Objective
In this lesson, you will discover the differentiating business processes in the travel and transportation Industry. We'll begin by learning about "Passenger Travel and Leisure" challenges and continue to the subindustries business processes (airports, rail and urban transit, and hospitality).
We'll complete the lesson by doing the same for "Cargo Transportation and Logistics". Let’s get started.
In the following video, we'll explore the vast array of challenges that travel companies face in an ever-evolving market landscape. From the rising expectations of contemporary travelers to fierce competition and disruptive new entrants like Uber and Airbnb, companies must constantly adapt to stay on top. We'll examine how aging infrastructure, complex asset management, and shifting business models play pivotal roles in shaping strategic priorities. Furthermore, enhancing customer experience remains paramount as companies aim not only to meet but exceed traveler demands through innovative services and seamless operations.
Now that you understand the challenges that the travel and leisure industry is facing, let’s focus on specific sub-industries within the Travel and Leisure industry and their business processes. These include the airline, airport, and passenger rail and urban transit industries.
The airline industry is sensitive to outside forces that are beyond its control. Weather, fuel prices, volcano eruptions, the economic situation – and of course pandemics such as COVID-19.
Costs are high, such as fuel, assets, and employees. Price sensitivity of passengers and high competition make it a challenge for airlines to be profitable. New players entering the travel market emphasize the need for airlines to spark customer loyalty and own the customer conversation. To survive, airlines must develop a retail approach with their customers; otherwise, internet giants such as Google, online travel agencies, Amazon, and Apple will instead control that customer conversation. Let’s now learn about the first airline industry business process: customer experience.
Airlines need to focus on customer experience, personalizing the engagement, anticipating needs, and making offers that are situationally relevant. For example, at the time of booking, one might be more focused on price and not as interested in an upgrade as one might be when making one's way through a busy airport and given a special offer.
In the competitive situation airlines find themselves in, airlines are aiming to become retailers "in the sky". As we already discussed, selling ancillaries such as internet, extra luggage, or food, or selling partner services, is vital to increase overall profitability and attract customers to choose the airline itself to book their trip. Selling a hotel room or event ticket has a high margin as there are hardly any costs involved in doing so. However, the current systems and processes represent a technical challenge for airlines to be retailers.
These systems create numerous limitations: for example, let’s say a salesman and his family are traveling from Frankfurt to Melbourne via Singapore. The flight to Singapore is operated by Lufthansa, and the flight from Singapore to Melbourne is operated by the so-called interline partner Singapore Airlines. The salesman bought the ticket from Lufthansa. Since he has a business meeting in Singapore, his family will return to Frankfurt a few days before him. In the current system environment, it’s not possible for Lufthansa to sell seat upgrades or other services to him for the Singapore Airlines flight. Also, since he and his family have a different itinerary, he can't have the same booking as his family.
To enable true airline retailing, the processes and systems around the current outdated flight-centric airline distribution need a dramatic change. They need to become customer-centric, simple, and flexible – it’s one of the biggest disruptions in the airline industry. The International Air Transport Association (IATA), the trade association for airlines responsible for setting policies and standards in the industry, is active in helping the industry transition into a new retailing world by simplifying the business and defining new standards. One key standard is the New Distribution Capability (NDC) communication standard between airlines, aggregators, and travel agents that enables retailing through indirect channels. ONE Order meanwhile aims to streamline the booking process with a new simplified offer and order management, accounting, and settlement processes – huge changes that revolutionize the airline world and their ecosystem.
Now, let’s look at operations. On-time performance is an essential KPI for an airline and essential for customer satisfaction. An integrated view of airport operations enables airlines to reduce turnaround time. Automating the sequence of ground-handling services and airport operations allows the airline to directly influence the probability of an on-time departure. Intelligent operations combine machine-learning capabilities and Big Data solutions to enable well-orchestrated airport operations for an airline.
In maintenance, airlines combine traditional methods with the science of predictive maintenance, where sensor data is used to predict failures and optimize maintenance programs for maximum maintenance yield and aircraft availability. Airlines use machine learning and AI to develop more sophisticated, predictive, and condition-based maintenance.
The airport industry has evolved from being a basic facility provided to passengers and airlines where you go to board an aircraft or disembark from an aircraft on arrival, pick up your luggage, and go home. That was about it, maybe some retail but nothing more.
