"Door-to-door" flying promises the aviation industry billions in new sales

A.T. Kearney study investigates the potentials of the aviation industry in the service sector – cooperation between airlines and airports could generate revenue growth of up to €46 billion in Europe through 2020

8 September 2010 — The global economic crisis has confronted the aviation industry with massive challenges that demand far greater action than just simple cost-cutting measures. If new growth potentials are to be realized, the industry needs to fundamentally rethink its business model. Above all, this means viewing the passenger as a paying customer rather than merely as a booking number to be processed. In the future, flying should be perceived as a fully integrated, door-to-door travel experience. Customer centricity, that is, the universal orientation of the entire industry to providing full-scale service, opens up sales potentials for Europe's airlines and airports of around €46 billion in the period through 2020. This is one of the conclusions from the latest study conducted by the top management consultancy A.T. Kearney. If these potentials are to be exploited, all players in the value chain must cooperate closely with one another and the portfolios on the aviation and non-aviation sides of the business must be expanded – by the airlines, too. Examples of this include providing a pickup-and-return service (home – airport – home) using accredited taxis, special entertainment offerings that turn the plane into a chat room, and hi-tech shopping models in which customers buy goods 'virtually' during the flight and then pick them up from the baggage claim carousel after landing.

The aviation industry has been hit particularly hard by the repercussions of the global economic crisis. Whereas their sales fell by "just" 7 percent following the terrorist attacks of 2001, airlines globally are today suffering from drops in excess of 13 percent. Airports, too, are also battling against the effects of the crisis, although those whose traffic comprises a large share of cheap flights operated by "low-cost airlines" are suffering to a lesser extent than those that host predominantly scheduled flights.

"Cost-cutting measures on their own cannot compensate for the structural changes being undergone in the aviation business," says Dr. Tanja Wielgoss, Principal of Transport, Tourism and Infrastructure Practice at A.T. Kearney and head of the study. "A paradigm shift is required if the industry is to emerge from the present crisis. Customer centricity, that is, a fundamental orientation to providing real customer service, must be the guiding principle. At present, the industry thinks far too much along the lines of "flight production". The potential for airlines and airports in the coming years is enormous."

Far too frequently, one comes up against antiquated ways of thinking in the industry, whereby all that counts is the task of "processing" passengers. This approach falls far short of what's actually needed. "Flying isn't just a matter of getting from A to B," argues Wielgoss. "A travel experience needs to be created for the customer, beginning with the booking process and running right through to the moment they insert their key into the door lock when they arrive home. The customer has to be accompanied from door to door."

After all, the customer doesn't distinguish between whether it was the airport, the airline, the construction company that built the airport or the plane manufacturer who was responsible for them having a particularly enjoyable or a totally awful travel experience. That's why airlines and airports need to offer customers services that go beyond their time onboard and in the terminal and for which they are prepared to pay.

Greater service orientation promises potential revenues running into the billions
The A.T. Kearney study reveals that airlines and airports in Europe that expand their range of services and work together systematically have the potential to increase their revenues by up to €46 billion through 2020. Even if airlines and airports initially optimize their service portfolios and products independent of one another, additional business volume in the order of €20bn is still possible through 2020.

Europe's airlines and airports still have great potential for improvement both with respect to growing market share and market exploitation. For instance, the number of flights per head of population in the 27 EU countries is 1.6. By contrast, US citizens fly on average three times as frequently (4.75). With 3.86 flights per head of population, the UK leads the way in Europe. What's more, the European airlines still exhibit a need for improvements in the area of additional services. Scheduled and hybrid carriers, for example, achieve on average a revenue of just €4/pax from these additional services, not even a third of what the low-cost carriers generate – and that independent of their far higher total sales. From now through 2020, sales from such services could be grown to around the €14/pax mark, which would equate to level just under 10 percent of what revenue is from flight charges.

"The amount of catching-up to be done by European airports isn't quite as dramatic," says Dr. Martin Handschuh, Partner at A.T. Kearney and co-author of the study. "Nevertheless, they could still almost double their income from non-aviation purchases from presently €8 to €16 per passenger, which would correspond to roughly 55 percent of total turnover. As the percentage figures show, airlines can learn a lot from the airports in this area."

Need for extensive collaboration and to tap into new customer groups
"When implementing this service concept, the entire 'ecosystem' of air passenger transport has to be taken into account and all players in the value chain involved," Handschuh emphasizes. "As we see it, the first step has to be to strengthen cooperation between airlines and airports. This also includes the aircraft manufacturers and other service providers such as air traffic control, groundhandling and catering. After all, the same principle applies to all of them: If you want to participate in this trend, you'll have to rethink how you operate."

So far, airports and airlines generally categorize their customers and passengers along rather crude lines based simply on the purpose of their travels, such as business trips, tourism and family, but this approach falls far short of what's required. Suitable products need to be developed for each phase of life and additional customer groups have to be won over.

It's conceivable both for airlines and airports to expand their service portfolios and the range of additional services they offer. In the case of airlines, this could include "subscriptions" covering several flights (with and without airport transfers), cabin equipment innovations, special onboard services ranging from catering through wellness, and improvements in the range of entertainment options available. Airports will evolve into local site managers, expanding their non-aviation business for passengers and for local residents, too, upgrading the range of services and products on offer en route to and at the boarding gates, and exploiting their unique situation by offering rooms for virtual meetings or special services such as interviews with VIPs and celebrities.

About A.T. Kearney

A.T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 36 countries. Further information can be found at www.atkearney.com.

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