Emirates Airlines: A Quest for Service Quality
Believe it or not, the internet is one of the factors to blame for the poor service quality in the airline industry, but Emirates is trying to use other aspects of the digital transformation to deliver superior customer experience.
The first wave of digitalization materially increased competitive pressures in the airline industry. Before the internet, flight tickets were physically sold at travel agencies, which made price comparison a hard task and favored large airlines with brand recognition and capital to sponsor expensive in-store distribution channels. The shift to online sales enabled consumers to compare prices on a real time basis, changing the way airlines compete. Air travel became commoditized, with clients placing much greater emphasis on prices than on service. Multiple low cost airlines emerged and, by offering cheap prices, became a relevant threat to incumbent players. Research suggests that this focus on price, caused by the internet adoption, increased flight delays and adversely affected airlines’ incentives to provide quality service [1].
By challenging the poor service quality norm that became synonymous with the airline industry, Emirates Airlines grew from a small operation funded by a U$ 10 million Dubai Government investment in the 90s to the world’s fourth-largest airline by international traffic nowadays. This accomplishment is closely related to its strategy of maximizing quality through innovation without focusing much on price competition. So far, Emirates has been the pioneer in leveraging some aspects of the digital transformation to deliver better customer service:
- Inflight Connectivity: in 2008 Emirates was the first carrier to offer GSM mobile connection in flights and later the first to roll out wifi at large scale. [2]
- CRM: the airline provides its crew with real time customer information, allowing them to learn customer preferences, register complaints and let passengers upgrade seats minutes before taking off [2].
- IOT Baggage Management: Emirates uses Beacons to locate bags and improve both the operational and customer service aspects of baggage management at Dubai airport. On the operations side, Emirates is piloting beacons to monitor the condition of equipment such as life jackets without having to physically inspect them [3]
- Flexible Cloud Infrastructure: flight demand is very seasonal, experiencing extreme peaks and troughs. Emirates adopted flexible cloud computing platforms to scale its infrastructure up and down quickly and provide a consistent customer experience at all times [4].
Aware that other airlines are copying many of its initiatives, in 2015 Emirates decided to give a step further and unveiled a plan to undertake an enterprise-wide transformation aimed at placing big data at the heart of the organization, re-inventing processes and underpinning decisions with real-time analytics. It launched a lab in partnership with Carnegie Mellon University to conduct research on the above-mentioned topics [5]. Among the areas for potential improvement are:
- Big data: loyalty programs are very important for airlines, not only from a marketing standpoint but also as a source of revenues (banks and credit card companies spend billions per year on flight rewards for their customers). Big data can help airlines manage loyalty programs more efficiently, delivering more value for customers and maximizing revenues. By gathering and analyzing clients’ data, airlines can customize miles’ redemption offers rather than flood customers’ mailboxes with general and superficially targeted ads and promotions [6].
- Better use of mobile platforms: most airlines have apps that enable ticket purchase, online check in and flight information checking. But these apps could also be used to provide airlines with clients’ location data a few minutes before flights. By having access to a clients’ GPS location, the airline could know whether or not the customer would be able to arrive on time. This information would be helpful for high demand and frequency domestic routes because the airline could offer the late customers’ seat to a passenger waiting for the next flight, avoiding an empty seat.
- Better price discrimination: currently airlines discriminate prices for the same route based on how many days before flight the purchase happens. But by using big data, they can discriminate prices much more efficiently, for example, if a customer flies regularly from Boston to NYC, it is likely to be a business trip and a company is probably paying for the ticket which leads to less price sensitivity, so the airline can charge more in this case and offer a lower price for leisure customers in the same flight.
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[1] The Effect of the Internet on Product Quality in the Airline Industry
[2] Innovative Airlines 2011
http://www.airlinetrends.com/wp-content/uploads/2011/01/Innovative_Airlines_2011-airlinetrends.pdf
[3] How Airlines are Tapping into the Internet of Things
https://www.ge.com/digital/press-releases/how-airlines-are-tapping-internet-things
[4] The Digital Transformation of Travel
[5] Emirates Group Debuts Silicon Valley-based innovation lab in partnership with Carnegie Mellon University
https://www.cmu.edu/news/stories/archives/2015/november/partnership-with-emirates-group.html
[6] What Big Data Means for Consumer Loyalty
http://www.bain.com/publications/articles/what-big-data-means-for-customer-loyalty.aspx
Interesting post about airline industry!
It looks like Emirates are trying hard to differentiate themselves by actively adopting digital technology. However, as a potential customer, I am worried about some of their new strategies such as having access to my GPS locations and possibility of price discrimination. To maximize positive effects of their new technology and minimize potential risks, Emirates should be careful about customers’ potential concerns regarding personal information and unfair discrimination.
Thanks for the post! It’s shocking to me that most airlines still do not use CRM tools or baggage tracking beacons–these seem like easy improvements to the baseline operating model that would have outsized impacts on airline efficiency given the ripple effects we’ve seen in class. To your earliest point, it definitely seems to be because most travelers see air travel as a “good enough” good rather than a “need the best” good, and so are willing to forgo a lot of potential benefits of higher-priced flights (e.g. flight attendants who can get real-time data on you via CRM).
Generally my takeaway is that a lot of the digitization initiatives and benefits will thus accrue to business travelers who disproportionately travel in first class / business class and are price insensitive, and so will differentiate based on in-flight services. Good for Emirates to get out in front of this trend.
I am actually surprised at how well Emirates is doing. I knew they were doing well, but I did not expect them to be in the top 4 internationally. The reason I assumed they wouldn’t be too profitable is because they serve a niche market. While customer service and the other things you outline are great, they are extremely expensive to fly therefore only a small portion of the population can ever book with them. I am curious as they continue to incorporate technology and digitization into their operations if their prices will continue to increase and they will price-out more customers.
Being a loyal customer of Emirates, there is not many other companies that can offer a similar level of customer service and most of the American airlines have a long way to go to catch up. Investing in those new technologies to always improve customer experience is paying off for the company as they manage to completely lock in their customers (especially business travellers) especially with their rewards program where the payment for the premium on flight tickets is clearly worth it on the long term (regular upgrades, cash and points tickets). This high level of quality combined with an ideal cross-continental location between Europe, Africa and Asia have been the core strengths for Emirates growth. The only drawback is that Emirates customers expectations are getting higher and higher and it will not be easy to maintain and exceed those while scaling up and entering new markets.