GCC airlines should transform their distribution business models as three trends are reshaping the region’s travel sector and threaten to weaken the connection between airlines and their customers, a new study has revealed.

According to a recent study by management consultancy Strategy& (formerly Booz & Company), part of the PwC network, the three trends are: 1) shifting customer behavior on retail and business sides, 2) changing dynamics within direct and indirect sales channels and 3) the rise of digital technologies.

If GCC airlines are to take advantage of changes in the travel distribution industry, while preventing digital technologies from turning their airplane seats into commodities, they will need to overhaul their ticket distribution strategy. They need to consider all channels available, strengthen partnerships with travel intermediaries, content and technology providers, and leverage data collected through digital marketing, loyalty programs and booking processes to better understand customer needs and develop tailored offering, the study highlighted.

Commenting on these trends, Alessandro Borgogna, a partner at Strategy& in Dubai leading the aviation, travel and aerospace practice, said: “The challenge in the Middle East is the rapid adoption of mobile, with online channels now being the fastest growing source for travel planning.”

According to him, fast-growing GCC airlines have an opportunity to adapt to changing consumer behaviour if they adopt a distribution strategy that is enabled by technology and partner with travel players and content providers, tailor their travel distribution model by market segment, and build internal digital capabilities to collect, analyze and use customer data.

Shifting customer behavior on the retail and business sides

Wider retail behavior varies significantly across geographies, but four themes prevail globally. First, customers are increasingly using online channels for search and booking. In the UAE specifically, where the market has high internet penetration and online uptake, 20 per cent used a smartphone to research booking flights last year. However, more than 60 per cent of smartphone internet users encountered issues at least once while accessing websites on their smartphones and 40 per cent of these users went on to find another site that worked better.

Second, customers are using multiple devices during the research and booking process. One online travel website, for example, has a feature that allows passengers to connect across multiple devices, allowing them to hop from tablet, to laptop, to telephone, and have a seamless digital experience. By contrast, airlines generally lag behind in catering to this customer preference.

Third, social media is growing in popularity for sharing first-hand experiences in the travel decision-making process. In emerging markets, social networking is especially popular and is mostly accessed via mobile, with online sharing well above mature markets. People increasingly view shared content as unbiased travel information they can use to inform their own travel decisions.

Fourth, loyalty programmes are becoming increasingly relevant. Customers are using these programs as a means to directly engage with airlines and earn rewards beyond just seat redemption, such as upgrades or even cash. This provides an opportunity for airlines to increase engagement with their customers. Some GCC airlines loyalty programs, for example, allow companies to accumulate points to use for travel, upgrades, gifts or even redeem for cash.

The organisational aspect of an airline is therefore critical. Instead of having marketing, sales, distribution, pricing, data analytics, strategy, IT, and loyalty programs operate as silos, GCC airlines should ensure functional collaboration to better understand the needs of consumers and maintain customer retention.

Changing dynamics within direct and indirect sales channels

Besides consumer behaviour, the second major trend affecting airline travel distribution models is the changing dynamics within sales channels. Globally, airlines’ websites (direct channel) and online travel agents (indirect online channel) are forecast to grow most rapidly. Airlines consequently have an opportunity to strengthen relationships with customers by offering solutions that personalise travel research and booking. From a consumer perspective, direct channels ultimately offer the most comprehensive view of everything an airline offers. While on a global level traditional travel agencies will continue to lose market share and become more specialised, in the Middle East they will remain relevant as many first time middle class travellers prefer agent-organised groups and a personal relationship with the agent.

Rise of digital technologies

New digital technologies continue to provide strategic opportunities in the field of airline distribution. Airlines have a powerful array of digital platforms at their disposal that can help enhance direct revenue channels, while reducing reliance on indirect channels. Emerging technologies can now improve airlines’ merchandising capabilities to sell additional travel-related products and services, such as hotel stays, when booking a flight.

Highlighting the importance of using digital technologies to better market to customers, Ivan Jakovljevic, head of Travel, Finance and Government in the MENA region for Google, said: “Rise of digital technology and changing customer behaviour on both retail and business sides opens major opportunities for airlines to customize their pricing, product offering and messaging thus creating a competitive advantage over all other distribution channels.”

Stressing the importance of why airlines should change how they market and sell to their customers, Aditya Agarwalla, an advisor to executives in the aviation and transport and logistics industries with Strategy&, said: “Airlines that master this new environment will be closer to their customers, which means they will be able to keep them and provide these travelers with tailored and better services.” - TradeArabia News Service