March 16, 2013 | Written by: Ravi Seshadri
Once upon a time – it seems aeons ago – the airline industry had spearheaded the adoption of innovative technologies to build its business globally. Today, the industry that pioneered the use of computing power and networks as early as in 1960s to sell its inventory worldwide with the Global Distribution Systems (a fancy name for computerized reservation services), is fumbling and faltering to adopt a somewhat similarly radical idea: access computing resources as an on-demand service and pay by usage.
oming to think of this, the idea to de-link capital-intensive segments in a value chain and hive them into a separate industry that builds it and offers it as a service, has been around for quite a while. Think electrical power. When we turn on a laptop we don’t pause for a moment to check if the power plant is running. Power generation is completely de-linked from distribution, and is now available as a utility service and paid by usage by the consumer.
In strikingly similar lines, Cloud essentially involves sharing of resources (which could be clunky infrastructure, platforms, software, data, and perhaps anything else that can be shared) over a network. And yes, this way of making technology and tech products available as a pay-by-use service, does offer significantly higher levels of flexibility to companies in what technologies to use and how, at lower cost.
The pioneering spirit has been clearly missing in adopting the Cloud – airlines have worried long and hard about data security, 24×7 availability and such. Of late however, a few have recognized the lower costs from scalability and flexibility that a cloud-based solution can offer, and have begun to embrace it for that purpose.
But is lower costs likely to deliver airlines from their seemingly bottomless abyss? Or give them lasting competitive advantage?
Airlines have been on a cost-reduction drive for years now; they shaved off more than half their costs per available seat-kilometer (or ASK) from about a decade ago (source: IATA airline cost performance data), but have not been rewarded with the profitability or customer loyalty they had hoped. So lowering costs cannot be a road to excellence, rather it is a survival-requisite. Again, every airline can adopt the Cloud for lower costs, hence nullifying any competitive advantage whatsoever.
Then, why should an airline go to the Cloud?
The strategic purpose with which a solution is adopted has a huge impact on the way the solution shapes up over time. Therefore it is more important perhaps to understand and agree upon the ‘why’ of an initiative than the ‘what’ or ‘how’.
The answer to the question, if you ask me, is to foster INNOVATION.
The Cloud gives the industry an opportunity, perhaps for the first time in its 100 year history, to reinvent the airline corporation, redefine the way it works with its customers, and rewrite its relationship with all its stakeholders.
Exactly how an airline goes about to achieve this – with the myriad choices it makes along the way – will give it a unique identity and perhaps a sustainable competitive advantage.
Reinvent the airline corporation
Access to technology across the airline organization can be in several different ways with the Cloud: it is no longer necessary to ponder over trade-offs in choosing one product/technology over another – a variety of technologies and tools can be adopted simultaneously by the organization over a pay-by-use model, thus avoiding upfront purchases of expensive and infrequently used software. This enables the airline organization to provide its staff with access to powerful yet nimble technologies anytime, anywhere; and integrate the myriad tools seamlessly to provide an organization-wide intelligence that is current, accurate and creative. Such an organization is very different from the typical carrier we know – saddled with clunky hardware, obsolete tools, and incomplete data flowing through filters of organization silos – and is not much short of a reinvention.
Redefine the customer engagement
Perhaps one of the reasons for airlines to languish with near-zero profits is their rather weak engagement with the customer before and after the journey: travel agents/GDS play a big role as intermediaries and often own the relationship with customer, limiting the airline to play a ‘secondary’ role as service provider.
The Cloud allows airlines to engage with the customer and consumer directly on mobile/social channels anytime anywhere, and at negligible marginal cost. This direct connection between the service provider and service consumer can potentially build a rich and deep relationship that
benefits both sides. The customer can choose to reveal more about his/her travel habits and preferences, while the airline can use this information to segment its target and tailor offerings more closely.
Direct connection with the customer also enables the airline to bring to market innovations that matter, with shorter turnaround and consistently better execution – which over time can build lasting relationship and perhaps loyalty with the customer.
Rewrite equation with stakeholders
Airlines today typically operate at 1-2% profitability, while all other business stakeholders in the value chain are at 10 times higher levels or more. Armed with direct and deep relationship with the end-customer and with an intelligent, flat, organization empowered with current and relevant information, the airline can acquire a significantly larger share of bargaining power and thus rewrite its equation with its business partners – GDS, airports, other service providers. While the change might not happen overnight, it is inevitable since universally the entity that owns client-relationship has the biggest say.
Airlines need to realize the promise that the Cloud has – in democratizing access to technology both within the organization and outside in the larger ecosystem, and the contribution this can make to fundamentally recast the industry structure – this time to the airlines’ advantage.
If however, airlines see the Cloud only as a cost-trimmer and implement it as such, they will result in a industry-wide lower cost curve but with no better revenues or profitability. And an opportunity of a 100 years, wasted.