THE AIRLINE INDUSTRY: WAYS AHEAD
Apr 11, 2002 | 9:50 am
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THE AIRLINE INDUSTRY: WAYS AHEAD
THE AIRLINE INDUSTRY: WAYS AHEAD
by: Vladimir Dimitroff
Summary:
It is amazing how some observers, even reputable industry analysts still talk of ‘the 11th September impact on the airline and travel sector’, almost attributing to this single factor all the current troubles.
Body:
THE AIRLINE INDUSTRY: WAYS AHEAD
- Trouble began long before September:
It is amazing how some observers, even reputable industry analysts still talk of ‘the 11th September impact on the airline and travel sector’, almost attributing to this single factor all the current troubles. The well known truth is that the sector was experiencing severe problems long before the tragic events and the origins were identified in multiple areas from oil prices to over-regulation and from security/safety to industrial relations. Long before the 11th September, at the start of 2001, airlines were already expected to lose $3 billion by the end of the year; the dramatic events only pushed the snowball even faster.
- Three dimensions of competition:
Forced into a (reluctantly delayed) reaction, all airlines went into drastic cost-cutting, cancelling aircraft orders and shedding thousands of employees. In such frantic, almost instinctive reaction it is always possible to forget the long-term impact of such measures; it is also too easy to overlook the other dimensions of competitiveness. Best communicated in the Treacy & Wiersema book “The Discipline of Market Leaders”, there are (at least) three equally potent and important areas of excellence that leads to competitive edge: operational efficiency (demonstrated by the low-cost airlines and aspired by all others in their latest moves), product leadership (shelved indefinitely as inappropriate for the current times) and customer intimacy (another ‘poor relative’ whose potential is not quite understood).
- More to cost cutting than just jobs and planes:
In the cost reducing dimension alone, job cuts and freezing investment may not be the most constructive options. A considerable cost component is that of distribution. While many have recognised it and adopted strategies to reduce costs, it is not enough to limit travel agent’s involvement and commission, not even to offer Internet booking. It is clearly a way forward, as EasyJet proved, selling 85% of all seats online. That is, however the visible surface of a much deeper distribution model transformation. Under the pressure of more visible airline headaches, few people noticed a landmark move by Sabre, who sold its core IT infrastructure and outsourcing contracts to EDS to focus on travel product distribution in the new networked/distributed and interactive environment. The creation of Orbitz in the US and Opodo in Europe highlight the same trend: a shift from the traditional, supplier-driven model of commission-funded distribution, towards an evolving model that better reflects the economics of demand-response model.
- A dimension worth focusing on:
The new model is important for more than it’s cost-efficiency. It provides unparalleled dialogue potential, interactive capacity to individually understand customers and treat them differently. The grossly overlooked dimension of customer centricity is critically important in downturn times. A recent Peppers and Rogers (www.1to1.com) white paper, “CRM in a Downturn Economy” clearly shows three reasons to deepen customer focus in tough economic times:
- Managing relationships is an ‘inexpensive growth’ option directly improving business results with more efficiency and less waste.
- Investments in CRM process changes can be incremental, unlike most IT-led business efficiency improvements; each incremental investment generates immediate, measurable cash flow benefits.
- Locking in valuable customer relationships is a strategic capability, determining competitive performance; lacking or reduced relationship strength can be disastrous in times of negative growth.
The value of customer relationships is a recognised corporate asset. This “customer equity” is indispensable for improving growth and profitability prospects in ‘down’ times.
- Approach and action steps:
Airlines should consider downturn strategies that reflect the above trends and opportunities:
- Retention of the ‘Most Valuable’ customer segment should become a top priority, protecting the bulk of the company’s turnover and profits through loyalty incentives and personalised recognition and rewards.
- Growth should be sought within the existing customer base, a known quality that are easier to cross-sell and up-sell than newly acquired, unknown customers.
- Unprofitable customers should be converted more aggressively and cut off if profitability is impossible.
- Channels should be measured and used for their cost-efficiency rather than market reach, profitability rather than volume. Rapid migration to interactive distribution models becomes imperative. The dialogue/learning capabilities of new channels are to be exploited for better understanding of customer needs and reacting with relevant offerings.
- Alliances and partnerships have to enable the satisfying of more and more customer needs (share of customer) without investing in capacity.
- Recent investments in information and communication technology should be now exploited for maximum return, putting to work much of their under-utilised potential.
It has been argued that in downturn times competitive forces (unless hampered by government interventions) would balance the industry and strengthen it for growth. In such tough but healthy competition, airlines with the right mix of strategic vision, customer focus and change capability will survive and prosper.
