The assumption that airline retail will be a huge success if only third-party distribution improves with the new capabilities of NDC is misplaced. In addition, airlines should supplement this focus by building profiles of all their customers.

Airline retailing could be worth US$40 billion by 2030, according to McKinsey research. Advanced technology has the potential to tap into this huge market opportunity, but most airlines remain hampered by outdated retail strategies.

Instead of using artificial intelligence (AI) to understand individual consumer preferences, airlines place too much hope in improving the ability of third-party channels to distribute their retail offers.

Airline retail & its misplaced faith


Our CEO, Andy Owen Jones, spoke on the topic of Retelling Retailing at the World Aviation Festival (WAF) in Amsterdam. He focussed on how airlines can enhance their customer relationships to boost their wider retail strategy.

Andy highlighted the strategy of using third-party channels as the path to retail success assumes distribution is the only obstacle. It is, after all, seemingly the key motivation behind IATA’s New Distribution Capability (NDC) standards which aim to bring third-party websites up to the level of airlines’ direct channels. But what if those direct channels are not yet fit for purpose?

“The NDC approach set off alarm bells for me. I haven’t met a single airline that is happy with their own direct channels. So, even if you bring third-party distributors up to the level of your website, will that do it for you?”

asked Andy.

The focus on distribution hugely underestimates the benefits of direct shopping with airlines. Shopping is the source of much insightful data. Data that can be used by BD4’s AI profiling and decisioning platform to gain real-time insights into customers.

No such thing as average customers in airline retail

Airlines currently appear stuck with old-fashioned retail strategies that emerged from print advertising in the 1940s. These ‘analogue’ approaches are based on direct marketing and AB testing, which means optimizing channels for the average person.

“By definition you’ll be wrong 99% of the time if you optimize for the average. If you optimize for the individual, you’ll still be wrong sometimes, but less often,”

Andy said.

Lack of insight

Despite dominating the retail landscape, the focus on shopping baskets provides next to no insight into shopping behavior. It relies on counting events that have, or are likely to, occur for insights into consumer behavior, instead of delving deeper into a customer’s desires and decision-making process.

“If you analyze shopping baskets, I guarantee you will have almost no insight into what this person will do next. For holidays, around 90% of people you ask couldn’t make a prediction about their next one from their last one,”

Andy told WAF.

For airlines, the shopping basket approach is even more inadequate than in retail. Operations are too complex. An online travel agency (OTA) could host 1,600 airports and 800 airlines every day of the year. There could be multiple room types and 60 meal types. There are hundreds of billions of combinations.

When BD4 worked with one airline, it identified over 100M types of customer DNA. However, the airline did not find this approach worked well as the identified DNA had no predictive value as soon as customers began booking their next trip. Therefore a different approach was required.

Focusing on the individual

What’s required to supplement the shopping basket focus is behavior-based inference. BD4 has modeled about 1.5 billion customer journeys over the last few years using AI, developing a finely tuned focus on the individual.

“Every time a user clicks, we start to learn and then [airlines] can start to build up a list of attributes. We have over 400 scores we continuously monitor. Are users more likely to want an ancillary? Are they likely to leave without booking? How much will they spend? And what can we do about it?”

Andy told the WAF audience.

Companies can no longer build the digital user journey based on segmentation, or the ‘average user’, if they want to truly engage with customers. To seamlessly and simultaneously understand a user’s intent and speak to them on a one-to-one basis, technological help is needed.

Real-time profiling with AI as key airline retail strategy

BD4’s approach is to find the right balance between counted and inferred insights. The AI starts to profile consumers in real-time as soon as they land on the site, using hundreds of signals to understand each and every user. Where ‘gaps’ exist, the sophisticated algorithms spring to the fore, constantly refining in real-time throughout the user’s visit.

At the same time, the decisioning part of the platform models travel and retail products, to bring that understanding together with the customers in the right way. This is in sharp contrast to traditional retail systems that don’t recognize someone until they make a purchase or log-in as a registered user.

BD4 used this real-time profiling strategy to raise revenue for a leading airline by targeting customer incentives efficiently. The requirement was to shift their business strategy away from a generic approach offering vouchers which triggered unnecessary incentives as some visitors bought tickets anyway, to one that correctly incentivized users that otherwise would not have purchased.

Boosting airline revenue

Using machine learning, BD4 utilized real-time customer-level signals to respond automatically to shopping behaviors. This customer-centric approach achieved higher conversion rates. By not providing vouchers to everyone and treating every customer the same – as an ‘average’ – the sales strategy improved relationships between customers and airlines, and grew revenue per customer.

“Customer driven profiling is probably the fastest way you can increase your revenue because you’re stopping treating people like the average. And who wants to be the average?”

Andy highlighted.

Conclusion

BD4’s AI tools have been built specifically to help airlines gain a deeper understanding of individual customers. Our bespoke industry-specific algorithms have the capacity to transform airline retailing by helping airlines become more customer-centric.

Get in touch with BD4 to understand how we can help your brand connect to each individual. Learn how our AI tools will help surface the most relevant offers, products and services to your digital audience.

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