In recent years, major airlines have significantly improved passenger profitability through ancillary goods and services, more nuanced seat fares, and better customer experiences. According to IATA, net profit per departing passenger is up about 5% from 2017 to 2018. However, airlines face a threat as ultra-low-cost carriers enter the North American domestic market. The coming years will see incumbent airlines struggle with profitability and revenue growth.

Airlines often overlook an area of opportunity, however. The information from customer event logs can be used to improve customer experience and drive passenger yields, most obviously through better pricing, but also through personalizing offers for goods and services, which will maximize ancillary revenue and passenger profitability.

What are customer event logs?

When your various customer-facing systems record interactions with customers, customer event logs are generated. Here are some examples of customer event logs for a typical traveler:

  • When a traveler buys a ticket, this gets recorded in your payment and ticketing systems
  • When a customer receives an e-mail, the “e-mail send” is logged, and your e-mail service provider likely logs e-mail opens and clicks as well
  • When a customer fills out a survey, survey results are recorded with market researchers or in survey software
  • When the customer visits your website, the visits get logged in web analytics tools
  • When a customer speaks with someone at your call center, representatives log customer services calls and call dispositions within your call center

While airlines are aware that this information exists, their challenge is to integrate this data across the disparate systems, match it back to specific customers, and use it to generate insights around customer segments or personalized experiences.

How do you use customer event logs to grow ancillary revenue?

If you’re like most airlines, your team is already using marketing interactions like e-mail activity to drive marketing campaigns. Email activity is an excellent base to begin understanding your customers.

However, marketing email interaction data represents a small component of the overall event log data you gather throughout the customer journey. Your broader data – from your customer event logs – about each traveler can be used to build more nuanced lookalike models, target your marketing messages more effectively, and personalize recommendations.

Here’s what you need to do to leverage this data properly:

Start building customer profiles, even for anonymous website browsers

All airlines track transactional data, and many have loyalty programs to manage repeat travelers. Most, however, do not log individual website activity against their purchaser profile, especially if customers purchase flights through a travel agency or broader distribution system. Even if these profiles are anonymous or have minimal customer information, they can provide fantastic opportunities for fare optimization or personalizing the traveler decision early in the purchase cycle.

How do you begin tracking and centralizing more information early on? Most airlines will use loyalty IDs (from their programs) to track customers, but this leaves the majority of their behavioral data unmerged and unused. Instead, use a web analytics solution that tracks individual anonymized visitors and records how they search on your site. Ensure this system can connect customer behavior to the purchases these customers eventually make. Use fuzzy matching or a universal customer ID to centralize your customer data into one view, creating a 360-degree view of your passengers.

Build an offer and content library

Maximizing ancillary revenue and passenger profitability requires you to have different options and offers for a passenger to select. Therefore, you must create products or subsets of products that they can choose. You can also expose passengers to content that will guide them to more exclusive experiences with your airline. The more options you have, the better; by building more personalized travel experiences that speak to each passenger’s needs, passengers will spend more and be happier.

To execute this initiative, you need a standardized form for tracking the products and services your passengers will buy. Airline tickets themselves often are regulated and follow strict guidelines, but this is less true for ancillary goods and services, and almost never the case for content associated with the product experiences. To personalize your travelers’ experiences, you first need a product and content library that your algorithms and customer experience managers can select from.

Therefore, your team needs to start by building a library with offers, content, and products that you can expose to customers, or that algorithms can choose to present. While it may seem obvious to include discount tiers in your offer library, you should prioritize the offers that will grow your revenue the most. It does not make sense to prioritize discount seat offers since sending these first prevents your team from uncovering ancillary revenue opportunities. Seat upgrades, food, lounge access, baggage fees, and other perks should all be an integral part of the library.

Create hierarchical models for travelers

One of the challenges that airlines face is that they are not sure how to leverage the diversity of their ancillary options. The default approach most airlines use is segmenting customers by their home airport or travel destination. Fortunately, you can push this much, much further.

When you build a more precise view of your customers (as per point #1 above), you generate enough data to make hierarchical models; ones that not only estimate where a person is traveling, but also which flights are most relevant, or even the individual seat number on the specific plane they may book. This level of granularity makes travelers feel like your airline knows them on a personal level, not just a transactional one.

What exactly are hierarchical models? These models should be able to classify and predict both broad themes a passenger might be interested in, as well as particular product experiences. For instance, Canopy Labs’ hierarchical models will typically predict (a) home airport, (b) theme of the trip, and (c) target locations. However, they will then break down these predictions to particular flight codes, hotel names, car rental agencies (including car types), and specific dates and times the customer is most likely to travel. This flexible granularity means our airline clients can build large customer segments targeting a particular destination, or become extremely narrow in their campaigns, sending each traveler an offer that is unique to them.

Of course, you still need to execute on campaigns. Creating content related to the hierarchical offers above, and measuring success, is the next step. With centralized customer data, an organized offer library, and hierarchical models, you will be able to optimize each traveler’s experiences.

Ancillary revenue and improved customer experience will be critical for airlines to maintain growth in profitability per passenger, especially if competing against ULCCs. Using this approach, however, your airline will maximize ancillary revenue while providing a superior passenger experience.
See it in action! Read about an advanced version of this approach, where Canopy Labs optimized itinerary for each traveler for Vegas.com.