After the invention of the plane, a couple of decades were all it took for airlines to be transformed into a full-fledged & thriving industry. Global growth in business transformed flying from novelty to necessity prompting the entry of many players. Enhanced safety & popularity of flying generated ‘statistical noise’ in demand-supply forcing airlines to continuously realign themselves to market shifts. The entry of low cost carriers (LCCs) further desecrated the airline business landscape. These nouveau players have also nibbled on the traditional pie of network carriers including intercontinental travel.
Increasing commoditization of flying resulted in airlines discovering the power of loyalty programs. Today, airlines are concocting a potent cocktail of loyalty programs & rich, personalized customer experiences in order to retain as well as lure customers from competitors. Despite their ubiquity, frequent flyer programs (FFPs) backed by advancing and robust CRM/Loyalty technologies have continued to be popular. FFPs are adapting fast to disruptive times and continue to aid airlines in their battle for retention.
Particularly vulnerable to political and economic fluctuations, increasing input costs like rising fuel costs, airport tariffs, taxes and price sensitive customers, the travel industry has been a victim of intense competition as well. Seeking new economies of scale, capturing customer mindshare and cultivating loyalty is critical to its existence. The most potent enemy of the industry is perhaps ‘CUSTOMER CHURN’ as it carries a hefty price tag. Significant amounts have to be spent to identify and secure new passengers who have left. The quantification of costs and benefits of customer retention is now an accepted concept.
In order to survive in a volatile environment, there is a scramble to adapt business models. This includes streamlining & enhancing operational efficiencies by higher levels of automation, introduction of new distribution channels & other cost reduction measures without compromising on service quality. And one of the significant measures to increase operational efficiency has been the adoption of outsourcing. Outsourcing is not new to the travel domain as travel companies, especially airlines were its early adopters. They were pioneers in automating and outsourcing inventory, data & revenue management systems, fares related services, contact centres etc. Outsourcing partnerships in the airline sector has seen considerable evolution in the last decade. As per McKinsey, the global BPO market is worth around $122 - $154 billion out of which 7-8% is travel BPO services. The realisation that outsourcing enables staggered spending thereby reducing risks and ensuring better ROI in an unforgiving economic environment has fuelled its popularity.
While loyalty implementation services were outsourced, Business process outsourcing (BPO) at process and platform level gained popularity relatively recently. Travel industry is discovering the benefits of embracing emerging technologies and specialized IT services to not only improve operational efficiency but also create business differentiators. Technology specialists in outsourcing companies design the architecture of a platform to support airline’s business applications. The system landscape is optimized for trouble-free scalability and enables reconfiguring during scheduled maintenance periods without lengthy downtimes. The platform includes database servers, web servers, data storage and backup subsystems, as well as operating software, clustering, testing and backup programs.
Benefits of outsourcing include substantial reduction in cost structures, making costs variable, maintain focus & retaining customers despite shrinking operating budgets, planning & managing inventory, benefiting from shared services costs & continue to deliver improved services, transform legacy processes for streamlined and increased efficiency & effectiveness. Outsourcing solutions for airlines are extremely technology oriented compared to other industries. The industry has its own complexities arising from, changes in business model, product and service offering dynamics .like multiple fare models, IRROPS, baggage handling processes, interline & code share agreements.
It is important that the outsourcing company understand the nuances of the industry including that of Frequent Flyer Programs. What airlines seeking is a strategic relationship with technology partners with in depth knowledge of their business. Busy adapting to changing circumstances, airlines are seeking a technological jump start that will help in re-engineering existing business models infused with agility and flexibility. They want to adjust their IT internally and free internal IT teams from peripheral tasks in order to focus on technological strategy, innovation and core business-facing issues. The outsourcers have realised that they have to bring valuable experience of having worked with multiple airlines to be able to make credible improvements. The organisations providing specialised outsourcing services have made introduction and administration of feature rich FFP/loyalty programs a reality. The choice of technologies serving to build customer loyalty and retaining the most valuable ones is widening. Trends are suggesting that airlines are increasingly exploring the outsourcing of CRM/Loyalty activities not only to reduce costs, but also to generate new customer relationships and grow them apart from accessing world class technology and domain capabilities.
With airlines seeking to build and establish strategic partnerships with outsourcing companies, they have lived up to expectations by investing in innovation, new services, extending product and support provision into taking on the fulfilment and providing software and technology as a service. There are many players in the outsourcing industry who provide integrated IT & outsourcing services across the entire spectrum of the airline domain. Automation & technology have a vital role in optimising all business processes including frequent flyer programs. For decades, airlines have relied on technology for provision of enterprise wide services. Rapid changes in business models are further leading to large scale transformations in IT and BPO operations.
The benefits of outsourcing go beyond enabling a more intense focus on core competency. Today, it can also create real competitive differentiation. A strategic outsourcing partnership can give start-ups and network carriers a technological jump start as well as provide business transformation consultancy.
