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Airlines ignore the big data bandwagon at their peril
Big Data and data analytics offer airlines more opportunities to determine travel trends than at any time in history. Carriers must apply the insights of data mining now to stay ahead in the region’s brutally competitive industry.
September 1st 2016
Cathay Pacific Airways chairman, John Slosar, said in May that unless airlines are spending big on Big Data and data analytics today they will be falling behind. Read More » The airlines that are will be winners, he said. Those that don’t will be the losers. And he’s far from being alone in his prediction.
At Garuda Indonesia, president director and CEO, Arif Wibowo, has said the carrier is “strengthening its IT backbone”. “I am sure from the trend of the digital economy, e-commerce has to be improved as soon as possible and that is why Garuda has to be very strong in high-tech. We have to build a very strong IT base,” he said.
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Speaking at a recent conference in Helsinki, Qantas Group chief executive, Alan Joyce, said the “biggest opportunity” Qantas has is harnessing Big Data and expanding on the techniques it can use to leverage it.
“We have to tap into the future by using this Big Data and take these opportunities now. Qantas has been collecting customer data for 30 years,” he said, “with more nuggets of information added to each individual’s profile over time.”
Slosar, speaking at a recent Lunch with Orient Aviation in Hong Kong said: “What is data analytics? It is using Big Data to understand better the trends of your customers or your operations and then finding a way to extract advantage from those trends. For instance, in planning the proposition you are going to make to the market place.
“The airframe and engine manufacturers have done a fabulous job of making the aircraft more reliable and more predictable. As a result, flight operations and engineering are better and better and certainly more systematized.
“This has allowed the rocket science in the last 10 years to shift towards revenue management, which developed in the 90s really. It devised strategies using data technology to optimize revenue streams for the airline.
“If you can get 2% or 3% more out of your revenue streams, in an industry where you only make 2%-3% profit margins, that means you double your profit.”
But now, Big Data is coming in to play across every aspect of an airline’s operations, from maintenance to revenue management and marketing to staff deployment and fuel management.
“The companies that are more likely to succeed in the travel industry will be those that embrace Big Data and experimentation,” said the head of travel intelligence at the Amadeus IT Group, Pascal Clement.
“They’ll try out new ideas and approaches to increase their operational efficiency, enhance the customer experience and benefit from new revenues and increased loyalty.”
Utilizing data analytics to retain customer loyalty is only one example of the opportunities Big Data provides for airlines. Malaysian low-cost carrier, AirAsia, is using cutting edge data capture and analytics technology to keep its fares low.
It operates GE’s Flight Efficiency Services (FES) to implement precision navigation services, flight data analytics and fuel management services. The data-driven services produce cost savings and increase aircraft utilization. By using FES AirAsia hopes to save between $30 million to $50 million in the next five years.
| 'What we are going to see is that airlines that take on data analytics really learn about customer segmentation and trends in the market. They can find ways of turning that information into propositions that will attract loyalty from your customers. The airlines that do this will be the winners' |
| John Slosar Cathay Pacific Airways chairman |
In 2015, Singapore Airlines (SIA) wrote a five-year contract to use Rolls-Royce’s Big Data analytics to reduce fuel consumption across its fleet. And earlier this year the carrier signed up for Amadeus’ Altéa Network Revenue Management, Dynamic Pricing and Altéa Group Manager Solutions. “A changing landscape requires a revolutionary approach,” said Julia Sattel, senior vice president, airline IT at Amadeus.
“Traditional revenue management systems are no longer adequate to support the complex needs of network carriers and this is where ‘Big Data’ creates opportunities for more sophisticated practices,” she said.
Cathay Pacific also uses data analytics to significantly reduce fuel costs and to inform its crew and shift deployment decisions. Analytics software processes information about employee skills, the aircraft on which they are trained, destination data and special breaks to optimize airline schedules. The process has boosted productivity and reduced staff downtime at the airline.
Hainan Airlines is using a new data intelligence tool, which assists airlines in adopting the best Big Data technologies. “Understanding our business performance in the context of the wider marketplace is essential as we develop and refine our business strategies,” said Jack Li, director, International business division at Hainan.
“Amadeus Booking Analytics allows us to understand exactly the source of our bookings, both in terms of origins and destinations and points of sale. We can determine how this compares with our competitors and make more effective strategic decisions.”
