The Real Competitors For Airlines Today? Look To Google, Ub…


Human instinct is to fight what we recognize, often blind to the bear in plain sight. For example, Kodak and Fuji battled to dominate the market for film, oblivious to the rise of digital photography. Motorola and Nokia similarly fought to the death over flip phones, while smartphones stole the market. Again and again, the purveyors of new technology sneak up right in the open to capture consumers and transform entire industries.

Today’s big airlines may be acting out a similar scenario. Even as they make needed investments in technology for operations and marketing, the mammoths mostly lock horns with each other in a closed ring. Meanwhile, tech companies are quietly advancing an agenda of serving customer needs.

Recent moves by companies like Google, Amazon and Uber expose how the tech giants have redefined the competitive arena. The theme is a simple one: whereas airlines try to control the flow of information to their customers, Google undercuts that approach by giving customers the information they are seeking first, then separately working out how to profit from the advance. As the tech companies get closer to customers, they noticeably enter United, Delta and American Airlines territory.

A case in point is the large carriers’ response to low-fare, bare-bones products from the likes of Spirit or Frontier in the US and Ryanair in Europe. Delta, United and American — and now Virgin Atlantic and others in Europe — have tried to match the lower prices by creating a confusing range of new fare categories with different inclusions and exclusions. At the low end, so-called “basic economy” tries to replicate the Spirit product and relegate purchasers to middle seats. Other fares from the large airlines offer one free checked item, but no ticket changes, and other stringent stipulations.

To an economist, this range of fare categories and add-ons is rational. But consumers — 47% of whom fly less than twice a year in the US — are bewildered. Buying a plane ticket has become an endless research project with answers and price points that change before a passenger has a chance to select a seat.

Enter Google: Google Flights, a simple travel shopping app, is now starting to show baggage and other restrictions along with schedules and fares. It’s a safe bet that this functionality will improve before long to show the right combination for each customer — simplicity itself. Meanwhile, the airlines continue to layer on complexity.

Less apparent to the consumer, this capability will enable Google to capture richer data about the demands of customers, based on what they search for and click on. For Google, this creates opportunities to sell more targeted advertising, which commands a higher price. If airlines had been able to capture and analyze the same data, then they would have been able to tailor their product offerings to each customer’s needs more personally. That would have been a win for the airlines and for their customers — and Google would not have an opening to get between airlines and their customers.

In a similar story, Google will also begin predicting which flights will be delayed. By combining historical data with artificial intelligence, Google believes it can predict delays on specific flights, real-time. When the algorithm reaches 80 percent confidence, Google will share its prediction through the Google Flights app.

This move leapfrogs the airlines in two important ways. First, it replaces today’s information from legacy IT systems that reflect, but don’t predict, operational decisions made by human beings. Second, it willingly shares information with customers even when that information is uncertain.

What Google recognizes is that consumers today value speed and openness above all. In contrast, when it comes to flight delays, the present relationship between airlines and their customers is paternalistic and opaque. Airlines drip-feed flight updates from their operations center based on the plans their own people are entering in the system. It may or may not be correct and it is certainly not using artificial intelligence to predict what will happen. The tech-driven ability to predict delays and cancellations with confidence — and instantly communicate them to individual travelers — will beat airlines’ own customer service efforts. In so doing, they will reinforce travelers’ negative perceptions – even as the airlines are objectively improving service.

A very different endeavor by Uber tells a similar story. Over a year ago, Uber released a white paper outlining plans to develop a network of on-demand, electric air taxis over congested cities like Los Angeles and Sao Paolo. To airline traditionalists, it sounded about as realistic as personal jet-packs. Uber’s own analysis identified hurdles the size of mountains, including the limitations of current battery technology, a shortage of pilots and lack of appropriate heliports.

Nonetheless, they asked how passenger demands are not being met today — and envisioned a futuristic solution to meet them.

Depending on your viewpoint, Uber’s success to-date has been either in moving people from one place to another or in connecting buyers and sellers of transportation. For its air taxi concept to be successful, Uber only needs to take the next step in helping people to complete their journey, which could involve any combination of service providers, not necessarily just electric air taxis. For example, the solution might be a combination of home-to-airport service paired with a traditional air ticket.

Much like Google, the threat that Uber poses to airlines is offering to do a better job connecting individuals with a transport solution — and using customer data to improve service speed and accuracy. Under one scenario, Uber could position itself between customers and the airlines, who have fought for decades to take direct control of their own sales channels — first from travel agencies and more recently from other Web aggregators. That’s no different from what Uber did to taxis, several of whom now drive customers who book through Uber.

It’s not that far-fetched. Last year, Uber partnered with the European airline Transavia to offer UberESCAPE. For one week, customers were able to grab a flight on the app as easily as a car. Elsewhere, wise airlines are trying to stay a step ahead by setting up partnerships with Uber to take passengers to and from the airport, but the tail could ultimately wag the dog.

Amazon, for its part, is rapidly expanding its widebody freighter operation, now approaching 40 dedicated 767 aircraft. The company has committed $1.5 billion toward building an air cargo hub at Cincinnati’s airport. Historically, when Amazon has built a platform to meet its own needs, such as Amazon Web Services or fulfillment, the company has gone on to sell the service to third parties, as it could do with Amazon Air. This is not an insignificant threat to the Big Three US airlines: cargo revenue for American, Delta and United grew between 14 and 18 percent last year, over four times faster than passenger revenues.

What gives the tech bear teeth is two things that airlines would be wise to emulate. The first is a user experience that gives customers the information they need in real-time. Open, complete information that is not biased toward one or another product. The second is to match the consumer’s travel need with a service provider, even if that provider is another company. This is not a foreign concept to airlines, who invented codeshare flights to expand their virtual network. It’s just a matter of taking the next step to meet more of each customer’s needs.

Fundamentally, tech companies entering the aviation space do not care about any single airline’s market share, or about sugar-coating their operational disruptions. That disregard allows tech companies to make a massive impact on the industry. Tech giants only care about how their transportation solution meets each consumer’s requirements right now. And because of their power to aggregate demand across hundreds of millions of people, any time Google or Amazon or Facebook stir, they can sweep the airlines’ customers along with them. Airlines that want to stay ahead of them will have to embrace a focus on meeting customer demands wholesale — or bear the brunt of serious competition from more agile counterparts.

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