Five tips from KLM a budding digital airline
These are turbulent times for airlines. There is major competition from low-cost airlines, that can offer a lower price thanks to the smart use of data. At the same time, they are faced with many fixed costs, such as personnel and airplanes. It appears to be a headlong flight. KLM has the ambition to become a digital airline. How will it achieve this? And what can we learn from this?
Winning or losing
The presentation of KLM’s half-year results is revealing. Pieter Elbers, KLM director, explains to his personnel in a letter where the organisation is at on the occasion of these figures:
“At the end of 2014 we were at a crossroads of winning or losing. Together we opted to win once again. Now — 2.5 years later — we can show that we ARE winning! Our good KLM half-year results are evidence that the chosen strategy — and primarily our consistent and mutual implementation — is working (…). Apart from the positive trend, it is important to also put things into perspective. We are still dealing with the large positive factor of fuel in our results and this is temporary. In addition, the competition continues to increase and this creates pressure on the revenue.” (Elbers, 2017)
Elbers has a number of strategies to help KLM forward, which are entirely based on digitisation. Below you can read how Elbers gives KLM wings — and what other organisations can learn from this.
1: Focus on innovation
“Earlier this month KLM was crowned the best European airline in digital marketing and social media at the Airline Strategy Awards in London. We were praised for our creative campaigns which promote the engagement of customers. A nice example of how digitisation, social media and customer experience on board are all an integral part of the KLM brand.”
Internally, KLM is also fully going for digitisation: “In the first six months we have spent approximately 8 million euros on operational functionalities, such as Appy2Help, Apron app and I-Mech. For the second half of the year, another 10 million euros is planned, for MyFlight, MyCargo and EPS, among other things. We will also experiment with deploying new technologies such as augmented reality, blockchain and artificial intelligence. The end user is central to this, where we research which digital tools support us best in our daily work.”
Commendable about the abovementioned strategy is this: KLM does not choose for technological innovations simply because they are innovations. The tools must contribute to the goals of the organisation and the staff’s daily work. An app is namely not a goal, but a means. In addition, it is also worthwhile to focus on social media and digital marketing — but an airline must also be concerned with the reality in the plane.
2: Be where your customers are
The launching of apps is to be commended, but not enough. Tjalling Smit, SVP Digital of Air France KLM, is also aware that he has to look further than his app — and that KLM has to be where its customers are: “On average, people spend three to five hours on their mobile phone a day — they spend a large amount of their lives using it and manage their daily lives on it. Of the 50 apps they have on their telephone, they use ten on a regular basis, with an average of 3–5 apps a day. The rest is used maybe once a year. Unfortunately, our app is in that segment.” (Hundepool, 2016).
That is why KLM is increasingly more present where the customer is, who is on platforms such as Facebook Messenger and WhatsApp. Smit: “The functionalities are still limited in the Western world, but countries such as China and South Korea are at least two years ahead of us in the area of digital. In China, people manage their entire lives via the umbrella platform WeChat. WhatsApp and Facebook Messenger have the ambition to go in the same direction as WeChat. Because we realise that the reach of our own website and app is very limited, we want to make our booking functionality accessible on as many external platforms as possible.”
KLM therefore made it possible to buy tickets via Facebook Messenger from September 2017. Previously, KLM passengers were able to receive their travel documents, such as booking data and boarding pass, via Facebook Messenger as well. KLM was the first airline globally, and the first company outside the US, that made these functionalities available in Messenger. “I am convinced that giants such as Google and Facebook, also the owner of WhatsApp, are aiming for world domination”, states Smit.
That is why he has quickly entered discussions with them — and it is paying off. “The service via Facebook Messenger is not exclusive for KLM use, but has been developed together with us. Our point of departure is that we want to be everywhere that our customers are. If a new platform arrives onto the market tomorrow, we will also be ready to enter it.”
3: Digitisation of the organisation and talents
The abovementioned examples — apps, social media, digital marketing — are however, primarily examples of digitisation on the outside of the airline. There are currently still many analogue cogs under the bonnet of the organisation that also have to become digital.
Elbers seems to be aware of that reality as well: “While at first scale was the most important cost driver, we now move to a new era in which agility is the most important driver. That is why we have to review and digitise our internal work methods. IT and digital are increasingly becoming a part of the KLM brand and of distinctive features with regards to our competitors. In order to react fast, IT capabilities are essential for frontline colleagues.”
Notice that it not only concerns KLM’s work methods. Elbers explicitly refers to frontline colleagues that must have IT capabilities. Technology only offers technological capabilities; technology is only of value if it is used by staff. A digital mindset is needed for this.
The fact that staff can submit ideas in the ‘CEO idea box on Yammer (the intranet)’ ensures that the theme will become increasingly relevant with the KLM workforce. It is innovative that other colleagues can respond to those ideas. Elbers: “Good ideas are enriched in this manner. I am also planning to regularly take a look in this group and hope for the same success as we had with the CEO mailbox.”
4: Dare to start over
“Because we can never be critical enough, I always ask myself the question ‘what would I do if we could build the company now?’. While this is impossible for many things, it does provide a good starting point for a discussion about how we can become faster and cheaper and can better respond to what the outside world asks of us.”
