Low-cost airlines bet on
data to drive profit
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[August 18, 2016]
By Conor Humphries
DUBLIN (Reuters) - Europe's low-cost
airlines once mocked the air miles programs run by flag carriers as
expensive relics of a bygone era. But after watching wide-eyed as
customer databases were valued at billions of dollars, they are
scrambling to catch up.
Europe's two largest low-cost carriers, Ryanair <RYA.I> and easyJet
<EZJ.L> have both swallowed their pride in the past year and
launched customer loyalty schemes and both have announced
significant investments in data analytics.
Their aim is to ape retailers like Amazon.com and Tesco in driving
profits by leveraging data from vast online customer bases to create
highly personalized offers and adapt services to customer
preferences more quickly.
"This has transformed retail and it's going to transform airlines,"
said Kenny Jacobs, a former Tesco executive spearheading Ryanair's
digital drive as chief marketing officer.
He has overseen the hiring of 150 IT specialists since he was
appointed two and a half years ago. "Airlines are not good at this.
We're still crap compared to what retailers do."
easyJet chief executive Carolyn McCall, who last year appointed the
company's first head of data science to oversee a team of 25 data
analytics specialists, has described data as "incredibly important"
for the airline.
A spokesman for easyJet described the potential benefits from
digitization and data analytics as "exponential".
Both airlines have promised a detailed breakdown of their digital
data drives and the financial returns in the autumn.
John Walton, who writes for online aviation publication Runway Girl
Network, said that from the customer's point of view, they and other
airlines had some way to go.
"I see few visible signs of European airlines ó or indeed other
airlines ó using the rich data they hold to drive bookings and
revenues," he said, citing a lack of useful, targeted offers from
any of the half a dozen airline loyalty schemes he held.
Ryanair and easyJet are taking different approaches, with Ryanair
focusing squarely on selling optional extras while easyJet sees
ticket pricing at the heart of its data drive.
easyJet was first to move, investing in artificial intelligence over
the past few years to drive the algorithm that determines seat
pricing in real time depending on demand.
Its computers track over a billion searches on the easyJet site
annually to see what prices, destinations or travel times prompted
them to book or leave the web site and adjust all three as soon as
Spokesman Paul Moore said that kind of data more than compensated
for the airline's later collection of personal information through
its Flight Club loyalty scheme.
"We don't have the legacy frequent flyer systems the legacy carriers
have, but we have been selling online far longer and at far greater
scale than they have," he said.
"The data we have on purchasing patterns and flight patterns is, we
suspect, larger and richer by some way."
Ryanair, whose business model is to cut fares as far as possible to
fill planes and make money selling optional extras, was a little
later to the game. It has spent much of the past two years
overhauling its web and phone offerings and is preparing a push to
get more of its 100 million customers to register for its My Ryanair
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Passengers wait for their flights at Lisbon's airport, Portugal June
24, 2016. REUTERS/Rafael Marchante/File Photo
It is a far cry from the early 1990s, when Michael O'Leary scrapped
the airline's Frequent Flyer scheme on taking over as chief
executive. Soon after, easyJet began a campaign for frequent flyer
schemes to be scrapped as "disguised bribery".
First introduced in the 1980s, air miles programmes allowing customers to earn
free flights by sticking to one carrier were sometimes set up as independent
entities. In 2014, analysts put a value of up to $2.5 billion on the loyalty
division of Qantas when it was considering floating it or selling a part.
"TREND OF THE FUTURE"
Alongside increasing sales of tickets and ancillaries, better digital
infrastructure can also enable innovations like automatically rebooking
customers after canceled flights and sending stranded passengers hotel
reservations to their phones.
Legacy airlines are also investing heavily, with Lufthansa <LHAG.DE> Chief
Executive Carsten Spohr describing digitisation as the "trend of the future"
with plans to invest 400 million in the 'digitisation' of the group's airlines
But the most dramatic improvements in recent years have come from the low cost
side, said Rob Kemp, who provides feedback to major European airlines in his
role as Chief Technology Officer at Momondo Group, which runs ticket price
"The low-cost carriers are really taking that as a clear mission. I just don't
see as much of that from the larger airlines at the moment," Kemp said.
Ryanair's primary target is to use highly personalised marketing to boost
ancillary revenues - charges for extras like checked-in bags, premium seats,
fast track security clearance, which accounted for 24 percent of Ryanair's
revenues last year.
Ryanair in the past employed a low-cost scatter-gun approach, offering every
service from car hire to travel insurance to new luggage to every customer,
irrespective of whether they had bought them in the past.
A more streamlined system might offer someone booking a last-minute mid-week
flight to London a train ticket, Jacobs said, while someone with three children
booking the same flight six months ahead might be offered a discount on a large
"Itís more about profitability than market share," he said. "You've got a
website thatís getting so many visits, how do you monetize that? How are you
getting those customers to buy more?"
(Additional reporting by Victoria Bryan and Sarah Young; editing by Philippa
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