Roles of Customer Relationship Management (CRM) in Airline Industry: Its Concepts and Implications 1. Introduction In today’s global marketplace, airlines are countered with unstable and highly competitive business environment. Most airline companies perceive that it is increasingly important to react quickly and effectively to changing demand patterns of the customers. The challenge is maintaining profits in the face of forceful competition. The opportunities are in managing customer relationships to earn customer profitability that can contribute to the firm profits. If airlines do not know the information like who are the customers? What are the customers’ expectations and needs placed on the airlines’ services? Then, how can airlines guarantee that they are serving their best services to the customers. Therefore, many airlines are turning their focus on utilizing customer relationship management (CRM) as a vehicle for building and maintaining good relationships with its customers. The deeper the relationships the airlines build with the customers, the more opportunities the company can boost the overall profit margins. 2. Global Picture of Airline Industry Air transportation industry remains competitive globally. The average growth rate of world air travel is approximately 5% per year over the past decades, with substantial annual variations due to instability of global economic conditions and differences in economic development in different parts of the world (Chitnis, 2006; Deloitte Touche Tohmatsu, 2009). Historically, the annual growth in airline industry has been about twice the annual growth of global GDP. However, the dramatic downward trend of airline industry’s record was between 2001 and 2005. This downturn is basically influenced by the combined effects of the global economic shrinking that began in early 2001 and the incidents of terrorist attacks of 11 September 2001 in America. This contributed to the decreasing customer demand for air travel thereby resulting in decreased profits for many companies. The aftermath of long period of global recession, the growth industry rate has been slightly improved till 2008. Nevertheless, in recent years, the global airline industry continues to face declining revenues and increased operating losses, due to on-going unpleasant trends in global economy. According to International Air Transport Association (2009 cited in Deloitte Touche Tohmatsu, 2009), revenues across the world airline industry are now expected to fall 15%. As 1|Page
can be seen in Figure1, all regions of the world are confronting a considerable plunge in passenger and freighter traffic. Table 1 International Air Traffic Statistics
Source: IATA (2009 cited in Deloitte Touche Tohmatsu, 2009)
The current trend has underlined the importance of controlling costs and maximizing profits in the airline industry, and over the last three decades, customer relationship management has then played a significant role in the industry. 3. CRM Imperative Practices in the Airline Industry Nowadays, the global air transportation industry is composed of more than 2,000 airlines in which over 23,000 airplanes are being operated, providing flight service to over 3,700 airports (Jiang, 2003). Due to the intensive competition together with a significant falloff in industry growth rate, the airlines struggle to increase market share and uphold profitability. They must discover new ways to manage mutual relationships with their customers to gain customer loyalty which can lead to the increased profits. Many airline companies are switching to CRM as a tool for managing customer relationships. In theoretical perspectives, customer relationship management (CRM) is a business strategy established to build and maintain long-term, profitable customer relationships. Implementing CRM programs more effectively, airlines will have to better understand both value and needs of its customers. 3.1 Identifying the Best Customers...