FORLOOP Articles

8
Jun

Why IT innovation is necessary for low cost airlines

On March 16, 1967 two men, an entrepreneur name Rollin King and a lawyer named Herb Kelleher started a tiny airline that would only fly within Texas using three 737s. Not flying out of Texas was a key strategy to avoid price controls and market regulations which applied to most other carriers and thereby allowed them to undercut their competitors. However their business model stretched far beyond routes. From inception, their strategy was to cut costs and increase efficiencies in any way possible. This allowed lower fares to be passed onto consumers. As it was decades before the possibility of IT innovation, this was the way of the ‘low cost’ airline revolution.

 

That fledgling airline was Southwest Airlines.

 

Today Southwest is the world’s biggest low-cost carrier, has more than 3,900 daily departures.  Its fleet has grown from 3 to over 700 Boeing 737s. This is still the only aircraft model they fly in order to standardise operations around a single aircraft type. For forty years between 1973 to 2013 they remained profitable using this strategy.

 

A visit to SouthWest by RyanAir executive Michael O’Leary in the late 1980s convinced him to try this business model in Europe. Thereafter, RyanAir become hugely successful as the ‘no-frills’ low cost pioneer in the European and British market. These successes accelerated the expansion of the low-cost airline market around the world and it has literally transformed the travel industry by making air travel more affordable and more accessible to more people.

The core of the low-cost model as the name implies is about cutting unnecessary costs or ‘extras’ such as free drinks/meals, baggage allowances, premium seating and amenities. Airlines find many other ways to cut costs such as utilising lower cost regional airports, using more efficient aircraft and ‘standardising’ the fleets (such as Southwest and Ryanair with their exclusive use of Boeing 737s) to reduce the cost of maintaining multiple aircraft types.

 

Ultimately the popularity of the low-cost carrier segment has led to fierce competition in this space, with airlines needing to innovate to reduce costs. Weight and space are major factors. Airlines may remove emergency inflatable craft when not flying over water, get rid of bulky in-flight magazines, lay thinner carpets and install lighter seats. Seats are often configured closer together to maximise passenger numbers.

 

But has stripping all unnecessary costs come to an end and forced low cost airlines to look toward IT innovation?

 

The differentiator for many low cost carriers THESE DAYS is IT innovation

Being innovative with technology brings new processes and efficiencies not previously available and it is often these that give airlines the edge over their competition. Continuous improvement and new development in IT Systems is a major driver behind this.

 

Self Service is the norm

A popular example is the proliferation of ‘Self-Service’ facilities, pushing the cost of various activities back to customers rather than airlines providing these services. Most low-cost carriers rely heavily on travellers booking their own flights over the internet minimising or even eliminating call-centres and traditional travel agencies. Many price-sensitive flyers have no qualms with spending their own time online looking for the best deals. Social media also provides new low-cost marketing channels and another way to direct online traffic to airlines own booking sites.

Self-Service continues beyond the flight booking where these same customers may then self-check-in online or at the airport, choose or change their seats and often tag and drop their own luggage, further reducing the number of counter staff required.

 

Customer engagement through Mobile technology

Increasingly important is the use of mobile devices during the research and booking process. Customers are booking and purchasing their flights, choosing their seats and meal preferences and adding in other options such as car hire and hotels all via their mobile phones. Airlines are increasingly tapping into this mobile adoption by staying in tune with their customers entire travel experience on their devices. They can keep customers informed regarding flight and gate changes, track their progress and personalise their experience.

 

Intelligent Systems driving Airline IT Innovation

At the operating level airlines continue to reduce cost through innovations in IT, including looking toward ‘Intelligent’ systems to enhance efficiencies and reduce expensive labour and operating costs.

 

Ticket Pricing has never been more dynamic as airlines use sophisticated analytical tools to determine the most effective pricing strategies at various times depending on many factors including predicted demand versus capacity and cost. Flight Planning systems can help determine the most optimal flight paths with regards to fuel burn and flight times. Engineering systems can map out the most efficient maintenance plans depending on an aircraft’s upcoming routes combined with predictions about future maintenance needs. Complex algorithms can be applied to direct the most efficient way to fly the aircraft which can then be utilised in the cockpit by the pilots.

 

iPads have also been adopted by flight crews, replacing cumbersome and heavy manuals whilst ensuring documentation is more frequently updated. American Airlines have estimated their use of cockpit iPads or ‘Electronic Flight Bags (EFBs)’ saves around $1.2 million of fuel a year simply due to the weight reduction. Not to mention they have eliminated some 24 million pages of paper documents and the associated manual effort.

 

Airlines can maximise IT innovation by using predictive analytics

Predictive analytics seeks to analyse current data to make predictions about future or unknown events. Such predictions allow organisations to shape business decisions, forecast trends and improve outcomes and performance. Airlines are now using predictive analytics to build customer loyalty, outstripping the 'noise' created by communicating irrelevant offers. Airlines analyse trends and customer behaviour from multiple sources.

 

These examples are only a few of the many ways IT innovation supports the low-cost airline sector. The competition in the low-cost airline sector is fierce and operators are continually looking for new ways to improve efficiencies. As new aircraft designs are adopted in this space they also expand the low-cost carriers into longer haul markets, further challenging the traditional airlines domain. In this environment IT continues to play a significant role, increasing operating efficiencies, optimising airline processes and delivering more cost-effective ways of delivering the customer experience.

 

Also see our video on How AI & Machine Learning can help the Aviation Industry