Tom Davenport, a leading thinker in the area of analytics as a source of competitive advantage, sees the travel industry as a data pioneer that has lost its way, but can be redeemed.
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Davenport is currently a visiting professor at Harvard Business School, and has written or edited 16 books on information and management topics. He is the author of a recent report – At the Big Data Crossroads: turning towards a smarter travel experience – sponsored by Amadeus, a Spain-based IT services company that specialises in travel and tourism.
The study found travel companies to be at a big data crossroads. It said big data has a role to play in delivering more efficient and tailored travel experiences. But its potential is still confined to early adopters in the travel sector, so the study calls for wider consideration across the industry.
In his best-selling book Competing on Analytics (2007), Davenport took a dim view of the US airline industry: "American and United … are analytical competitors but not very successful. Both … were pioneers in adopting such analytical approaches as yield management for seat pricing, optimisation of routes and resource scheduling, and the analysis of loyalty programme data… United has spent most of the last decade in bankruptcy, and American has barely stayed out of it."
He put this down to persisting with an obsolete business model in the face of competition with low-cost airlines and a certain commoditisation of analytical approaches in the industry.
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Big data could be fast track to competitive advantage
But now there is space for a new round of competitive advantage based on big data, said Davenport.
“There is not a huge amount of evidence that American and United are doing that, but other airlines are, including British Airways,” he said. BA has put its Executive Club loyalty programme to fresh use with a Know Me initiative, geared towards understanding customers better than competitors do.
Airlines are, though, among the least aggressive sub-sectors of the travel industry. A legacy of unprofitable financial results and the integration burdens of acquisitions have taken a toll on airlines, but industry competition has at least lessened, said Davenport.
The research hypothesis informing interviews with 21 travel companies was that there is significant potential in using big data in the industry, but that its value is scattered, he said. In some sub-sectors, such as online travel and flight aggregation, there was found to be a high degree of big data use. In hotels, airlines and corporate travel management, its use was found to be relatively low.
Early adoption leaves undesirable legacy
A disadvantage in this industry is, paradoxically, that it was early into the use of data and IT for operational systems, so it has built up layers of legacy – such as the 40 or 50-year-old software behind the early reservation systems.
Some of this early use of IT would have conferred competitive advantage, but of what kind, and for how long?
“Analytics requires continuous innovation to sustain competitive advantage,” said Davenport. “We don’t have a lot of long-term examples. The airline industry is an example of where pioneering efforts did not lead to long-term advantage. But take Progressive Insurance, which has had a strong analytical focus for several decades now – it keeps innovating.”
Customer relationship is an area where innovation in analytics can change business culture, he said. “We will see more of a focus on high-end customers who provide most of the revenue. That means more than frontline staff having iPads, they will need training in why particular customers get certain scores, why they are being made certain offers, and so on.
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"Moreover, the fast-moving aspect of big data will mean continuous decision-making, not just in travel. Most management teams have not figured how that will work. It has been patchy until now. But if you are getting social media sentiment analysis, you need to act on that continuously,” he said.
Potential for collaboration to take off
Big data also look set to cause travel firms to be more collaborative. “We should see more inter-modal transportation door to door: air and rail, for example. Unfortunately, we do not have good standards for pathing information across transportation models," said Davenport.
He cited travel comparison sites Kayak and Hipmunk as examples of where this model was working well: “The work that Kayak and Hipmunk are doing to change the way travel options are presented to passengers is interesting. For instance, Hipmunk has its Agony and Ecstasy index for airlines, getting beyond price, and Kayak does that for hotels.”
Study sponsor Amadeus is also aiming to improve the "look to book" ratio for travel distributors, using a "featured results" service that presents four possible itineraries, drawn from various databases.
On the big data analytics field more generally, Davenport said: “It is booming, and it is hard to see how it will decrease. The technology is getting cheaper, and there are more people on the demand and supply sides. Small companies and developing countries can participate, too. The only constraints on what is possible are knowledge and awareness.
“It would be nice to see some innovation on the statistical algorithms side. We’re not working with samples any more, and security and privacy issues are still difficult to deal with.”