Hitting Reset On Airline Retailing- Part 2
Last week, I published the first in a series of articles focused on generating ideas to accelerate airline recovery via digital retailing as well as an infographic with the survey results. The feedback and response from airlines and travel industry veterans alike have been amazing and we continue to collaborate on many concepts that could provide a spark to airline revenue now and during a rebound.
There is no doubt that today's generation of mobile-device connected travelers will demand much more from airlines, with higher expectations from the travel industry after the disruption of the coronavirus. Customers have long expected a more personalized, “concierge-like” service from airlines, but often legacy technology, siloed organizations, and non-airline direct distribution strategies have made it difficult for airlines to build digital relationships and keep up with Customer demands.
If we look outside the world of airlines, we have seen unprecedented changes in other industries, such as telecommunications (iPhone), music (Spotify/iTunes), movies (Netflix), tv (Hulu), and even within travel, we have seen disruptors such as Uber and Airbnb bring new business models and ideas to the travel industry. We’ve all become accustomed to being able to listen to any song, at any time, and without having to take out our credit card. When Spotify recommends a new music artist, playlist or genre, we don’t question it, because we know that their product understands our musical tastes based on previous music that we have played. When is the last time, you felt that an airline recommendation understood your needs as well as a Spotify or Netflix recommendation?
One of the attributes that all of these new generation businesses have in common is deep, digital connections that give them an understanding of their Customers. They know when a Customer is using their products or services, who they are, where they are located, and all of their previous purchases and actions. In addition, these companies make it mandatory to be connected via an account profile to utilize their services and payment is something that is set up once, at the beginning of the relationship, and that takes place behind the scenes for all subsequent purchases.
Unlimited Flight Passes
One form of a prepaid voucher (covered in Part 1) is an unlimited flight pass. Most unlimited flight pass options available today have been launched by low-cost carriers like AirAsia, Azul, and Volaris but If you look back to the ’80s and ’90s, American Airlines offered one of the first unlimited airline passes, the AAirpass for $250,000, which was sold as an unlimited, first-class ticket for life. It was offered until 1994 and purchased by 28 individuals including Mark Cuban and Michael Dell.
In our recent survey, 72% said that they would consider buying a yearly unlimited airline subscription or pass for a flat fee. For an economy seat 28% were willing to pay 500 to 1000 euros, 25% 1000 to 2000 euros, 23% 3000 to 4000 euros, with 15% willing to pay 3000 to 5000 euros. For a business seat 33% were willing to pay 5000 euros, 41% 5000 to 10,000 euros, 18% 10,000 to 15,000 euros, with 7% willing to pay 15,000 euros or more.
One of the best examples of an airline utilizing alternative retail models is Volaris. The Mexican budget carrier offers a V.Pass (thanks Paul Byrne) which they market as a “subscription” allowing Customers to reserve discounted direct flights for $299 MXN pesos ($11 euros) per month. The monthly payment is fixed and automatically charged every month for a year. To book, a Customer must be logged in, then they simply choose their flight and only pay for taxes or for additional ancillaries. If a Customer needs more than one flight per month they are also enrolled in the Volaris V.Club Membership which allows them to book additional flights at special membership rates.
Phocuswire referred to the Volaris program in their article “Creating a Netflix-for-airlines loyalty model at $30/month” and noted that Volaris had sold more than 3000 subscriptions in 2018.
“Juliana Ramirez, business development senior manager at Volaris, says the V.Pass service gives the airline predictable cash flow as well as an ability to introduce cluster pricing and offload distressed inventory.”
“Revenue management is a key part of this project. The team has defined the right price point and they continue to be open to testing things out. Our approach with V.pass has been rather flexible and we have opened it up for learning purposes.”
(Note: For more information on the Volaris V.Pass program, check out this interview with Volaris Executive Vice President Holger Blankeinstein.)
AirAsia X made headlines in early March offering a $118 USD “fly as much as you want” pass that offers unlimited long haul flights (must be over 4 hours) for a year within the Asia-Pacific region. As expected from a low-cost carrier, the pass covers only the base seat fare and excludes airport charges, taxes, regulatory fees and all ancillary items such as seat selection, checked baggage and meals. This isn’t AirAsia’s first attempt at offering alternative ways to purchase flights. Back in 2017, AirAsia offered the ASEAN Pass which offered 10 flights in 30 days or 20 flights in 60 days starting around $290 USD.
Edmonton-based Flair Airlines announced in February that it was offering passengers unlimited flights for three months for $700 CAD or a $500 version with blackout dates which includes Fridays and Sundays. Both versions of the pass do not include taxes and fees. The flight pass was aimed at students, small-business owners and families for whom more frequent visits or an extra getaway would otherwise be unaffordable. According to a note recently posted on their website, the airline has sold out of the “Go Travel Pass.”
