Software Takes Flight at Airlines. How to Book Gains.

A necessary evil. That’s how many Americans view air travel.

Very often, flying is the only way to cover long distances fast enough to do what you want to do. Like bask on a Yucatan beach for eight days instead of three.

Travelers still hate it.

Airlines know their industry brand sucks. To improve customer experiences, the biggest players are investing heavily in new technologies.

Their progress is a lesson for other industries.

It’s also important for investors. It’s underlying these stocks’ valuations.

To transform their brands, the major airlines turned to software. This move was an easy one to predict, if you’d read the famous article “Why Software Is Eating the World.” Marc Andreessen, the co-founder of Netscape, penned the op-ed article for the Aug. 20, 2011, issue of The Wall Street Journal.

That was when investors were still reeling from the effects of the worldwide financial crisis that was sparked in 2007-’08. They assumed the global economy was hopelessly impotent.

Andreessen, a software developer and venture capitalist, saw a very different future.

The billionaire – who sits on the boards of Facebook, eBay and Hewlett-Packard — saw how software was infiltrating every aspect of business. He saw the potential for new business models as well as tremendous gains in productivity.

 In the airline industry, all the major carriers have come to the same conclusion. They have been implementing strategies, big and small, both to improve their bottom lines and to make travel easier … and therefore more appealing … for passengers.

American Airlines has developed apps to make life easier for passengers.

For American Airlines (AAL), the focus has been on moving closer to the customer. For a while, passengers have been able to check-in with a few taps on their smartphones. This year, AAL began moving all of its consumer mobile applications to IBM’s cloud for a rework. The goal is to bring the same functionality to airport kiosks. It even hosted an internal artificial-intelligence “hackathon to help employees learn the benefits the new software could bring to customer service.

Delta Air Lines Inc. (DAL) and United Continental Holdings Inc. (UAL) have gone even further. At the Minneapolis-St. Paul International Airport, Delta passengers will soon be able to self-check bags using facial recognition. Software will match data collected from passport photos, then link that information to luggage. United is using chatbots. Thanks to a new Alexa skill, domestic fliers can experience a hands-free check-in via the popular Amazon voice assistant.

At Southwest Airlines Co. (LUV), the major action is taking place behind the scenes. In May, the carrier announced a new booking system from Amadeus IT. In addition to making it easier for passengers to book international flights, the new platform allows more flexibility for lucrative ancillary fees. (Think food, drinks, entertainment, seat upgrades and baggage fees.) Worldwide, these fees are expected to earn tens of millions of dollars in 2017.

For the industry, the motives are transparent. Improving customer experience is vital for courting increased loyalty. That is not a terrible goal in an industry that’s famous for low margins and fierce competition.

Airlines want to lock in customers. And their investment appears to be paying off …

In May 2017, a J.D. Power survey found overall customer satisfaction had increased by 30 points, to 756 out of 1,000. Satisfaction has been trending upward since 2013. And it’s been increasing fastest at traditional carriers.

According to research published by the Bureau of Transportation Statistics, in 2016, sales at domestic airlines rose to $168.2 billion. The bulk of these gains went to the big four carriers. American and United shares almost doubled in the second half of the year on rising unit revenue growth.

Airlines found a way to increase their market share using loyalty programs, while implementing new fees to enhance unit revenue growth.

It’s the potential Andreessen saw back in the bad old days before the current bull market for stocks began.

I’m not suggesting investors buy airlines. It is still a deeply cyclical business with many variables. What is noteworthy for investors is how all of this came to be. It is a software story.

Finding and investing in the companies making it possible, such as Alliance Data Systems (ADS), is the key. The time to do that is now.

Best wishes,

Jon Markman

P.S. Write this date down: Wednesday, Oct. 18. That’s when my Edelson Institute colleagues kick off a three-day Supercycle Investment Summit. This summit will be jam-packed with investments that are set to soar not just from megatrends like we’re seeing in technology, but also from the cycles behind those megatrends. Registration for this three-day symposium is free. But attendance will be limited. Don’t wait. Click this link to reserve your seat.


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Comments 10

  1. Ron Brumback October 11, 2017

    If airlines want to improve customer satisfaction, they need to start with seats — make them comfortable and don’t require passengers to store their legs underneath the seat. As one who has flown several million miles, I can attest to the fact that after flight cancellations for airline convenience, seats are a huge source of irritation. I appreciate the general importance of software, but there is only so much one can do with software when you have a fundamentally lousy product.
    No response required. As important a company as ADS and other software companies are, they can’t make up for a fundamentally awful physical product. Sorry, but the article annoyed me. Choose another industry to show off the prowess of ADS and similar comapnies!


  2. Bob October 11, 2017

    Now, if they could just do something about pricing!


  3. Alan S October 11, 2017

    Sounds great, Jon ! But why doesn’t someone try to improve the airlines experience with the rude obnoxious public they have to deal with ?


  4. Michael Coulson October 11, 2017

    I’m staggered that you think charging for services like baggage, food etc is improving the customer experience!! Cabin staff remain bossy and not particularly efficient and certainly not customer orientated.


  5. H. Horrace Newberry October 11, 2017

    I’m old enough to remember how it used to be and compare it with how it is now.

    In the prop age, it was an experience just to fly… and that was part of the enjoyable experience.

    In the jet age, the passengers are jaded and most don’t enjoy the experience of flight at all.

    It’s simply not a miracle anymore… and neither is software.


  6. H. Craig Bradley October 11, 2017

    WHY FLY ??

    If you are looking at an 7-8 hour drive by private auto or a short haul flight and trip to a large urban airport like La Guardia or L.A. International, then its probably more trouble to fly than drive. The time spent getting to the airport, the delays at the airport, the lines, crowds, and hassles, as well as the cost of parking- again, are all just not worth it any more if the flight is optional or discretionary. However, If you have to fly for business reasons, then its just another cost of doing business along with time and money and taxes. So, if you have to fly and have no other alternative then you must put-up with indifferent airport staff and security personnel and overworked airline employees. How you get your reservation is really secondary to the airport hassle factor, in my view anyway.


  7. James October 12, 2017

    Are we gonna see electronic toll charging for cars in cities? Even the introduction of congestion zones, like they have in London. However suppose that there is a relatively poor and mountainous region pinned down between two urbanized regions. If the the three regions belong to the same country, it is the interest of the two big regions to set up a high speed connection going straight and crossing over the mountainous region. What we might see in big cities is as well as electronic toll charging, we may also see automatic vehicle identification. We might see a surge in single occupancy vehicles and dual occupancy vehicles using the state freeways and other motorways. We might see electric cars coming along in the next few years replacing petrol vehicles. The Sky’s the limit in this transportation revolution that we are living through .


  8. ML October 12, 2017

    Flying isn’t great-lost and found services so poor-cabin air passed over
    the engine.


  9. Tom October 12, 2017

    Maybe some day they will do something about the air pressure in the cabin, es[ecially upon decent. It can be extremely painful for some passengers, especially older people. And this pain is an indication of possible ear drum damage. Frankly, I wish they would bring back propeller aircraft and flay at lower altitudes for short duration trips. For example, jet airplanes added nothing for passengers traveling between Boston and New York, except for a lot of pain.


  10. Terry December 14, 2017

    I think low and slow is better.