Going the extra mile: can airlines differentiate, so bookers become less rational?
Price and schedule are the most influential factors for travellers booking a flight but does it have to be this way? Tom Bacon shares his thoughts
Can we drive travellers to be less rational? It was a question posed by Tim Mape, Delta Airlines’ Senior Vice President and Chief Marketing and Communications Officer, at the recent Boyd International Aviation Forecast Summit in Las Vegas.
The question seemed to expose our obsession with big data analytics. Airlines use sophisticated analytical optimisation models for pricing, for scheduling, for fleet planning, and for customer relationship management. The models have evolved over the decades – increasingly complex, continuously incorporating new factors, and potentially operating beyond the full understanding of analysts. As Mapes observed, with their intense modelling, airlines migrate to a fairly simple formula for attracting customers: good schedule, competitive fares, and a strong frequent flyer programme. This results in sophisticated pricing models whereby airlines offer low fares only when they need to or they might offer a new basic economy product definition to compete effectively against ultra-low cost carriers. On the other hand, airlines might seek to increase market share by dominating a particular market or reducing service if they aren’t a clear leader.
Sticking with schedule and price
Schedule planning and revenue management, for example, taps into huge market and customer databases and finely tuned optimisation models to support any small change. Such algorithms are fundamentally based on the view that price and schedule together drive optimal revenue performance: many leisure travellers choose the lowest fare independent of the carrier and most business travellers, who are less price sensitive, take schedules seriously; they will take the 8am flight no matter what. Of course, the models also incorporate loyalty but this, too, is essentially a function of the schedule (the best schedule in a city attracts the most frequent flyers).
In these optimisation models, the customer experience is often more of a threshold issue than a true differentiator. Reliability – as measured by on-time performance – is considered the most important factor for traveller satisfaction, but its value as a differentiator is limited. Airline performance on reliability largely falls within a narrow range with no airline consistently achieving significantly higher reliability than another (except Hawaiian, which benefits from much better weather). Initially, Spirit Airlines scored much worse than other airlines in on-time performance; as such, it was deemed inferior and largely ignored by the legacy carriers. Over the past few years as Spirit has focused more on reliability, it has received more aggressive price matching by the larger airlines.
In Mapes’ view, there can be more to customer purchase decisions than a rational – or analytically calculated – comparison of fares, schedule and frequent flyer programmes. Potentially, rather than estimating price elasticity – between competitor services and one’s own, between the peak flight and an off-peak flight, between connect services and nonstop – airlines might be able to change price elasticity, biasing the decision irrationally in one airline’s favour.
Mapes cited Starbucks as a prime example of irrational decision making. A $5 latte should, rationally, have no market if there are one-dollar coffee-with-milk alternatives available nearby. Clearly, Delta wouldn’t mind travellers selecting its services more irrationally, with less consideration of alternative schedules and fares!
Of course, every airline strives to differentiate itself. Every airline would like customers to always choose their service over another. And some airlines do offer more pitch in coach, or a more comfortable business class seats, or a more pleasant boarding experience. Most of these efforts, however, prove elusive in terms of true differentiation; most successful product or service initiatives, are quickly copied by competitors! On the other hand, it is found that the most price sensitive travellers still choose the lowest fare in spite of the differences.
In his presentation at the Boyd conference, Mapes wasn’t signalling that Delta had a secret new product feature in the works. Instead, he clearly was pointing to a broader view of the experience, rather than just the hard product, one built on a deeper relationship between the traveller and the airline. This includes the unique value of frontline employees in creating a better travel experience for travelers.
Almost the same week as Mapes’ presentation in Las Vegas, Delta announced a 4% surprise pay raise for flight attendants and ground employees. Delta believes that a culture of putting employees first underpins the culture of treating customers better. Delta is striving for a culture where employees go the extra mile for travellers and for each other. Can this strategy result in a deeper relationship with travellers? Perhaps. Can this in turn drive travellers to Delta’s flights - even if the fare is a bit higher or the flight time a bit less convenient?
Can Delta really make customer decision-making just a bit less rational?
Tom Bacon has been in the business for 25 years. When he isn’t penning his regular column for EyeforTravel, he is an industry consultant in revenue optimisation, and leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Want to find out more? Email Tom or visit his website