Azul has an Airpass which offers unlimited destinations inside Brazil for 10 days for $399 or 21 days for $499. The pass was created for tourists visiting Brazil who need the flexibility and freedom to explore the country at a set discounted price.
Unlimited flight passes have many advantages for both the airline and the Customer. While it might not be the best time to sell an unlimited “forever” flight pass, the willingness of Customers to spend thousands of euros upfront to buy yearly or seasonally unlimited flight passes is clearly there and could help with an airline's financial rebound.
For airlines, an unlimited flight pass generates immediate revenue, establishes an economic indicator for a known period of time, and creates instant Customer loyalty. An unlimited flight pass also creates an opportunity for the airline to establish a much needed, personalized relationship with the Customer, in which they can cater to their airline ancillary and 3rd party ancillary offerings based on their previous booking habits and purchase patterns. The airline can then use dynamically priced ancillary offerings to maximize revenues via flight add-ons and upgrades.
On the Customer side, an unlimited flight pass provides unparalleled flexibility and freedom to travel when and how they want. Since an unlimited flight pass would be assigned to a particular Customer, there would be no need to enter passenger details or payment data which would make reserving or booking a flight extremely fast and hassle-free. In addition, modifications and cancelations would not have to take into consideration financial reconciliation, providing additional flexibility to the Customer and reducing Customer service time by the airline.
Many airlines may fear that unlimited yearly flight passes or subscriptions may jeopardize their revenue, but I would argue that the digital relationship established with the Customer and the corresponding, personal add-on products they can offer to them will create more revenue while building true, locked in Customer loyalty. Let’s use an example from outside of the travel industry- Apple iTunes. At first, Apple offered me a personal account which allowed me to listen to and download unlimited music at a set price. Apple then got me hooked on their product and soon they started offering add on services at additional fees, such as a Family Plan, based on what they knew about my personal situation. I added an additional recurring service with the click of one button and no mention or hassle of payment.
Pay as you Go (FLY)
Subscription-based services and automatic payments are found throughout our daily lives, from Apple to Spotify to Netflix to Uber, but they are scarcely found in airline consumer retail offerings. Uber is probably one of the most well-known examples of a travel industry application and service where Customer profiles and payment options are preconfigured for seamless ground transportation and post-trip payment.
Several airlines have offered “pay as you go” services in the past, such as Lufthansa and Scandinavian Airlines (SAS), but the features were offered primarily via corporate or business programs only, not through their core retail offerings for consumers.
Similar to Unlimited Flight Passes, subscription-based travel has the opportunity to offer huge benefits to both airlines and Customers. With the use of pre-stored user profiles, preferences, and payment details, Customers can skip much of the traditional airline booking process, offering much-needed flexibility and saving time.
Book Now, Pay Later
For airlines who want to provide consumers looking to take advantage of low fares now, but want to pay for flights over time, they should consider “book now, pay later” programs. Several airlines including British Airways, American Airlines, KLM, and Southwest offer a form of payment that allows Customers to pay for flights over a period of months.
British Airways offers Customers the option to book online with nothing more than a low deposit if you book a package, either a flight + hotel or flight + car. American Airlines has a “Fly Now Payment Plan” which gives you six months to pay off the flight without any interest for Customers with an American Airlines Credit Card. KLM allows you to checkout with PayPal and choose ‘Bill Me Later.” giving you six months to pay off the balance with no interest.
For those Customers who are anxious to fly after being confined in their homes for weeks or months, but without the necessary budget to do so, this option may be the best to increase the Customers willingness to book without having to pay for the entire flight upfront and all at once. Research also shows that Customers who pay for purchases using credit often spend more than those who pay with cash and derive more enjoyment out of what they consume because they are decoupled from the stress of how much the travel costs.
Change In Retailing Is Welcome
It is clear from our survey results and the multitude of ideas that we have received from others, that now is a good time for airlines to introduce new ways to sell a seat on a plane- with only 9% of those surveyed saying they prefer to book a flight the way they are currently sold.
In our survey, when we asked participants which alternative flight booking product they would prefer, 30% preferred prepaid discounted flight vouchers that could be redeemed within a two year period, 22% said an unlimited one year flight pass, and 19% said airline memberships.
Customers have long desired more personalized services from airlines and with this pause in travel, it creates an opportunity for airlines to look at new revenue streams and reconsider how they offer their products. The first step in making many of these ideas come to life though is making Customer profiles and authentication a top priority.
You can find the full results of the survey on the infographic below:
If you haven’t already taken the survey or submitted your ideas it is still available here: https://www.surveymonkey.com/r/airline_models
