Why airlines need to operate like tech companies but think like digital retailers
Today’s new reality: life in a much smarter society, with super connected consumers, half of all ticket sales sold online, huge choice of airlines and any information available in the internet at very low cost put customers in control. A number of key tech companies completely dominate our lives. Are tech companies and online retailers the ones to control customers and to win the battle for valuable customer data?
Amazon, the world’s biggest online retailer is building an airport in Ohio as an air cargo hub with $1.5 bn investment. Amazon is planning to support 100 planes, requiring pilots, aircraft mechanics, co-pilots, air traffic controllers and management wit this new venture. But they have also started domestic ticket sales in India, teaming up with OTA Cleartrip and offering better details for their Amazon Prime customers. Yet they do not own any of the expensive airline assets and regulatory problems — they just take the “cherry on the cake” and use their distribution power and offer convenience to travellers when booking with them.
Google recently launched /travel as their online travel service for flights, hotels and packages and keeps enhancing Maps with great travel and discovery features, replacing Google trips as the personal travel concierge. Both Amazon and Google like other online retailers do avoid the underlying complex and costly problems of airline operations and distribution.
And whilst airlines suffer only a few of them such as Ryanair, EasyJet and Air Asia have realised the power of acting as an online retailer and becoming part of the life of their customers. It is not a surprise that they are among the top performing airlines.
Nor is it a surprise that neither of the top airline and travel companies are in the top 100 list of companies with highest market valuation (Forbes 2019). Even when counting the top 4 airlines and the 2 biggest OTAs together they are less than 20% of Amazon market valuation alone. Are airlines missing the trick?
According to Sebastian Mikosz, Group MD & CEO at Kenya Airways, during his keynote speech at CAPA Seoul, airlines operate in a highly regulated environment with high fixed costs. They should think more like digital retailers to achieve favourable distribution margins and customer data. “If we do not adopt an OTA (online travel agency) business model, we will become subdivision of technology companies” he said.