Chapter 1
Are you ready for a revenue revolution? New study from the London School of Economics reveals a $130 billion opportunity
Insight | Sky High Economics 3: capitalising on changing passenger behaviour in a connected world
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Fiftysomething Charles is feeling content on his latest flight with his favourite airline. As he surveys the billowing clouds, he thinks about the number of loyalty points he’s racking up and the many different ways he might use them. Charles enjoys his access to the airline’s swish business lounges thanks to his hard-earned points, and his love for his chosen carrier – not to mention his own self-esteem – has grown in tandem with his steady progress through the different levels of its loyalty scheme.
Sitting close to Charles is twentysomething Rob. He couldn’t really care less about the airline’s loyalty scheme and is more interested in what someone has to do to get a Pepsi Max around here, as he struggles impatiently and unsuccessfully to get a decent Wi-Fi signal on his phone. He’s thinking this airline kinda sucks and he won’t be travelling with them again unless he can help it...
There are two significant current trends at play in this little vignette, and an understanding of both is crucial for airlines that hope to thrive – or even survive – in the coming decade.
The first is that traditional customer loyalty schemes are beginning to lose their allure. Millennials – those who were born between 1981 and 1996 and form the largest air passenger group today – value loyalty less than any previous generation, and this trend is set to continue with the two succeeding generations – Generation Z (born from 1997 to 2012) and Next Gen (2010 to 2025). Within a decade they will outnumber Millennials and will each account for around 1.2 billion passengers flying every year:
The second trend to note is that these younger generations – people like Rob – are frustrated if they cannot seamlessly migrate their ‘always on’ connected lifestyles from the ground to the air, and search, stream, shop and socially interact online like they do in the rest of their lives. Airlines that allow them to do that will engender a new kind of loyalty – one that doesn’t depend on points and incentives but stems from ‘delighting’ these passengers by satisfying their needs.
This new kind of loyalty, enabled by high-quality onboard connectivity, represents a major revenue opportunity for airlines that are ready to adapt. In the first chapter of Sky High Economics, Dr Alexander Grous of the London School of Economics pinpointed $30bn of ancillary revenue that could be generated from broadband in the sky by 2035. Now, in the latest chapter, ‘Capitalising on changing passenger behaviour in a connected world’, Dr Grous has identified a further $33bn annually that could be won – starting right now – by airlines building market share because they offer the kind of connected inflight experiences that this new breed of passenger wants.
The report focuses on the large chunk (87%) of passengers who are not engaged, frequent flyers but fly occasionally and tend to be brand-agnostic, many of whom are younger travellers. Attracting even a fraction of them would clearly have a significant impact on an airline’s revenue and profits, and according to Dr Grous, 450 million of them are up for grabs. That figure represents the 12% who are currently uncommitted to any airline loyalty programme and say they would be willing to switch their allegiance in favour of high-quality inflight Wi-Fi.
But high-bandwidth connectivity with consistent coverage is just the start. As the evolution of connectivity in hotels demonstrates, a purchase driver can become nothing more than a minimum expectation over time. The important next stage will be how airlines maximise the potential of onboard connectivity to build positive brand perception. The new drivers of airline loyalty will encompass a combination of exciting and engaging inflight experiences, and personalisation before, during and after a flight. The flight will also become a far more significant component of a passenger’s wider journey.
Airlines need to adopt the mindset of retailers and understand the many opportunities reliable inflight Wi-Fi represents. On the ground, consumers are becoming ever more accustomed to personalised products and services, and high-quality onboard Wi-Fi will likewise allow airlines to create tailored interactions with passengers that bring ‘delight’ and lead to action. These instant, value-added, connected services will define the future of the cabin experience, and those airlines that are able to innovate and differentiate their services the most will gain a major competitive advantage.
So what will the future look like? Let’s see what will make Rob keep returning.
For a start, he’ll be happy that once he’s on board, he can continue to watch the film he was streaming back on the ground. Or maybe there’s a live sporting event or awards ceremony that he doesn’t want to miss – now he can watch it as it happens.
Once he knows that the airline offers the kind of reliable connectivity he’s used to, Rob is more likely to book with it again. Over time, the airline will get to know him quite well thanks to his preferences and past activity, allowing it to offer him targeted destination offers and products that he can order during a flight and collect at the gate. Rob’s used to shopping online, so he’ll be happy to order groceries or toiletries from the comfort of his seat and get them delivered to his home or his final destination. He’ll also be happy that he’s saved time on the ground by waiting until he’s inflight before booking a hire car, experience or restaurant reservation. And he’ll be confident about the rest of his journey, because he’ll have access to crucial, real-time information, including his arrival time, his onward journey options and baggage tracking. It all adds up to delight for Rob.
The $33bn in share shift for airlines who can adapt their offering to meet the changing expectations of always-on travelers is predicted to grow to $45bn in the next decade. There’s no time to lose, especially as the necessary technology and infrastructure are already available. Inmarsat offers two industry-leading passenger connectivity solutions. GX Aviation is the world’s first and only seamless, global, high-speed inflight broadband service providing in-the-air-as-on-the-ground connectivity for airlines. And Inmarsat’s European Aviation Network has been specifically designed to deliver both high capacity and ubiquitous coverage for Europe, future-proofed for rapid growth.
Dr Alexander Grous is a lecturer at the Department of Media & Communications and Director of the research function for LSE Enterprise. He’s a specialist in demand-based modelling, communications and transport economics.
Private sector experience includes CXO level roles in mobile communications, high-technology, e-commerce, banking, FMCG and finance. He’s also held strategic roles in directly relevant organisations including Telstra and Lockheed Martin.
