What are the challenges and opportunities for airlines in times of digitalization? What significance do digital payment methods have for customer journeys? And why are low-cost carriers still on the road to success? Airline Travel Payments Conference Organiser and close observer of payments and fraud best practice Michael Smith reveals more about it in this interview.
Michael, what are the key challenges you see in the air travel industry?
The first is providing a fully omnichannel experience – encompassing different systems not only within individual airlines but also from airlines to other airlines. Just try checking in online for a code-share flight and you understand what I mean!
A further challenge is making payments a smooth process for customers, whatever their preferred method and wherever they want to make the transaction, be it at the airport, onboard, or online.
And, generally speaking, an onboard challenge for all airlines is ... the physical smartphones getting caught in the seat mechanism - most safety announcements tell you not to move the seat if you drop your phone into the spaces around it!
So customer-friendly and digital payment solutions play an important role?
Yes, for the airlines that understand that customers want the ‘Uber’ experience in terms of payments. Those who haven’t got there in terms of what they provide will gradually lose customers. Others like, say, KLM, who are very digital, will improve sales while reducing costs.
Michael Smith, a specialist for payment and fraud management in the airline industry
In making payments a smooth process for customers, what role do alternative methods play here, like Alipay or PayPal?
These are certainly methods that people are used to. If you are in China, then QR codes are everywhere to pay with the likes of Alipay and customers there are familiar with doing so. This is not so much the case in other markets where NFC is the more established method for this type of payment. But, regardless of whether QR codes or NFC are used, the underlying payment methods, like PayPal and Alipay, have gained great customer acceptance and most customers wouldn’t think of them as alternative forms of payments these days!
So all in all, would you say that a major challenge for airlines is to offer customer-friendly omnichannel experiences?
It certainly is one of the payment challenges. Airlines work with the likes of travel agents that sell some of their products. However, some might not be able to easily sell items like seat selection or additional bags. As a result, customers are therefore forced to book these products via the airline directly which can be time-consuming and confusing. For example, customers don’t make a difference between say, Expedia selling them a ticket and Lufthansa selling them the same ticket. It is all the same to them and they expect the same offerings. But, from the airlines’ perspective, it is very, very different.
So, how you manage all of this to make it easy for the customer – and easy to reconcile behind the scenes – is part of the challenge. Throw in that you then have multiple payment touchpoints, call that omnichannel if you will, and you have a very complex operation that customers think should be easy.
"Customers want the ‘Uber’ experience in terms of payments - airlines who haven’t got there in terms of what they provide will gradually lose customers." - Michael Smith, Airline Information #ConnectedTravel #TravelTech
More generally speaking, what are the most important trends you would name in this industry?
For airlines it’s all about digital, with big data, AI and machine learning becoming every day elements in airlines’ strategies. From personalized marketing to fraud detection and cost savings, all of those things matter. Even today, a lot of airlines have very thin margins. Platforms are another major trend. For example, Amadeus.
Can you give positive examples of how smart, digital and customer-focused solutions have given vendors a competitive edge?
Sure. For example, plug and play providers such as CellPoint Mobile claim that they can easily implement methods such as Apple Pay. Other companies which provide alternative forms of payments such as Alipay or Paypal also claim that they can easily plug in to vendors’ systems.
And of course the emergence of global one-stop shop providers that can save money. Look at the rise of platforms, like what Amadeus is doing, as already mentioned – and how that changes the whole competitive landscape.
And what are the risks for providers who are late to realize the opportunities of digitization?
Airlines generally see their competition doing things and then want to emulate them straightaway. But, with a safety and security culture and multiple systems, they are also keen to avoid taking risks. If others manage to crack the opportunities, however, then these more conservative providers risk getting left behind. Fintech is disrupting banking by being quicker and more nimble. The same will happen in the travel industry, too. There are chances whole new payment methods will emerge, such as Faster Payments in the UK or New Payment Platform in Australia.
"Fintech is disrupting banking by being quicker and more nimble. The same will happen in the travel industry, too", Michael Smith explains.
And let me ask the final question on an important trend topic: low-cost carriers have been and are still booming – what do you think is the reason for their success?
Price and value is the simple answer. They can often support direct routes which traditional carriers can’t. Broadly speaking, the airline ticket purchasing decision, and this is from my days at a traditional carrier, British Airways, is dependent on the following factors:
The network – are you flying where I want to get to?
The schedule – are you going at a time/date that works for me?
And is that at an acceptable price within a suitable loyalty program?
Of course, if the price is right, lots of people will amend network and schedule. Online and direct sales have saved the LCCs a fortune and that has had an impact on their pricing structure and ultimately makes them attractive for the end customer.
I think what you will see, and what is actually already happening in some cases – e.g. Ryanair and Aer Lingus – will be “inter-lining”, so you’ll have one ticket on both carriers, and for that, look to my first point, the network – nobody can fly everywhere that people want to go to.
Thank you very much, Michael, for the exciting insights!
About Michael Smith
In his current role as Managing Partner at Airline Information, Michael designs and develops the agendas for Ai’s market leading events. From loyalty, ancillary merchandising to payments and fraud Ai, via its events, helps delegates connect not only with their peers but also market leading content and insights. He’s also a co-founder of the Loyalty Fraud Prevention Association and has been actively moderating Loyalty Fraud Prevention sessions for the last few years.
Prior to Ai Events, Michael was a board Director of British Airways Global Financial Services Limited. This included responsibility for developing mileage sales with partners such as American Express, Avis Car Rental and bringing onboard all the brands within InterContinental Hotels and Resorts portfolio. Early on in this role, Michael recognized that real value could be delivered by BA (and other airlines) by understanding what customers were actually buying. It was more than just an airline seat, many of them wanted a “one stop” shop for the products ancillary to the flight. As a result, BA developed in-depth relationships with many of its Executive Club partners that delivered more benefits to passengers than just miles. It also delivered an additional multi-million pound revenue stream to BA on the back of these ancillary sales.
He is based in Glasgow, Scotland where he graduated with an MBA from the University of Strathclyde as well as having professional qualifications in Marketing UK’s Chartered Institute of Marketing.