Then, the industry advanced in terms of communication and how it engaged with partners, opening for logistics companies for handling air cargo. Slowly we saw office parks, industrial companies, and city clusters forming around it. In the terminal space, we saw growth in terms of retail outlets, currency exchange services, food and drink outlets, and so on. Now, moving onto the digital airport, which we call Airport 4.0, we see a lot more interconnectivity between the people that are involved with the different facilities in the airport ecosystem.
This is all on the terminal side, which we call non-aeronautical services. There's similarly a wide range of services that airports need to provide on the apron side, which we call aeronautical services. These include getting the passengers on and off the aircraft, cleaning the cabin, taking out the waste, refilling the water, refueling, loading–unloading baggage, providing air conditioning, and so on.
Let’s now learn about the first airport industry business process: customer experience.
Of course, airports wouldn't exist without airlines and passengers, so they're the primary customers. However, the customer base now also includes retail vendors that offer diverse shopping options. Most hub airports feature outlets from high-end brands, alongside food and drink establishments ranging from convenience stores like 7-Eleven to gourmet dining options. Moreover, service providers that support essential airport activities, such as security, immigration, and customs, play a crucial role. Airports aim to offer specialized services tailored to each of these customer groups. Delivering an exceptional passenger experience is paramount, even if airports don't have direct interactions with the passengers. It's about customizing experiences, catering to passenger needs with the desired facilities, and providing ancillary services such as city connectivity that enhance the overall airport experience.
With the growth in non-aeronautical services offered, airports are now looking at these commercial opportunities to generate new revenue streams, provide flexibility for executing those services, and ensure that they have a portfolio of products that customers are looking for and that are constantly updated to keep customers coming back.
It's obvious to say that if you're looking to improve customer satisfaction, you must improve your operational efficiency and ensure that the operations run successfully, particularly in times of disruption. Now, disruptions aren't a rare phenomenon in the aviation industry, so the difference between a good airport and a great airport is based on how they're able to manage disruptions and keep passengers informed. Beyond that, making better use of the infrastructure, shared platforms across the operations with the ecosystem partners, and provide sustainable and eco-friendly services to the passengers.
Passenger rail and transit are part of a bigger ecosystem of mobility providers which not only includes public transit but also vehicles, road networks, and OEMs. The following are industries involved in the mobility industry:
With its ecosystem of suppliers, OEM companies, leasing companies, dealerships, and rental companies, the space of mobility is being disrupted by CASE – Connected, Autonomous, Shared, and Electric – trends.
Companies like Google, with its Waymo approach, Amazon, with its recent acquisition of Zoox, Intel, with its acquisition of Mobileye, and recently Moovit are eying the mobility industry.
Uber and Lyft are pioneering the ride-sharing industry with regional champions like DiDi in China and Grab in Southeast Asia. These companies are becoming powerful players in the mobility industry.
The passenger rail and railway industries are also actively involved in these significant industry-wide transformations through blending different sectors. Consequently, the business strategies and operational approaches need to evolve progressively to effectively compete and collaborate in a cooperative way to address these industry shifts. Bearing this in mind, the top three areas that the passenger rail and transit industries must focus on include:
As mobility services increasingly blur the traditional boundaries, automotive companies are keen to operate fleets dedicated to mobility services, while tech giants develop self-driving fleets. Concurrently, railway and urban-transit operators are collaborating with these innovative players to deliver a seamless mobility service that integrates various transportation modes.
Today’s customers – including patrons, commuters, and tourists – have adapted to the sharing economy. They demand a service that transports them from their origin to their destination across different modes of transport, with a single payment option that covers all fare and service types across these modes, accessible seamlessly through their preferred mobile application.
Initiatives such as Shift2Rail and smart-city projects, alongside efforts to decarbonize transport, aim to improve planning and service provision in a way that optimally uses all available transport modes. This approach not only aligns with principles of mitigating climate change but also optimizes asset use to ensure maximum availability and efficiency for customers.
Delving into the hotel sector, the global market is valued at USD 4.51 trillion, a figure that accounts for the projected impact of the economic slowdown. Further exploration into the idea of smart hospitality or smart hotels reveals a projected market size of USD 18.12 billion by 2026.
