LSE Sky High Economics Chapter 3 Condensed Read
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Chapter Three: Capitalising on Changing Passenger Behaviour in a Connected World A CONDENSED READ In association with SKY HIGH ECONOMICS SUMMARY | CHAPTER THREE Inflight Wi-Fi is set to reshape“ the relationship between passenger and airline by creating a wealth of opportunities for tailored interactions that build positive brand perception. Dominic Walters Vice President Inmarsat Aviation 2 SKY HIGH ECONOMICS SUMMARY | CHAPTER THREE The aircraft cabin isn’t ready for the next generation of always-on passengers To date, the adoption of connectivity That combination has set consumer generate $30 billion in additional revenue in the cabin has been patchy and expectations on a constant climb.” 1 for airlines by 2035. Adapting to the inconsistent, but the need for airlines behaviours of digitally savvy passengers to adopt a digital mindset is becoming In the cabin, this “constant climb” of will be key to unlocking these lucrative more urgent. passenger expectation for personalised, new revenue streams, while gaining on demand services is yet to be met. market share from competitors. This Within the next decade, Generation Z But inflight Wi-Fi is set to reshape chapter predicts that - in addition to the (born between 1997-2012) and Next Gen the relationship between passenger multi-billion dollar revenue opportunity (born after 2010) will together comprise and airline by creating a wealth of identified in Chapter One - an annual the largest group of airline passengers opportunities for tailored interactions $33 billion in market share is on the table worldwide, with a small overlap between that build positive brand perception. today, to be won by airlines developing the age of these cohorts. In turn, the the connected inflight experiences that Personalised, relevant services will move digital natives will soon become the passengers want. industry’s prime customer base. to the forefront of passenger experience, echoing developments in terrestrial In a competitive landscape, that’s $33 Paired with this demographic technology. Just as Uber and Netflix billion to be won, and equally, $33 billion shift, the ‘always-on’ culture that is revolutionised the public transport to be lost. The key is to be on the right pervasive across all passenger groups and entertainment sectors, instant and side of the equation. is transferring to the cabin, driving value-added connected services will expectations of inflight experience. define the future of the cabin experience. Both the technology and infrastructure When it comes to being connected, The airlines that introduce the most are ready to meet the expectations of today’s passengers no longer want to be innovative, differentiating services, from always-on travellers. Airlines that act limited. streamed entertainment to e-commerce, now stand ready to gain a substantial stand to gain a major competitive competitive advantage over their peers, Against the backdrop of major advantage. becoming the dominant airlines of the demographic change and disruption, future. the ‘old rules’ of customer loyalty apply So, what could this near-future look like less. Rewards alone don’t create a for passengers? Is the industry ready for the challenge? favourite brand. Millennials (the largest air passenger group today, born between Increased data access allows airlines Dominic Walters 1981-1996) value loyalty less than any to develop detailed passenger profiles Vice President previous generation – a trend set only to based on preferences and past activity. Inmarsat Aviation continue with younger generations. Using this information, airlines could serve each passenger a catalogue The next decade therefore presents both of targeted destination offers and a large opportunity and challenge for products that can be ordered inflight the industry. To gain market share and and delivered to the gate. They could stay relevant in a competitive industry be prompted to pick up where they left landscape, airlines must adapt to the off on a film they were streaming before behaviours and expectations of today’s the flight. They could be kept up to date and tomorrow’s passengers. with travel information, including arrival times, onwards journey options and As observed from the evolution of baggage tracking. They could earn back technology on the ground in Accenture’s valuable time before their trip, safe in the 2019 Technology Trends report: knowledge that their hire car, destination experiences and dinner reservations can “new technologies allow consumers be arranged from their seat. to access personalised products and services on demand, and they also enable Sky High Economics - Chapter One businesses to produce customisable forecast that broadband in the sky will products more quickly and inexpensively. 