Emirates Airline’s shock 75 percent profit plummet announcement this month symbolised the entire global aviation industry as it navigates a turbulent period for profitability.
Almost two-thirds of airlines globally expect their bottom line to either decrease (29.7 percent) or remain the same (35.1 percent) in the next 12 months, according to International Air Transport Association (IATA).
The rough air has spurred airlines, including Dubai-based Emirates, to place greater focus on ancillary revenue. While new options may include roses onboard and custom shoes, customers will also be increasingly asked to pay for some services that are currently free, such as seat selection.
The new IATA director general Alexandre de Juniac, who resigned as head of Air France-KLM after leading a three-year restructure to take on the industry role from September 1, says “people are ready to pay”.
“What we have done is unveiled, revealed to the eyes of the customers, the value of some options that before were for free. They say ‘oh yes that’s an option I’m ready to pay for because it’s nice’,” de Juniac tells Arabian Business.
The gregarious Frenchman, who represents 265 airlines, says carriers will also seek extra revenue by reinvigorating their onboard shopping experiences using the inflight entertainment system.
“You have seven hours in our hands in an aircraft; if we are not able to sell something cleverly, it is because we are very bad, huh. Seven hours doing nothing, so you are a captive customer,” he declares.
Fortunately for airlines, a study by Sabre Corporation released this month found air travellers are willing to spend an average of up to $99 per flight on extras that made their trip more comfortable. The figure was skewed upwards by African travellers, who are willing to pay for $144 worth of add-ons, given the region’s generally lower standard of service. Even so, Middle Eastern travellers are willing to fork out $91 on top of the cost of their flight, especially if it allows them to fast track security.
Air travellers are already paying extra, with 80 percent of those surveyed by Sabre selecting add-ons on their last trip. But at a current total of an average $61, there appears to be plenty of room for more, and that is assuming those being surveyed were only taking into account current offerings; de Juniac says the list of options is bound to evolve.
Emirates is the first airline in the region to jump on the revealing data. It confirmed in September that adults would be charged between $7 and $40, according to the distance of their flight, to select their seat in advance.
The charge is part of a wider plan by the carrier to boost its ancillary revenues, which also includes introducing a premium economy class and additional baggage charges.
"We cannot sit back and wait for things to get better," Emirates president Tim Clark said at the time, conceding the difficulty the airline industry is facing.
Airlines have been hamstrung in their attempts to provide personalised service because of a lack of communication with third party booking systems, which still account for more than half of all airline travel. But IATA has now launched software called New Distribution Capability (NDC), which significantly improves communication between travel agents and airlines. That will allow third party booking centres to offer an airline’s entire product, including add-ons such as seat selection, upgrades, or a custom pair of slippers. Even an airline’s cinema-like videos can be distributed via the technology.
Twenty-six airlines have so far taken up the technology.
De Juniac says it will not only “significantly change” the distribution of an airline's products – allowing it to sell more revenue-earning options and bring new product offerings to market much more quickly – it will strengthen the relationship with the customer.
“Now we know you when you type on your keyboard, but we want to know you after your flight and to maintain a relationship with you to be able to customise what we are going to offer,” he says. “I don’t know if you are vegetarian, or if you like fish, or if you prefer space for your legs, so you will ask for that. And the technology enables the airlines to offer that and to have a real customised, personalised approach.
“That is a key issue and it is also a way to improve the trust that you can have in a brand. So it’s a branding strategy, it’s a marketing strategy, based on a direct link a company can have with passengers. Before it was only possible onboard – [but] onboard you only had a direct link with the flight attendant, we [the airline business staff] didn’t know you.”
That, though, means airlines will have access to a wealth of passenger data. IATA says its research involving nearly 7,000 passengers found that 85 percent of them were willing to provide more personal data to ensure they had a more customised travel experience.
While that may expose passengers, it could also mean swifter security checks. Lengthy waits, convoluted or multiple processes and removing items are enough to entice some flyers to choose a different airport if it offers a smooth process. IATA says its survey found 40 percent of passengers choose their route based on their airport transfer experience.
