Loyalty has been at the heart of many business strategies over the past couple of decades. This has been particularly true for the airline sector where special departments at major carriers have been working hard to remain attractive to commercially import passengers (CIPs) as much as the very important people (VIP) market that for so long had been their focus.
Just as that wave, supported mainly by air mile schemes and loyalty offers, has been successfully surfed, a much larger wave that has been on the horizon for some time is getting close and many believe that airlines need to move much more quickly than we are currently seeing in order to meet the needs of future travellers.
It is clear that traditional customer loyalty schemes are beginning to lose their allure. While many regular travellers may have a preferred airline, many other factors are now driving the flight purchase decision and the old pull of loyalty is not as strong. Millennials – those who were born between 1981 and 1996 and form the largest air passenger group today – value loyalty less than any previous generation.
But as they adapt to meet the needs of Millennials, airlines also now need to more carefully consider the generations that follow – Generation Z (born from 1997 to 2012) and Next Gen (2010 to 2025). Within a decade they will outnumber Millennials and will each account for around 1.2 billion passengers flying every year. It is anticipated that they will also continue the trend away from loyalty schemes, creating more question marks for future airline strategies.
CHART – Airlines need to capitalise on changing passenger behaviour in a connected world, something that will be come increasingly important as new generations become the dominant travellers in future decadesSource: Knomea and London School of Economics research
A new report from the London School of Economics in collaboration with technology provider Inmarsat Aviation says that airlines need to satisfy the needs of current passengers, while also working to support the needs of future customers. “An understanding of both is crucial for airlines that hope to thrive – or even survive – in the coming decade,” it says.
The publication, ‘Sky High Economics’, says that 87% of passengers are not engaged with a particular airline and younger generations in particular “are frustrated if they cannot seamlessly migrate their ‘always on’ connected lifestyles from the ground to the air, and search, stream, shop and socially interact online like they do in the rest of their lives”.
It says that airlines that allow them to do that will “engender a new kind of loyalty – one that doesn’t depend on points and incentives but stems from ‘delighting’ these passengers by satisfying their needs.”
Naturally for a study supported by provider Inmarsat Aviation, it highlights that this new kind of loyalty will be enabled by high-quality onboard connectivity, but it quite clearly is something that ultimately represents a major revenue opportunity for airlines that are ready to adapt.
It predicts that USD30 billion of ancillary revenue “could be generated from broadband in the sky by 2035,” while by capitalising on changing passenger behaviour in a connected world a further USD33 billion annually could be won by airlines building market share because “they offer the kind of connected inflight experiences that this new breed of passenger wants”.
To achieve this, as has been discussed at many CAPA – Centre for Aviation events this year, airlines need to adopt the mindset of retailers and understand the many opportunities reliable inflight Wi-Fi represents. The report notes that on the ground, consumers are becoming ever more accustomed to personalised products and services, and “high-quality onboard Wi-Fi will likewise allow airlines to create tailored interactions with passengers that bring ‘delight’ and lead to action”.
“These instant, value-added, connected services will define the future of the cabin experience, and those airlines that are able to innovate and differentiate their services the most will gain a major competitive advantage,” it adds.
The report focuses on that 87% of passengers who are not engaged, frequent flyers but fly occasionally and tend to be brand-agnostic, many of whom are younger travellers. Attracting even a fraction of them would clearly have a significant impact on an airline’s revenue and profits. Certainly something that airlines will want and ultimately need to be watching closely, especially, as the report notes, that USD33 billion market is predicted to grow to USD45 billion in the next decade.