Don’t miss riding the tech retailing wave

June 1st 2024

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That the International Air Transport Association reports Asia-Pacific airlines are making a mere $1.20 from each passenger they carry is stunning. Read More » It represents a profit margin of 0.7% and is well below the global average of $6.14 profit by seat. Clearly, some carriers in the region making dramatically more than this amount, but that the overall average is so low paints a gloomy picture for many operators.

The industry has become accustomed to wafer thin yields, but help is at hand, major technology providers say and they are offering their systems as part of the solution. It involves investment in the latest software systems, including Artificial Intelligence (AI), that will revolutionize how airlines do business and set them on the path to be true global retailers, the tech providers predict.

Ancillary revenue is part of an airline’s revenue stream. As well as airline tickets, many carriers sell hotel and rental car bookings, insurance and duty free goods. But they could do more to improve profits.

The days when airlines only sold an airline seat or travel related items are gone. Today’s technology allows carriers to improve personalization of their offerings. It also allows disintermediation, cutting out one or more middlemen from a transaction, supply chain or decision-making process, to retain more of revenue from a transaction.

Airlines can become Amazon-like, selling almost anything online and tailoring offerings to individual customers as the proportion of people purchasing products, with the click of a computer key, rise annually. Tapping into a piece of that pie by transforming their approach to business has the potential to end the yield drought.

As a McKinsey & Company study identified airline retailing, essentially selling new products in new ways, directly to customers could be worth $40 billion by 2030. It adds up to a mouth-watering boost to the airline industry’s bottom line.

Given the potential returns, investment in these new technologies appears to be well worth the cost. And, as one software provider explained to Orient Aviation, it does not matter if an airline is big, small, full-service or low-cost, they have core common needs and the systems the tech companies can tailor to each model.

The bottom line: airlines failing to take advantage of today’s rapidly improving technologies, particularly AI, and the benefits they provide, will continue to be bottom of the yield curve.

TOM BALLANTYNE
Associate editor and chief correspondent
Orient Aviation Media Group