IATA has partnered with Airport Council International, which represents airports worldwide, to improve the efficiency of security checks while ensuring quality is not compromised. They aim to provide passengers with a continuous journey “from curb to airside”, passing through security with minimal inconvenience.
Titled ‘Smart Security’, the organisations say it strengthens security by enhancing technology, increasing unpredictability and focusing resources based on risk. Airports can potentially save costs by optimising asset utilisation, while passengers enjoy less intrusive processes.
De Juniac says IATA must convince airports and governments that the new technology and processes do not impinge on the quality of security, particularly after several high profile incidents in recent years. To even suggest that fast-tracking security screening potentially compromises on quality is “a dangerous point” to make, he says.
“Considering the issue we have hovering above our industry, which is security, we do not expect to see a reduction in the quality of security checks. What we try to aim at is to have a security check which is high in quality and very efficient and very quick,” de Juniac says.
“Even if there is a doubt about the quality of checks it is a disaster for the industry. So no compromise on the quality of the security check, but improvement in terms of efficiency and speed. No reduction in quality.”
Part of the process will also be sped up by an increase in digital self-service options that allow passengers to arrive at the airport ready to fly. Online check-in has already soared in popularity, saving passengers time standing in long queues at the airport. IATA says the number of passengers who checked in online and used a mobile boarding pass, rather than a printed version, increased by 2 percentage points to 71 percent this year.
That could even be extended to allowing passengers to rebook themselves in case of delays or cancellations.
IATA is also helping airports and airlines to implement systems to allow passengers to tag their own bags, whether at home or the airport, and then take them to either a self-service bag drop or dedicated check-in counters.
The mystery of lost bags also should be solved through an IATA resolution that requires every member airline to keep track of each item of baggage throughout the travel journey by 2018.
Electronic tags are being tested at several airports worldwide. If a bag does get lost, IATA is studying options that would allow passengers to report the missing item via a self-service channel.
Radio Frequency Identification (RFID) technology could save the air transport industry more than $3bn over the next seven years by reducing the number of mishandled bags by up to 25 percent, according to aviation IT firm SITA.
More than $22bn already has been saved since 2007 by using technology to halve the number of mishandled bags from a record 46.9 million – despite a significant increase in passenger numbers.
Pilot programmes of the RFID technology – which costs about 10 US cents per passenger to deploy - with carriers including the world’s largest by passenger numbers, Delta Air Lines, have shown a 99 percent success rate for tracking bags.
Some airports also are allowing passengers to scan their travel documents at kiosks for verification and to ensure they meet visa requirements. In the GCC, several airports including Dubai, Doha, Abu Dhabi and Riyadh already have such technology. Automated boarding gates similar to those used at a train station also could soon allow passengers to self-board by scanning their boarding pass or token to gain entry to the aircraft.
“These technologies simplify the journey, they ease the journey, they transform the customer experience into something which is more fluid, which is more smooth, which is quicker,” de Juniac says.
To encourage airlines to adopt the technologies, IATA has launched a Fast Travel programme that recognises carriers that offer at least four of the six outlined services to at least 80 percent of their passengers. Qatar Airways and Saudi Arabian Airlines are among the top 10 carriers in the world.
But that does not mean other airlines are unwilling to follow suit, de Juniac says. There are often other hurdles, such as the cost, availability of the technology and support of the respective governments.
“We have to convince the airports, airlines and sometimes governments, which are in charge of border control for instance,” he says.
“The critical mass is also important to convince everyone to follow when you’re developing these types of technology.”
It will not take long to reach that critical mass. IATA forecasts that 7.2 billion people could be travelling via air in 2035, a near doubling of the 3.8 billion airline passengers in 2016.
The prediction includes 5 percent annual growth in the Middle East – the second fastest growing region - equating to an extra 258 million passengers a year on routes to, from and within the region. The UAE, Qatar and Saudi Arabia are expected to see strong growth of 6.3 percent, 4.7 percent, and 4.1 percent respectively.
But IATA warns those figures will not be reached unless airlines and airports work together to streamline processes and make the journey faster, more efficient and more enjoyable. With the bottom line at stake, there is plenty of incentive.For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.