The competition in this sector is intense, spanning hotel chains, boutique hotels, and residential or villa hotel properties. Key strategic discussions in hotel management focus on retaining customers through brand loyalty and enhancing merchandising and retailing strategies.
In considering the hospitality industry, and specifically hotels, we identify three primary focus areas or themes:
Hoteliers must carefully capture and define customer touchpoints, ensuring the ability to identify each customer’s preferred communication channel at their most convenient time. To achieve this, the customer journey must be clearly defined, understood, and digitalized – with explicit customer consent regarding data capture and use. Aggregated data from brand interactions can personalize experiences by pinpointing where customer expectations are either met or unmet, thus highlighting any experience gaps. Recent research indicates that 81% of travelers are seeking enhanced digital experiences.
Hotels have been exploring ways to expand their retail capabilities and are set to invest further in this area to generate new revenue streams. This involves delivering timely and relevant offers, such as a spa coupon following a spa-service inquiry or a happy-hour promotion upon evening arrival before a conference. The shift towards digital selling and contactless delivery not only helps reduce costs but also accommodates social distancing measures. Enhanced direct selling efforts will necessitate seamlessly integrated systems.
In response to the economic downturn and ongoing travel restrictions, hotels worldwide are striving to heighten operational efficiencies and minimize costs, including through digitization and automation, where feasible. Procurement strategies are also adjusting, with a shift towards regional suppliers to mitigate risks and potentially engaging new providers. Moreover, the approach to training is evolving, favoring virtual formats over large in-person cohorts to maintain high standards in brand and service levels. All costs are being re-evaluated under this new operational paradigm.
The following video is a comprehensive exploration of the various industry segments and subsegments within the landscape of cargo transportation. The video spans a number of sectors, including aviation, shipping lines, ports, railroads, trucking, and more, allowing you to better understand the unique characteristics and roles each plays in the grand scheme of global goods movement. We'll also examine the pivotal roles of freight forwarders, logistics companies, and parcel-express firms.
The following video provides an in-depth look into the end-to-end cargo transportation process using a hypothetical scenario of TechTronix's electronics being shipped from South Korea to Germany. You'll gather insights into various entities involved in the shipping process such as the shippers, freight forwarders, port authorities, and more.
We just discussed the common industry segments and processes within transportation, logistics, and cargo companies. Now, we want to talk about the typical challenges they face and their strategic priorities for overcoming them. While we recognize there are not just four challenges, these are currently the most prominent.
Tech-driven multinational companies are transforming cargo and freight management, risking the commoditization of traditional services. These disruptors offer comprehensive logistics solutions, real-time visibility, instant quotes, and automated processes. Incumbent players face market erosion and margin pressure, with profitability and cash flow often hanging in the balance.
Customers now demand broader service offerings and better information flow. Traditional single-service providers must expand through organic growth or acquisitions to meet these expectations. Real-time tracking, standard online reports, and event notifications are now essential customer requirements.
Global regulations, driven by safety and environmental concerns, are reshaping the industry. Driver hours of service, emissions standards, and fuel economy policies pose challenges, particularly in regions with high driver turnover or stringent sustainability targets.
Rapid digital advances strain the capabilities of many logistics companies, hindered by outdated legacy systems. To remain competitive, companies must invest in technology to streamline processes, manage data, and improve overall efficiency across various domains, from recruitment and route planning to cash flow management.
To tackle these four key challenges, transportation companies' IT strategy will need to fundamentally change. Three strategic imperatives can help transportation companies tackle them.
By offering new digitalized ways of engaging with the customer, transportation companies can attract customers to directly interact with them. By doing so, transportation companies can offer the same customer experience as new digital entrants and so mitigate the risk of being rendered a commodity.
With the help of new digital tools, transportation companies can offer premium services and go beyond their current offering. They could, in turn, become a new entrant in the area of other transportation companies by offering a full-fledged service offering to the customer (for example, terminal operators offering on-carriage services).
The opportunities of new technologies like machine learning and the Internet of Things are countless. Automated vehicles will change the way terminals work. At the same time, more information about assets can be collected, leading to better insights in potential issues that require unforeseen maintenance or replacement. To thrive in the digital era, cargo transportation companies need to stay ahead of competition. To do this, they must leverage technology to enhance several areas across finance, operations, human resources, and customer experience.
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