields.
*Gartner, Market Insight: Transportation Industry Primer, 2010, June 2010 . Gartner, Leading in Times of Transition: The 2010 CIO Agenda, January 2010.
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