Data analytics can be efficiently integrated into an airline to make all the operational gears move more smoothly, resulting in reduced scheduling issues, fewer lost bags, less delays and lower overall costs. But most importantly, data analytics can guide airlines towards marketing strategies that provide passengers with what they really want when they are considering airline travel choices.
Japan Airlines (JAL) has begun the first overhaul of its main computer system for 48 years to better understand the needs of its customers. The carrier configured its own passenger services system, which handles reservations and ticketing, in 1969 and has been using the same one ever since, albeit with tweaks along the way.
Next year the airline will switch to a new cloud service at a cost of $828 million. Until now, JAL has not been able to make full use of the vast volume of its customer data because separate databases have managed reservations, ticketing, the mileage program and other services.
Managing this data in the Cloud is expected to facilitate analysis of the Big Data. The airline plans to crunch passenger data to determine the most popular food on specific routes and flights so menus can meet true demand. Better management of flight management and airport services support is planned by 2020.
Chinese carriers also are focusing on increasing their ability to do business using Big Data.
Analysts report that China’s business analytics services market reached U$1.4 billion in 2014, up 16.4% from 2013. In the next five years it is expected to grow to $3 billion.
Seattle-based Tableau Software recently set up operations in Shanghai where one of its customers is China Eastern Airlines (CEA), China’s second largest and the world’s ninth largest carrier by scheduled passengers. CEA uses Tableau to analyze market research, optimize its “Origin-to-Destination” routes and increase revenue.
James Pu, senior executive of networking and revenue at CEA, said: “In six months, we’ve developed nine dashboards for separate uses. Now we have 500 people who use the dashboards to analyze marketing, our competition, the other carriers and our flights-to-revenues.
“It is easy for everyone who uses Tableau to drill down, past the peel of the orange and to the core,” he said. One year into using Tableau, the airline reported a 2% increase in revenue, which represented about $200 million.
Cathay Pacific’s Slosar said there was no doubt that with revenue management becoming more systemized, the next big move is to Big Data and data analytics.
| 'If we see there’s an expected weather event in Sydney, rather than wait for it and react, we can go to our customers the night before. Then they have options. They can delay their meeting or take their chances. They are taking control of that choice, with analytics putting the decision back in the customer’s hands' |
| Paul Fraser Qantas Airways head of operations |
“This is going to be very important. What we are going to see is the airlines that take on data analytics really learn about customer segmentation and trends in the market and then find ways of turning that information into propositions that will attract loyalty from your customers,” he said.
He said airlines that may not be known as the most advanced users of Big Data and data analytics today could be seen to be world class in this space in the next decade.
According to global consultants, McKinsey & Company, clairvoyant airlines can improve travel margins by 5% to 10% and it does not take magic to achieve these results. “The secret is insights from Big Data and analytics that offer a prescriptive solution to business disruption. It’s always a hard call to hold a flight or leave passengers behind, but airlines no longer have to guess about the right decision. Now they can use real-time data to make the best choice in any given situation,” it said.
The consultancy said an example of the application would be an airline deciding if it would hold a plane for 15 minutes. “In reality, it will take 32 minutes for the passengers and their bags to make it onto the plane because of specific gate locations and airport traffic conditions. If the plane waits, the airplane will miss its takeoff slot and eight other passengers will be in danger of missing their connections at the destination airport.
“Without analytics, there’s no way to take all these factors into account when making a decision. The airline has to make its best guess and deal with the consequences. Add analytics to the equation and the airline can run an algorithm that considers the arriving gate information, walk and bag transport time between gates, the cost of re-booking passengers and the frequent flyer status of the affected passengers. Now the airline can foresee that the 15-minute hold will likely turn into a 30 or 40 minute delay and make a decision accordingly. How is that for clairvoyance?”
If an airline uses analytics to examine travel data about its past delays, it might realize that having specific airplane parts on hand can reduce them. McKinsey & Company said that more than 80% of all warning lights are caused by the same three parts. “When the warning light flashes, airlines can use data analytics to proactively alter the flight schedule using a combination of predictive analytics and historical data,” it said.
Qantas uses data analytics to more quickly respond to disruption and has been able to reduce the number of flights reported late by 60%. “At the Qantas Operations Centre, we want better predictive analysis on what’s going to happen each day,” the airline’s head of operations, Paul Fraser, said.
“If we see there’s an expected weather event in Sydney, rather than wait for it and react, we can go to our customers the night before. Then they have options. They can delay their meeting or take their chances. They are taking control of that choice, with analytics putting the decision back in the customer’s hands.”
