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Airlines can still learn from their loyalty data

The challenge, according to the 'Airline Data - Know Your Passengers' paper, is for airlines to use their complete range of customer data more effectively. Mature carriers in particular have a vast amount of data about millions - sometimes tens of millions - of their best customers. And the most accessible of that information can be found within the databases of frequent flyer programmes (FFPs). Other useful data is held in other operational divisions of the airline, especially in central reservation systems (CRSs), customer management systems (CMSs), and customer feedback systems (CFSs).

Properly managed, these resources can be used to provide airlines with an intimate understanding of their customers. Data can be used to segment passengers, observe their behavioural patterns, and reach out to them with relevant, targeted promotions. This has the effect of improving customer service, enhancing customer loyalty, and generating new streams of revenue for the airline.

Airlines are now treating customer data as an asset and are putting in place new IT systems that will help them mine the information effectively. "We promote rewards to members, utilizing the information we have on them," says Kaapro Aatu, Customer Insight Analyst at Finnair. "This can mean individually targeted communication or broader, segment-based communication. In future, I expect the role of targeting and understanding the customer will inevitably increase."

Sanjai Velayudhan, senior manager of loyalty programmes for ITC Infotech, agrees but also warns of a disparity between practice and theory: "Many airlines are aware of the importance of exploiting existing data and are able to do so to some extent, but often not to the optimum level. Airlines face the challenge of uniquely identifying their passengers, unless they are FFP members or are enrolled with a partner of the loyalty programme."

CRSs, CMSs, and CFSs also capture important passenger information but these are often ignored despite the wealth of knowledge they bring. "Our experience indicates that, when exploited properly, feedback management systems can prove to be a powerful tool to enhance customer service," says Velayudhan.

Data warehousing-integrating information about individual passengers based on several operational divisions of the airline-is one solution. By providing a comprehensive view of customer behaviour, airlines should be able to extract whatever information they require.

Although the idea of understanding an individual customer's transaction lifestyle is appealing, Velayudhan acknowledges that there are often constraints, including the complexity of integration issues and ensuring data is up to date.

Aatu concurs: "Traditional IT systems were designed and built for tracking tickets, coupons and flights-not identifying customers," he says. "This poses a significant challenge for the smooth integration of data." He also points out that when data from different sources is brought together, privacy laws need to be taken into account.

Nevertheless, the concept of bringing together diverse pieces of information relating to individual passengers remains effective if applied carefully and correctly.

"We aim to utilize all the applicable information we have to provide our customers with a level of service they expect," says Aatu. "Identifying the customer at different touch points-for example when they log on to our website and when they check in-is becoming increasingly important. It enables us to offer a higher level of service that can differentiate us from the low-cost carriers."

Investment in new IT systems are usually required to maximize the potential returns from data. Some airlines may find it hard to invest when a return is perceived to be some way off. There are, however, clear benefits to be realised in the long term, and an increasing number of airlines are looking at the potential of such systems.

"We are investing in a new operational system based on Siebel Loyalty and a new customer data warehouse based on the Teradata platform," said Simon Hickey, CEO for Qantas Frequent Flyer. "These investments set the foundation for Qantas to offer real-time, targeted loyalty promotions across a wide variety of member touch points. Loyalty is built on establishing and maintaining high levels of engagement with the members. Data analysis provides the vehicle for developing the member insights that enable us to target our programme where it will generate the maximum member engagement."

No matter how much sophisticated software is purchased, it requires a commitment from the airline. "While there is a general recognition among airlines that more needs to be done under the general heading of customer relationship management, we find that when it comes to implementing specific projects-for example collating data-many airlines may purchase tools, but then do not apply them properly," said Murray Smyth, Head of the Airlines Passenger Services division at IBS Software Services. "Having a database and tools is all very well, but you need to work at it and use the software properly for best effect."

For example, Alaska Airlines reported very positive experiences from its investment in new IT systems. The airline had worked successfully with a home-built CRM system but recognised that it lacked the ability to analyse data from the other systems.

"The integration of our campaign resource management programme with our campaign management system began in 2005. Now we are able to increase revenue through more targeted-and fewer-email messages," said Greg Latimer, managing director of brand and marketing communications for Alaska Airlines. "By segmenting our customers based on many data points-for example geography, frequent flyer plans, and behaviours-we are able to target smaller groups with much more relevant messages. Since doing this, we have seen our conversion rates through the email channel increase 1.5%. We do all this while protecting the data of our customers and the frequency of our messaging."

Promoting specific offers to passengers via targeted messages is very important, but there are also new revenue opportunities. Low-cost carriers are leading the way. Most have offered hire cars, hotels, and travel insurance in addition to their tickets for many years now; some go far beyond this, offering retail items that might be appropriate to a passenger's journey-for example suitcases, sunglasses, or even maps and books relating to their destination. Ancillary revenue over and above the basic ticket price has become vital to their profitability. And full-service carriers have followed in their footsteps to some degree. Coupled with the massive rise in the use of the Internet as a booking medium, most major airlines already offer a broad range of products at the time of booking tickets and as promotions via their FFPs. But it has been slow progress.

"Low-cost carriers have finally managed to change the entrenched mind-sets of network carriers," says Velayudhan. "Now the network airlines are expanding their scope to include non-conventional partners."

This is a win-win situation because, as Velayudhan points out, airlines can gather information on passenger preferences related to non-airline items by offering promotions through partner companies. As long as the promotion is offered by the airline and purchased, for example, through its FFP, these tracers related to the passenger can be analysed for important data. Opportunities for offering such promotions become even greater with coalition programmes.

IATA standard electronic miscellaneous documents (EMDs) also give airlines the tools they need to do the job properly. A standardized document makes it possible for airlines to sell a variety of ancillary services through a multitude of distribution channels. Processes are simplified and customer knowledge is enhanced. The IATA e-services project aims to facilitate the adoption of EMDs by airlines and GDSs, with a goal of 100% industry capability by the end of 2012.

"It is vital for airlines to take better control of their passenger data. If airlines do not take up the challenge of knowing their passengers better and using that information effectively, other tech-savvy companies will be keen to take advantage," concluded Velayudhan. "Airlines might even end up buying back their own dissected data in future. It would be far better to develop systems that will not only help enhance customer service but also be the foundation of new revenue streams."

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