Author: Vladimir Dimitroff
Vladimir Dimitroff is a senior CRM consultant, most recently at Peppers and Rogers Group - Europe, and has over 15 years experience in marketing and customer strategies within technology-intensive sectors. He can be contacted at : [email protected]
Source: http://www.zambeasy.com/top-consulta...play.asp?ID=57
Edited for UBB gremlins
[This message has been edited by MatthewClement (edited 04-11-2002).]
by: Vladimir Dimitroff
Summary:
It is amazing how some observers, even reputable industry analysts still talk of ‘the 11th September impact on the airline and travel sector’, almost attributing to this single factor all the current troubles.
Body:
THE AIRLINE INDUSTRY: WAYS AHEAD
- Trouble began long before September:
It is amazing how some observers, even reputable industry analysts still talk of ‘the 11th September impact on the airline and travel sector’, almost attributing to this single factor all the current troubles. The well known truth is that the sector was experiencing severe problems long before the tragic events and the origins were identified in multiple areas from oil prices to over-regulation and from security/safety to industrial relations. Long before the 11th September, at the start of 2001, airlines were already expected to lose $3 billion by the end of the year; the dramatic events only pushed the snowball even faster.
- Three dimensions of competition:
Forced into a (reluctantly delayed) reaction, all airlines went into drastic cost-cutting, cancelling aircraft orders and shedding thousands of employees. In such frantic, almost instinctive reaction it is always possible to forget the long-term impact of such measures; it is also too easy to overlook the other dimensions of competitiveness. Best communicated in the Treacy & Wiersema book “The Discipline of Market Leaders”, there are (at least) three equally potent and important areas of excellence that leads to competitive edge: operational efficiency (demonstrated by the low-cost airlines and aspired by all others in their latest moves), product leadership (shelved indefinitely as inappropriate for the current times) and customer intimacy (another ‘poor relative’ whose potential is not quite understood).
- More to cost cutting than just jobs and planes:
In the cost reducing dimension alone, job cuts and freezing investment may not be the most constructive options. A considerable cost component is that of distribution. While many have recognised it and adopted strategies to reduce costs, it is not enough to limit travel agent’s involvement and commission, not even to offer Internet booking. It is clearly a way forward, as EasyJet proved, selling 85% of all seats online. That is, however the visible surface of a much deeper distribution model transformation. Under the pressure of more visible airline headaches, few people noticed a landmark move by Sabre, who sold its core IT infrastructure and outsourcing contracts to EDS to focus on travel product distribution in the new networked/distributed and interactive environment. The creation of Orbitz in the US and Opodo in Europe highlight the same trend: a shift from the traditional, supplier-driven model of commission-funded distribution, towards an evolving model that better reflects the economics of demand-response model.
- A dimension worth focusing on:
The new model is important for more than it’s cost-efficiency. It provides unparalleled dialogue potential, interactive capacity to individually understand customers and treat them differently. The grossly overlooked dimension of customer centricity is critically important in downturn times. A recent Peppers and Rogers (www.1to1.com) white paper, “CRM in a Downturn Economy” clearly shows three reasons to deepen customer focus in tough economic times:
- Managing relationships is an ‘inexpensive growth’ option directly improving business results with more efficiency and less waste.
- Investments in CRM process changes can be incremental, unlike most IT-led business efficiency improvements; each incremental investment generates immediate, measurable cash flow benefits.
- Locking in valuable customer relationships is a strategic capability, determining competitive performance; lacking or reduced relationship strength can be disastrous in times of negative growth.
The value of customer relationships is a recognised corporate asset. This “customer equity” is indispensable for improving growth and profitability prospects in ‘down’ times.
- Approach and action steps:
Airlines should consider downturn strategies that reflect the above trends and opportunities:
- Retention of the ‘Most Valuable’ customer segment should become a top priority, protecting the bulk of the company’s turnover and profits through loyalty incentives and personalised recognition and rewards.
- Growth should be sought within the existing customer base, a known quality that are easier to cross-sell and up-sell than newly acquired, unknown customers.
- Unprofitable customers should be converted more aggressively and cut off if profitability is impossible.
- Channels should be measured and used for their cost-efficiency rather than market reach, profitability rather than volume. Rapid migration to interactive distribution models becomes imperative. The dialogue/learning capabilities of new channels are to be exploited for better understanding of customer needs and reacting with relevant offerings.
- Alliances and partnerships have to enable the satisfying of more and more customer needs (share of customer) without investing in capacity.
- Recent investments in information and communication technology should be now exploited for maximum return, putting to work much of their under-utilised potential.
It has been argued that in downturn times competitive forces (unless hampered by government interventions) would balance the industry and strengthen it for growth. In such tough but healthy competition, airlines with the right mix of strategic vision, customer focus and change capability will survive and prosper.
Author: Vladimir Dimitroff
Vladimir Dimitroff is a senior CRM consultant, most recently at Peppers and Rogers Group - Europe, and has over 15 years experience in marketing and customer strategies within technology-intensive sectors. He can be contacted at : [email protected]
Source: http://www.zambeasy.com/top-consulta...play.asp?ID=57
Edited for UBB gremlins
[This message has been edited by MatthewClement (edited 04-11-2002).]
