AirAsia looks to data for savings, profit boost

This article first appeared in The Edge Malaysia Weekly, on January 8, 2018 - January 14, 2018.

Shanti: For ancillary income, the more you know about a person, the better you can sell, and that’s been proved through time

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IMAGINE you are on a flight and feeling peckish. You take out your smartphone and pick a combo meal on the airline’s digital menu. When the cabin crew delivers your food, you swipe your  credit card and dig in.

That is the reality that AirAsia envisions for its passengers in a few years’ time. It is part of the airline’s push to digitise its business in pursuit of data monetisation and cost-saving efficiencies.

While that may sound counter-intuitive given that flying these days requires plenty of digital interaction — from buying tickets to checking in, for example — many operational aspects remain primarily non-digital, according to chief data and digital officer Nikunj Shanti.

“A lot is still done on paper, for example, hiring processes, fuel management and acquiring legal documents. For us, becoming a fully digital airline is really about transforming that part of the business into more digitised forms of doing business,” Shanti tells The Edge in a interview.

The strategy, first unveiled by Group CEO Tan Sri Tony Fernandes in November, essentially seeks to leverage on Big Data analytics to boost profits and reap savings.

The airline is investing US$100 million in various initiatives that include a revamped online duty-free store and an e-wallet that helps Southeast Asian travellers convert currencies more easily.

While many new companies and start-ups are already operating digitally, that is not the case for older companies such as AirAsia, says Shanti. Part of the reason is that many of the current digital solutions were only created in the past several years.

The point of digitisation is to generate operational data that can be used to find better efficiencies, he says. “Ideally, the more things we can digitise, the better we can improve our efficiency and our operations.”

In the case of aircraft, digitisation means having AirAsia planes pre-installed with Internet of Things sensors that can capture various operational and other data. At present, only a few of its planes are equipped with such sensors — exceeding over 1,000 sensors per plane.

One example of how the sensors help is in monitoring the engines, says Shanti. Dirty engines consume more fuel, and while engine cleaning is regularly scheduled, monitoring the data allows for adjustments and cleaning.

“What we can do now is if an engine is starting to burn more fuel, we can go ahead and send it in for washing earlier. Now, we can be more proactive and these things will save us money,” he says.

 

Monetising ‘rich’ data

On the sales front, the plan for in-flight purchases is to go digital and cashless. One of the things AirAsia is working on is its own digital wallet. It is also in the process of installing WiFi accessibility on all its planes, at a cost of US$350,000 per plane.

Having WiFi onboard is essential as it wants passengers to connect to its network in order to make purchases.

AirAsia recently started out  rolling out electronic point-of-sale devices for cabin crew to capture the purchase data more accurately. In future, the device will also be able to call up historical purchases and tendencies of individual passengers.

“It’s just like how, when you go to your regular mamak stall, they know exactly what you want,” says Shanti. “We need to apply the same concept on our planes, only we have so many millions of passengers.”

It is not a new concept as Netherlands-based TUI Airlines began allowing passengers to order food and duty-free items via their own devices mid-flight in 2015.

For AirAsia, the initiatives centre on monetising its data trove that Fernandes claims to be “richer” than those of digital giants such as Uber and Grab — referring to the fact that the data and identity of every passenger is verified.

He estimates that there are more than 33 million unique AirAsia passenger profiles constructed based on flown data. He conservatively estimates another 30 million unknown individuals, based on website visitors, who can be identified should they someday make purchases.

Better data collection and monetisation may enhance AirAsia’s ancillary income further. In the financial year ended Dec 31, 2016, the airline recorded RM48 per passenger in ancillary income and Fernandes has publicly set a target of RM60, which some analysts have described as “overambitious”.

“For ancillary income, the more you know about a person, the better you can sell, and that’s been proved through time. As we start using data more, we’ll be able to sell more because we know what item will work for you at the right time, so that will really help our ancillary revenue,” says Shanti.

AirAsia lags behind some US-based carriers, whose ancillary income account for a much larger proportion of revenue.

According to US consultancy IdeaWorksCompany’s 2016 annual ranking of 66 airlines by ancillary revenue, leading the pack is US-based Spirit Airlines, whose ancillary income makes up 46.4% of its revenue.

For AirAsia, only 18.4% of its turnover came from ancillary income in FY2016, placing it 13th on the list. However, each airline’s ancillary income basket is unique, according to IdeaWorksCompany.

 

Bridging the data gap

A missing link in AirAsia’s data trove is information on what its passengers do after disembarking at their destinations, especially those on holiday, says Shanti.

While it can make guesses based on known tourist attractions, it is not as good as knowing for sure when it comes to personalising information and offers, he adds.

“We’ve done a great job taking people to places, but a lot of the time, people who don’t know what to do in that place are left wondering. And some people who are not so adventurous might not want to go to a new place without knowing what to do,” he notes.

“So it’s about how we can fill that gap and really recommend places. Otherwise, it’s hard as we keep expanding to get people to travel to new places.”

AirAsia is now working on transforming its content platform, travel 3Sixty°, into a user-driven platform similar to Snapchat, allowing passengers to share photos and videos of destinations around Asean.

The idea is two-fold, Shanti explains. For the passengers, the platform will help them discover more attractions and interesting activities at their destinations that they may otherwise not know about via peer-generated content.

At the same time, AirAsia would be able to tap the generated data to discover preferences that help future destination and activity recommendations. That would complement future updates and information for the passenger that go beyond reminders to check in, for example.

“Eventually, if we hook weather data and traffic data into our systems, then we can tell you, ‘Hey, it’s gonna be cold in Boracay. This is unexpected, so you might want to pack a sweater’. Or if there’s a big traffic jam on the MEX highway, we want to tell you, ‘Hey, the traffic’s really heavy, you might want to leave 30 minutes earlier’,” Shanti explains.

“So, these are the types of things that we’re looking at to make the [flying] experience better.”

 

 

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