The busiest airport in the world – Hartsfield Jackson Atlanta International – welcomes 100 million passengers a year. That’s a lot of passengers buying duty-free merchandise, eating at airport restaurants, and accessing airport lounges. If airlines can understand what motivates these passengers to spend on the day of journey, they can use those behavioral economic insights to ‘nudge’ passengers in profitable directions.
The Middle Option in Passenger Experience
What we call “behavioral economics” is really just basic passenger experience – understanding passenger needs, preferences and triggers and then meeting those opportunities with merchandise, options, and incentives. To do that, airlines don’t need big economic theories – they can start with simple sales and product data: what are passengers buying and what motivates them to spend?
For example, it’s well known that consumers love the middle option. There is a reason coffee shops offer their core product in three sizes – not two and not four. In experiments when the actual volume is adjusted by 2 ounces either up or down, 70% of consumers will choose the middle option and claim the size was “just right” for them.
The question here for airlines: why are so many options offered in binary format? Many airlines give multiple options when it comes to ticketing – like Porter's Firm, Flexible, and Freedom ticket options – but past that, options to passengers are few and far between.
There are many areas where airlines can add in more options from meal tiers, to onboard amenities, to baggage. Consider the psychological benefits of offering three levels of baggage tagging: Option 1 is for customers who are business class, a high level of Loyalty, or willing to pay a high fee. Option 3 is the no additional pay option. Right in the middle could sit an Option 2: a moderate fee to see your luggage come out before those opting for the no-fee option.
These are the kinds of direct improvements to passenger experience that win over the ‘connected traveler’ as much as the occasional flyer. And no major changes are required from the airline – just a willingness to think about passenger experience from a retailer’s perspective and put data insights into action through a direct (i.e., mobile) channel.
Airlines as Global Retail Brands
Keeping in mind that airlines are global brands, how would other retailers like Starbucks or McDonald's approach the passenger and onboard experiences? In McDonald's restaurants, for example, the company can rearrange its digital menu in real-time for better service (like when a group of hungry kids shows up) or highlight products it wants to sell/test in new markets. The McRib, the restaurant's already-popular product, has seen indexed sales of 200% in certain locales thanks to digital signage.
With that in mind, is it too much to ask that passengers be able to place and edit orders from a mobile app (or at the very least, seatback device), where airlines can add inventory dynamically and deliver personalized offers with support for mobile payments and ‘pay with points’? That’s the kind of passenger experience we envisioned when building the new airline commerce platform.
Airline Retail for the Connected Traveler
Airlines haven’t been able to ‘digitize’ the cabin the way they’ve digitized the cockpit. Fortunately, passengers don’t have to fly planes safely – they just need an airline app that works intuitively and makes their journey easier. Data analytics is the ‘missing element’ that will allow airlines to think like retailers and automate behavioral economics tactics like the “middle option.”
Take another example from the airline industry: secret fares. Hopper Inc. is a mobile-only travel seller that offers “secret fares” from a handful of airlines, including Air Canada, at prices as much as 35% below what the same carriers publish elsewhere. The secret fares aren’t seen as a threat because they are mobile-only and privately published. And isn’t there something thrilling about a secret fare? Airlines should be asking what else the customer is willing to buy once they give in to temptation. Secret fares enable airlines to acquire a new customer and potentially make up the difference in price on the day of journey – but not unless airlines have the necessary data analytics capabilities to get the right offer to the right passenger at the right time.
Consumer mindsets when it comes to airline travel can be best understood through the lens of behavioral economics: despite better ticket prices, the number of "losses" in added service pricing can outweigh their (psychological) gains. Putting this lens on, airlines should consider strategies like the “middle option” and digital offers and enhancements that could flip the negatives of lineups, baggage waiting, and meal options (that often run out) to positive enhancements to the passenger experience.