In almost all consumer-facing industries, online retailers and ecommerce businesses tend to think long-term when it comes to their customers. A site like Amazon, for example, does not propose to sell a consumer a single book – it aims to acquire a customer who will stay engaged with (and loyal to) the business for a long time… ideally for a lifetime.
Contrast that with a typical airline marketing department. Carriers care just as much about selling out their inventory as any online retailer, but they tend to view each flight-purchase as a one-time transaction: If Passenger X is looking to travel to San Antonio on March 17, the objective is achieved when Passenger X buys that Texas trip from the airline.
The limited focus on repeat customers and lifetime value is not the airline marketer’s fault. A business environment characterized by a focus on quarterly results and budgets is not conducive to the sort of long-term view and investment in infrastructure necessary to replicate the OTAs’ and MSEs’ success in customer acquisition and retention.
Examined through this “transactional” lens, collaborating with online travel agencies (OTAs) and metasearch engines (MSEs) makes perfect sense for airlines: Posting their inventory to aggregated, search-based travel marketplaces enables airlines to compete against other carriers – chiefly on price – to “win” Passenger X’s purchase.
But in ‘winning’ a booking through an aggregator platform, airlines lose something, too: The opportunity to establish a long-term relationship with Passenger X, and keep him engaged with the airline over time.
For example, if Passenger X finds and books his flight following an online search and aggregator-powered booking, which business “won” the opportunity to acquire the traveler as a potential repeat customer? The OTA or MSE, which now essentially “owns” the relationship with Passenger X (having simply let the airline ‘borrow’ him for the duration of the purchase transaction).
However, this isn’t a story about how aggregators are “stealing” potential long-term customers from carriers; rather, this is about giving credit where it is due. OTAs and MSEs understand – just as Amazon and other e-retailers do – that the key to customer acquisition is investment in performance marketing. By viewing Passenger X, or any other traveler, as a potential repeat customer, an aggregator can afford to prioritize customer acquisition in a way an airline – focused primarily on winning the booking for that trip to San Antonio – typically cannot.
“OTAs spend their marketing dollars based on the lifetime value (LTV) of a customer,” says Anton Diego, Founder and CEO of EveryMundo. “They want to acquire new customers, then keep remarketing to and upselling them moving forward.”
“That allows them to be far more aggressive than airlines in terms of marketing spend,” Diego continues, “because if you can count on a higher level of revenue per acquisition, you can afford to be more aggressive in acquiring that customer.”
And now is a wise time for airlines to get more aggressive. With OTAs charging $5-$12 per booking, the global airline industry is paying a reported $7 billion in third-party commissions and fees annually – largely for the privilege of “renting” customers like Passenger X for one-time transactions.
For most airlines, OTA partnerships remain a vital piece of an overall distribution strategy. But rather than focus exclusively on competing against other carriers on the aggregator platforms, airlines are wise to invest more marketing dollars mimicking the OTAs and MSEs by building out their paid and organic search strategies and deploying ‘performance marketing’ techniques to boost direct-channel acquisitions and conversions.
Ultimately, investing more substantially in such marketing efforts and the technology platforms to support them is the only way carriers can acquire long-term customers and maximize lifetime value. Thankfully, more airlines are starting to realize that.
“I think airlines are beginning to see the value of LTV, and to make that switch,” says Diego. “Carriers are finally recognizing the connections among ecommerce, loyalty, and lifetime value, and they’re beginning use that outlook to justify spending more on marketing to and acquiring loyal customers.”