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Airlines capturing value from customer-centric sales and services

November 21, 2011 | Online Travel

Operational savings and increasing load factors are approaching their limits. Efforts to increase revenue are beginning to backfire and airlines need to shift the focus to making the trip better, not just more profitable. According to a new IBM white paper, carriers have to give customers reasons to want to fly with them.

In recent years, airlines have demonstrated great creativity in devising new ways to increase revenue. The unpopular baggage surcharge is one such move, as are change fees, cancellation fees and fuel surcharges. The list goes on and some airlines have taken the idea to an extreme: for example, one low-cost carrier made proposals in 2010 for standing- room tickets and pay toilets. While passengers may dislike them, surcharges have been very effective and accounted for 23 percent of global profits in 2010.

Carriers have also aggressively pursued fundamental profit drivers such as load factors and operating costs. Consolidation and capacity rationalization have made the industry as a whole more efficient and in 2010, U.S. traffic increased 7.4 percent while capacity increased only 3.9 percent.1 Revenue management and overbooking have kept load factors up, reaching an all-time high of 78.4 percent in 2010.1 On the cost-reduction side, outsourc- ing, wage scale reduction, layoffs, pension obligation elimina- tion and debt restructuring have been widely employed.

The focus has clearly been on operations – moving as many people, as inexpensively as possible. However, the limits are being reached. Collectively, these measures have had serious side effects, most notably in customer satisfaction. Surcharges erode customers’ perception of value received for money spent. Not surprisingly, passengers tend to resent fees that cause inconvenience but do not provide any apparent benefit.

Download the full white paper at IBM ( PDF 1.7 MB)

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