What Business Leaders Can Learn from the Airline Industry

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1. Putting more focus on profit. In the past, the airline industry got so caught up in price wars and gaining market share that many companies lost sight of profit. During 2005, in what many consider more favorable conditions than today, the industry lost $28 billion.

American Airlines CEO Doug Parker told Skift that while the industry was previously “fragmented, inefficient [and] unfocused,” it is now consolidated with a stronger focus on profit. Whereas carriers used to engage in costly market share battles that could hurt earnings, airlines now simply drop routes when they do not perform. He says there has also been great efforts across the industry to reduce labor-management tensions. Employee morale is up as nearly every carrier now sees the value in keeping a stable workforce and rewards employees with lucrative contracts and hefty profit-sharing payments.

“This is the difference between a business that was dysfunctional and on the edge of insolvency at all times and one that is vibrant and growing and taking care of its customers and employees,” said Parker.

2. Look for other sources of revenue. Sometimes companies need to look beyond their core business for sources of revenue. Airlines have little control over the cost of fuel but they do have control over the customer experience and what happens on board the aircraft. While airlines are ultimately in the business of transportation, they’ve taken advantage of a captive customer base to make retailer one of their biggest revenue centers.

“Airlines realize that every customer doesn’t have to be equally profitable.”

Airline consultancy IdeaWorksCompany reported that airline ancillary revenues reached nearly $6 billion in 2015, an increase of 163 percent from 2010. Key ancillary revenue components now include the sale of FFP miles, a la cart services and onboard retail, and baggage fees. Henry Harteveldt, travel analyst and founder of Atmosphere Research Group, said in an article at the Wall Street Journal that airlines are “becoming retailers with wings” and are using a variety of technologies and means to increase sales.

3. Mastering pricing models. Few things are more complex than airfare pricing. Even on the same flight, customers can pay a wide range of fares depending on how and when they booked their flight. While every sector doesn’t have the opportunity to engage in such pricing strategies, it does offer lessons in dynamic pricing.

Financial planner and speaker Michael Kitces said in a blog post that airlines realize every customer doesn’t have to be equally profitable. Kitces says this disparity in pricing helps airlines maximize their revenues given the supply and demand at that moment in time.

Kitces also says that value is always not determined by what the customer pays a fee for. He says the real effect of growing baggage fees isn’t necessarily to earn more revenues, it’s to discourage people from bringing more baggage which increase fuel and handling costs. Once companies can identify what those valued services are, they can then learn how to price them and even use fees and strategies to discourage unprofitable business. “[Customers] don’t determine what’s valuable by what they pay for; they value what’s valuable to them, period,” he says.

4. Self service and technology. Companies in many sectors can learn a lot from the airline industry’s use of technology to interact with customers. According to the Air Transportation Association, nearly 80 percent of passengers now use some form of self-service check ins, compared to only 20 percent ten years ago. An article at WayFind says that one study indicates it costs airlines $3.86 to check in a passenger with an employee compared to $.16 with the use of self-service kiosks.

Companies can leverage automated technologies to not only cut labor costs but reduce wait times and enhance the customer experience. These technologies can also offer customer information and analytics. At JetBlue, flight attendants use tablets to accept payments for snacks and services. But they are also using an analytics platform to provide passengers with recommendations based on their purchase history, says CIO Each Sundaram, as reported by the Journal. “We have so much information in our hands that we have to find a way to use that information to attract our customers,” said Sundaram.

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