True Or False? — Passenger Experience Drives Airline Profit!
If you’d like to test yourself and your customer experience (CX)/marketing department on how well you can attest to the truth in the above statement, ask yourself: “How much is CX improvement worth in annual profit?” and, conversely, if you’re in a finance role, ask: “How much of the annual profit comes from CX improvement?”
If you struggle with the answer, don’t feel too bad, because you are certainly not alone. But please do feel bad, because you just failed to make your business case for CX.
The Legacy “Quant” Methods Are Not Enough
Globally, the airline industry tracks success or failure with key performance indicators (KPIs) that reflect shareholder and investor values, such as return on equity (ROE), return on invested capital (ROIC), and industry-specific metrics like on-time performance and passenger yield. This is their “money story.”
However, most airline execs and finance professionals don’t know how these important measures are affected by CX and customer engagement, or the “customer story.” To be 100% fair, though, neither do CX pros display any particular competence in quantifying the financial effect of CX, which they traditionally measure with Net Promoter Score (NPS) and CSAT (customer satisfaction) scoring models, among others.*
The inability to link these two stories using hard evidence potentially undermines the credibility of CX strategies and weakens the resolve of business decision makers to fund investments to improve CX.
The New Type Of “Quant” That Actually Works
To address the above challenge, CX and other professionals in the airline sector need to hardwire the measures used to tell the customer story (e.g., NPS or CSAT) to concrete business KPIs across three distinct categories: revenues, costs, and (invested) capital. After doing so, they should be able to legibly associate customer stories with specific financial drivers with the help of hybrid metrics that work sort of like power converters, translating qualitative measures into financially quantitative ones. This would help CX pros to steer their time and effort toward meaningful CX improvements, service-level targets, or new/upgraded service capabilities (qualified as capital investments). For instance, consider the logic below:
- X-% drop in customer satisfaction related to baggage handling can be traced to mishandled baggage rate spike of Y-%, resulting in Z-% reduction of baggage-related revenues.
- X-% increase in customer satisfaction related to preordered meals can be traced to Y-% reduction of waste of in-flight food inventory purchases and Z-% in fuel savings.
The Silver Bullet Is In The Data That Reveals Key Correlations And Impact
Two things: attribution and contribution. Knowing the patterns of attribution between soft/qualitative and hard/quantitative measures can inform airline CX pros about where to focus. And knowing the degree of contribution, or weighted impact, will inform CX pros about how critical any combination of soft/qualitative measures is to specific profit drivers, which can be either revenue– or cost-related. Same goes for trying to measure the return on invested capital, which tracks how well an airline extracts business value from the tangible assets paid by capital investments. Good CX can drive higher utilization and adoption of tangible assets, thus accelerating capital velocity and the rate of return.
The bottom line is that customer metrics matter to business, but you must understand how to measure and manage them in the way that creates win-wins. Happy customers = happy shareholders.
You can find out more by reading my recent reports: “Hardwire Customer Experience To Airline Financial Performance” and “Demystifying Financial KPIs For Airline CX Professionals.”
In addition, you can join me at Forrester’s upcoming CX Singapore 2019 Forum on August 28, where I’ll delve deeper into this topic. Register your interest to attend here.
* Net Promoter and NPS are registered service marks, and Net Promoter Score is a service mark, of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.