Airlines' main challenge lies with loyalty efforts
In past years, airlines' biggest concern was how to control skyrocketing fuel prices. Airlines around the world are making dramatic changes to their business models to survive not only increasing fuel costs but also other market-driven challenges. Combined, the changes needed in the industry may bring about the 'ultimate travel experience' for passengers, according to Sabre Airline Solutions.
A survey of 90 airlines recently conducted by the company found that, while fuel cost instability and revenue management are seen as being among the top challenges for airlines over the next 18 months, it is actually their customer loyalty and retention efforts that are viewed by the majority (86%) as having the most positive impact on their business.
Customer experience was ranked by nearly 50% of the airlines surveyed as being the primary issue related to customer loyalty and retention. The importance of developing customer loyalty is part of the crisis that airlines currently face, because charging additional fees is viewed by airlines as one of the key tactics for increasing revenues.
It is worth noting that overall customer satisfaction with airlines was lower this year than in previous years, in part because of these extra costs and fees, according to a June 2009 study by J.D. Power and Associates.
"The importance of customer loyalty and retention was distinctly higher in this year's survey, compared to a similar study we did two years ago," said Gordon Locke, vice president of airline marketing for Sabre. "That's not surprising because airlines are grappling with the challenge of introducing additional fees to generate much-needed revenue in a way that doesn't erode their brands or negatively impact customer loyalty."
In fact, according to Locke, the airline that finds a "magic balance" will become a model for the rest of the industry: "We've seen some winners and losers in this area, mainly because customers are now less loyal to brands and more likely to defect than ever before. In the next year or two, we'll see more experimentation and a greater focus on the customer as airlines sharpen their ability to service customers' needs using any new technologies available to them."
According to 58% of the airlines surveyed, merchandising and ancillary revenue will help airlines' bottom line results. Baggage fees, travel insurance, and holiday packaging were rated among the best techniques to generate revenue.
Other key findings of the survey included:
- Early concerns over rising fuel costs have increased, with 57% of those surveyed saying that fuel price instability is the biggest challenge facing their business.
- Increasing revenue and reducing costs are seen as being among the most significant challenges in managing airline profits over the next 18 months, according to 67% of those surveyed.
- Managing revenues (44%) and distribution mix (12%) are the top two tactics that survey respondents plan to use to increase revenues. Ancillary revenues followed at 11%.
- Government regulations were identified by 55% of respondents as being "problematic". Specifically, respondents view airport and passenger security (21%) and environmental standards and regulation (21%) as top government regulatory concerns.
Sources: Sabre Airline Solutions / The Marketing Factbook.
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