It is exactly this mindset that is required to get companies to innovate. Unhindered by legacy (an IT legacy from the past), frameworks from today or other obstacles, we can see a speck on the horizon. It is the Math Men mentality that Igor Beuker was talking about — and not the Mad Men mentality, that sees companies go under. Traditional companies in particular are hindered by the idea that something cannot be done. KLM benefits from identifying opportunities in something that has not been done before. This also allows KLM to let less successful initiatives go: KLM is no longer active as a customer service on LinkedIn.
5: Strive for complete customer profiles
“At the end of this year we will have a 360-degree view of 90 percent of our customers. The contact with KLM should be like a warm bath; whether it is on the ground or in the air, or when booking a ticket. We want to distinguish ourselves through customer intimacy and that is why we transform into a digital airline. Some people associate the word digital with cold, impersonal and business-like, but ‘digital’ actually allows us to develop a very personal relationship with our passengers. We are increasingly succeeding at having all the data that we get from passengers available in real-time.”
Collecting customer data has specific benefits for the passenger, explains Tjalling Smit: “Imagine that a passenger books via the website but gets stuck. The call centre recognises the customer when they call, can see what has gone wrong with the booking and solves the problem. Thanks to our platform we also know the preferences of the passenger, such as having an aisle seat or a vegetarian meal. If a passenger had an unpleasant experience during their previous flight — there was no special meal for instance — then the cabin staff are aware of this and can respond to this with a chat or a glass of champagne. We cannot ask our 9000 cabin attendants to remember someone’s data. But in time, we will be able to supply information to them digitally to be able to offer a personal service provision.”
This does not only offer benefits for the passenger, but also for the airline. By enriching customer profiles, it will actually be possible to develop new revenue models. In this case it would make sense to, for instance, offer rental cars, parking places at Schiphol or hotels at holiday destinations. These offers can be better targeted, when more is known about the customers.
From cost item to value
Internet, technology and social media are often seen as cost items. However, companies must focus on the digital world of the fan or customer. This will allow them to enter their company, organisation or brand in the ecosystem of the fan or customer. For this it is necessary to set up a separate department or ‘business unit’ within the group of companies, if you have multiple departments or companies. This department or ‘business unit’ has to be small, with organisational agility and focused on the creation of new opportunities for sources of income of the company. Actually, this department or ‘business unit’ should be run as a start-up.
With this department or ‘business unit’ you should teach your staff how to proceed digitally with the experiences of fans and customers. How can you connect with someone, who lives in the app economy, among other places? And how do you connect someone who lives within the internet and social media? Are these individuals the same or are they different? What are we going to do as a company to cultivate these types of relationships?
The data, which exists from the cultivation of the own digital ecosystem, must be considered a business model. This department or ‘business unit’ must be run as a separate company and must have a separate profit and loss calculation, in order to be self-sufficient, to transition from a cost item to a ‘profit centre’ and to add (new) value.
New value
Companies, which set up their online and social media landscape promptly (as KLM does) and by doing so manage their own ecosystem (within the entire internet ecosystem) will generate more value in the near future, for example, with financing by third parties, share issue or an IPO. Not only because the traceability and return of their digital activities will be higher than from companies which still do offline marketing. These companies enjoy, whether consciously or subconsciously, access to data from segments in which they operate.
Digital assets are the new value that now exists. The combination of real and potential means, which come from the offline and online presence in (social) networks and in ‘communities’, ensure this value. There exist various new indices in addition to existing indices, which offer additional (new) insights. For example, reputation is measured by ‘influence scores’ and efficiency become increasingly important, as they reach the threshold of accuracy. These indices display the potential of an organisation and with it form a new digital (financial) value component that becomes visible.
It should be clear that with digital communication, marketing and sales via the digital ecosystem, cash flows will be and become better measurable, than with these offline activities. Consider for instance a mailing or retrieve a connection with a fan or customer. Moreover, the reach can increase even more due to the fact that fans and customers wish to share their social life. Not only the first users and fans are reached, but also their friends and their networks. This significantly increases the market potential. In addition, with the presence of the current (analysis) software technologies, online marketing becomes far more transparent and better measurable than before thanks to advanced measuring tools.
Technology pays off with use
To keep proceeding with the current way of innovating (or worse: not yet opting for renewal) as you were always doing is not a good plan. The odds are that you will soon be caught up by small, flexible and agile companies that were not very visible yet, because in general they suddenly enter your industry from outside your market. Obviously with the goal of quickly destroying your market share in your market.
We are in the middle of a ‘Digital Revolution’. While a ‘discounted cash flow’-method will always remain the foundation of a company valuation, it is clear that the current methods and techniques of (integral) company valuations have to be examined. Historical figures and results from the past give increasingly less guarantees for the future. The company that has its digital ecosystem in order, cherishes its relationships with fans and customers and secures the data properly, strikes gold. Elbers seems to understand this.
“I have two priorities to remain successful: 1) ensure that we can make continued investments, in customers and staff and 2) create a culture and work methods in which we can innovate, at speed”, states Elbers.
Elbers shows that KLM is rapidly becoming a digital airline. After all, innovation starts with people. Technology only pays off when it is used. That is why an innovation culture is so important. Where KLM strives for complete customer profiles, which makes it possible to start using the Business Acceleration Framework. This framework helps organisations take off. The digital assets then come into sight. Even this airline can soar to new heights in this way.
- This post is a pre-read of Part 3 — Chapter 6 of my new book ‘Digital Assets’ the translation of the Dutch publication ‘Digitaal Vermogen’.
- Also read the publication ‘EDM and the Digital Domain’
