Over the last two decades, major U.S. airlines have tended to get lumped together. Until recently, little differentiation in customer service and equipment has caused airline seats to be viewed as a commodity, as indistinguishable as an ear of corn. Perhaps it’s because since deregulation, seat pricing has increasingly been a matching game, with pricing moving up and down in unison. Or because many travelers assume every airline is about the same when it comes to the dreaded late arrivals, long waits on the tarmac and lost luggage.
Obviously, some carriers are increasingly focused on providing an improved customer service, and this focus is reaping some results in terms of product/service differentiation. But if major airlines are still somewhat viewed much the same, particularly when it comes to the price of a seat, how can airlines differentiate themselves to entice fresh customers? Beyond customer service, there are several Revenue Management strategies that can help airlines achieve that differentiation and drive up the coveted metric of Revenue per Available Seat Mile (RASM).
- Say goodbye to only à la carte options, and hello to dynamic bundling: Airlines have aggressively moved toward bundling their products, from upgraded coach seats and baggage to Wi-Fi and extra loyalty points. Hence the roughly $60 billion in ancillary revenue they were expected to generate in 2015. Yet much more can be done, especially with dynamic bundling, which is the best way to take static products and make them personalized. To achieve dynamic bundling, airlines must to go a granular level of analysis, focusing their attention on micro-segmentation and predictive analytics. This process will focus their attention on offering relevant packages to individual customers, ensuring the offering is both appropriate and at the right price point.
- Leverage customer loyalty and rankings: Instead of bemoaning the latest customer-satisfaction surveys, airlines should use them to their advantage. Based on the chart below, Alaska and Delta Air Lines should have premium pricing because of their lofty performance. Fliers flock to these airlines because of their superior service and presumably will pay more for the better treatment. Even those at the bottom can use it to their advantage. Former Spirit Airlines CEO Ben Baldanza often boasted that his airline, frequently at the bottom of consumer rankings, was the most desirable based on the measure its customers cared about most: the seat price.
- Think customer brand building, not added costs: Airlines need to move away from being a commodity and towards being an experience. It’s not just about the seat anymore. We hear more and more about airlines upping the experience, such as JetBlue announcing a redesign of its cabins to focus on greater connectivity (including more Wi-Fi and brand new 10-inch TV screens) and more space for passengers. Additionally, JetBlue and Virgin America are outfitting cabins with expansive LED lighting, Virgin is enabling passengers to stream content from Netflix, and several airlines (and airports) are offering pre-ordering of food and beverages. And there’s more to come, say industry experts, who predict we’ll see more seatback self-service menus, onboard concierges, and personalized offers.
Airlines that execute these strategies will differentiate themselves from their peers, which isn’t easy in this follow-the-leader industry. By differentiating, airlines can distinguish themselves from the competition, commanding a premium for their product, and propelling organic revenue growth to even greater heights.