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Airline Distribution: Can the Airline Industry Emulate Amazon Retailing Effectively?

Airline Distribution: Can the Airline Industry Emulate Amazon Retailing Effectively?

 

Counting on lower fuel prices to make a record profit is not enough, in fact it may turn out to be a losing strategy. Yet can the airline industry effectively copy Amazon’s online retailing approach?

There are competing initiatives tending to offer airlines new solutions about optimizing their revenues. The main intent behind these solutions is the notion of maximizing ancillary revenues through down-selling, upselling and cross-selling.

Based on a report from IdeaWorksCompany, since 2008 airlines have more than tripled their revenues generated through extra fees, with a total in excess of US $25 billion in 2015. Therefore, ancillary revenues represent the new gold rush, which appears to be a very lucrative path the airline industry wants to explore further.

With down-selling, you can sell a lower value item or package, if the prospect failed to purchase at a high price point. With upselling, you offer an upgrade after the prospect has purchased an item or package at a lower price point. Finally, with cross-selling, you suggest to the prospect what other customers who purchased a particular item or package have also bought.

In addition to these basic capabilities, the Amazon’s online retailing platform also allows independent vendors to promote and sell a wide variety of products. Moreover, this well-rounded system also allows a growing network of affiliates to promote Amazon products throughout the world.

The whole idea is to capture a sale and maximize the revenue per customer, both per transaction and over the lifetime of the relationship with a given customer. This is in essence the new rule, yet not so new paradigm of marketing and sales, which Amazon and other online businesses employ successfully.

It is worth highlighting that the success of this approach requires four pillars:

  • Being customer satisfaction-oriented
  • Knowing the customer’s needs and behaviours
  • Building a long-term customer relationship
  • Having a congruent technological platform

 

Do Airlines Meet the Pre-requisite to Succeed Like Amazon?

So the question is: do airlines have all these critical building blocks in place to be and win like Amazon? When one considers the new distribution platforms being considered to help airlines maximize revenues, the answer may tend to be affirmative.

However, when one understands where successful businesses like Amazon came from, the answer will tend to be negative.

And here is why. Amazon started by challenging the book market status quo, which in essence can be summarized as follows: to buy a book, you have to go to a bookstore. That was the norm, which appeared intuitive and a generally accepted foundation of the book industry. Amazon started with a business concept which eliminated the need for the customer to walk into a bookstore to buy a book. With that extra time, the customer can actually search through millions of titles online, from the comfort of their home or office. Nowadays, that constitutes only a fraction of what Amazon has to offer. The company has a diversified business model, which offers convenient solutions to a wide range of market segments. Yet with that, Amazon has lost nothing of its core value and guiding philosophy: customer satisfaction.

What Business Is Amazon Really Engaged In?

Consider the diversified portfolio of products or solutions Amazon offers today and you may notice a common theme. One is tempted to even suggest that the company is not engaged in the selling of products or services. What Amazon is engaged in is in reality about providing convenience to customers. In return customers willingly pay Amazon what they are charged, because they feel they are getting their money’s worth and probably much more.

Furthermore, Amazon’s basic business model has evolved to the point where they even allow their customers and non-customers to earn a share of their revenues through affiliate marketing.

The Key Take-away from this Article

The point which we are trying to get across is that copying Amazon’s recipes is easy and most probably the simplest part. Applying them successfully, however, is a completely different ball game. This requires a solid customer-centered foundation, which it is hard to say that the airline industry has at this point in time. In fact, most airlines are mainly technology-driven that they are not ready to benefit from the full potential of Amazon’s recipes until and unless they shift their focus toward customer satisfaction by rethinking their business from the ground up.

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Kofi Sonokpon

Kofi Sonokpon

Managing Editor of Airline Profits, the first aviation magazine devoted to improving airline effectiveness and profitability, Kofi Sonokpon has more than 20 years of international experience in aviation. Kofi holds an IATA sponsored Master of Business Administration (MBA) in Air Transport Management from the John Molson School of Business at Concordia University in Montreal. Kofi Sonokpon is also an author and speaker on the topics of leadership, effectiveness, and profitability.