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Digital Transformation in the airline industry

Driven by integration and people, not technology

The ongoing digital transformation trend is significantly driving the competitive landscape in the airline industry, changing customer needs and the way we work. Digital transformation in all its forms will not change our lives – it has already changed them. New platform-based business models are aggressively disrupting entire industries without operating any physical assets, while airlines will continue to rely on their physical product. In order to stay competitive, airlines are therefore focusing on digital services and aiming for best-in-class quality while targeting the lowest possible operating cost levels.

Digital transformation is about integration, interaction and synchronization

Technology drives revenues, profitability and company value. Since it plays a major role in digital transformation, it should follow a clear digital strategy and support the company’s underlying business model – not the other way around. However, digital transformation often begins to struggle when it comes to implementating it at the operational level. An isolated focus on internal optimization projects, a lack of cross-functional collaboration, excessive siloing, exhausting long-term waterfall projects and complex legacy systems inherited “from the old days” provide excellent fuel for cultural resistance and significantly slow down transformation. Hence digital transformation requires more than the mere implementation of new digital tools and automating processes. It is truly about bonding travelers to the airline through customer-centric digital products and services, synchronizing the customer experience with the airline business model and dealing with cultural change. In this article, the impact and implications are set into a digital transformation framework, and recommendations as to how to overcome challenges by adopting an integrative business model approach are presented.

Understanding what really drives value

Digital transformation enables airlines to fundamentally redesign their business models and deliver an excellent customer experience. The starting point is understanding the customer journey within the travel ecosystem and recognizing all customer interactions across offline and online touch-points. Digital transformation also enables airlines to rethink the way in which their operations are currently executed and thus impact their business excellence model. The primary focus here is on reshaping the airline´s value chain and understanding that corporate culture is a key success driver.

Given that airlines make a major contribution to the customer journey and will continue to control the touchpoints that intermediates will find difficult to enter, they will look for disruptive models that close identified gaps. Travelers now want to create their own seamless end-to-end journey, and airlines in the digital age are placed in the middle as the main value creator. From an airline’s perspective, developing an integrated plug-and-play airline business model that connects and seamlessly integrates strategic eco-system partners and enables them share data-based customer insights is crucial. Data gathering, sharing and ownership still involve a certain amount of legal uncertainty– nevertheless, data “access” is more likely to become the future bottleneck.

From the customer perspective, it is essential for an airline to understand customer needs and preferences. Personalization is a good example of what airline managers regard as a must-have. The extent to which expensive data analytics and personalization actually pay off in terms of additional revenue is open to question. The majority of air travelers either fly very infrequently and only have a few interactions per year, or they fly frequently and engage in numerous interactions. However, while infrequent travelers are not likely to provide meaningful customer insights, frequent travelers are likely to adhere to a rigid time schedule and therefore do not take personalized offerings into consideration. So it is not necessarily a matter of applying the most advanced technologies. What is important is to identify the “real” needs that drive value from a customer perspective and to close these gaps first. 

How excellence is triggered

An airline’s core function is to operate aircraft to transport passengers. Profitability is therefore highly dependent on asset utilization and its main underlying cost drivers: cockpit and cabin crew, fuel and MRO. With regards to aircraft operations, digital transformation has already been successful in triggering implementation. Tablets enable faster information sharing, speed up operational processes and result in paperless operations that positively impact fuel consumption. Predictive maintenance focuses on unplanned aircraft downtimes and therefore contributes positively to asset utilization and cost reduction. Nevertheless, traditional business functions such as marketing, sales or accounting are treated in isolation even though they are part of the overall value chain. It is thus a case of streamlining functional areas and breaking down silos. Creating a technology map makes internal data sharing opportunities transparent, helps to identify consolidation potentials and allows better alignment of functional areas within the airline and of touch points across the customer journey. 

Digital transformation needs people who understand the value chain, how technology works and how it can be applied to create more value. Yet streamlining an organization involves another aspect that is triggered by digital transformation: culture. Technology seems to evolve faster than the workforce is capable of doing. Cultural resistance creates barriers that have a negative impact on digital transformation and therefore cannot be ignored. To overcome resistance towards digital transformation, it is important to move away from a silo mentality towards a more customer-centric, collaborative way of working. This requires a commitment to top-down change that promotes workforce reskilling through education and training, rotation programs and the development of new roles and responsibilities that will support a digital future.

Understanding synchronization

Digital transformation is complex, multidisciplinary and highly dependent on an organization’s readiness for change. Airlines now operate in both digital and non-digital environments. This demands an integrated airline business model that enables seamless interaction and synchronization between the customer journey and travel-ecosystem dimensions and the internal airline organization. In addition to their business model, airlines need to establish a central monitoring function to provide intelligence for data-driven decision making. Airlines have to understand the need to change their mindset from an isolated “airline journey” to a “customer centric” travel-ecosystem that only comes alive through close collaboration with strategic partners. Integration, synchronization and data-driven intelligence will enable more precise and effective implementation of technologies in order to continuously improve the customer experience and create the most efficient processes to promote business excellence. The selection and application of new technology then has to be driven by the airline’s competitive environment and its underlying business model, not the other way around. Finally, airlines need to take the implications of cultural change seriously – culture is not theoretical. Ultimately, people are the main drivers of digital transformation, not technology.

If you are interested how Lufthansa Consulting can support your airline with Digital Transformation and you would like to discuss the options available, please contact mail@lhconsulting.com

 

The Airline Digital Transformation Framework