1 https://www.accenture.com/gb-en/insights/ technology/on-demand-services-demand-forecasting 3 SKY HIGH ECONOMICS SUMMARY | CHAPTER THREE Adapting to modern passenger behaviour is the key to unlocking an immediate $33 billion in airline market share In an age where quality internet 2028, these groups will each access is an expectation of life account for around 1.2 billion “Today we are serving on the ground, passengers are passengers flying each year. an informed, tech savvy, now demanding the same level demanding customer. For these groups, ‘always-on’ of connectivity in the sky. Added We understand the behaviours extend to almost service expectation can to the widespread and growing every area of daily life, thanks to be delivered by working appetite for connectivity is a vastly the proliferation of social media smart. We recognise changing passenger demographic, and penetration of smartphones. that technology can which is accelerating demand at As a result, most industries have bring the speed and pace. There is a huge opportunity experienced some level of digital sophistication to serve for airlines to gain market share by today’s customer.” disruption, and the travel industry capitalising on growing demand for is now also seeing a seismic shift inflight Wi-Fi, and the possibilities in behaviour. At the same time, for service innovation that it brings. C. Olagama, Head of Cabin passenger loyalty is changing as A new generation of air travellers Services, SriLankan Airlines. younger generations show lower Millennials currently comprise the levels of loyal behaviour compared largest passenger group globally: with Baby Boomers. offer frequent flyer schemes. more than a billion travel each year, Millennials are more likely to be taking 44% more holidays than In order to win the loyalty in the half of travellers who don’t Baby Boomers. Hot on their heels of today’s and tomorrow’s belong to a loyalty scheme, for to become the largest passenger passengers, these new drivers of reasons including a preference to groups within the next decade are passenger satisfaction need to be maximise travel budgets and fly the digitally native generations: addressed. with low cost carriers who do not Generation Z and Next Gen. By 7,000,000,000 6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000,000 0 2018 2028 2050 Baby Boomers Generation X Millennials Generation Z NextGen 4 SKY HIGH ECONOMICS SUMMARY | CHAPTER THREE Passenger loyalty: airlines that realise its potential to act now stand to gain the lion’s rewriting the rulebook enhance loyalty by meeting the share of the prize. demands of modern passengers. Only one third of passengers Sky High Economics - Chapter believe that what makes them Three forecasts the value of the The near future: service loyal to a brand today is the same proportion of global passengers innovation as it was three years ago. Such that would choose to fly with an behavioural changes provide the airline offering inflight Wi-Fi over Simply offering inflight Wi-Fi is incentive for airlines and partners one that does not, predicting that a differentiator now, but it won’t to evolve traditional loyalty today, an annual $33 billion is ‘up always be. The trend for Wi-Fi in schemes by placing engaged, for grabs’ – equal to 6% of total the skies is mirroring the evolution personal relationships at the fore. market share. This is modelled of connectivity in other sectors The new drivers of airline loyalty using data from frequent flyer such as hotels, where access to the encompass a combination of schemes to assess the proportion internet has become a minimum exciting and engaging inflight of active members who generate expectation, rather than a purchase experiences, personalisation the majority of airline revenue driver. before, during and after the flight, through frequent flights. The as well as making the flight a more total market is split into active, significant component of the wider engaged frequent flyers (13%) journey. The impact of enhancing and less engaged, brand-agnostic High-bandwidth Wi-Fi with loyalty through service innovation passengers (87%). consistent coverage is crucial will be huge. McKinsey and Co Less engaged travellers – many of to meet the demands of data- estimates that loyalty programmes whom are younger flyers with new hungry passengers – but adopting can generate 20% of a company’s expectations of travel – present the technology is just the start. profits, with customer satisfaction the largest opportunity for airlines In order to monetise passenger increasingly recognised as a key to gain market share. Though they opportunities and unlock the enabler of loyalty. For airlines, the may travel less often than engaged maximum value of personalised opportunity can be split into two flyers, the attraction of many such engagement, airlines must adopt stages: the immediate, and the near passengers will have a significant future. impact on an airline’s revenue and “As consumers profit. Today, 12% of passengers are The immediate become accustomed to willing to switch airlines to one that opportunity: the switch customisation in other offers reliable Wi-Fi. This market The previous chapters of Sky share is immediately on the table parts of their lives- High Economics established that for airlines already offering quality banking, retail, dining - connectivity can unlock unrealised Wi-Fi to take from competitors.