The airline industry is an extraordinarily difficult one in which to operate. Competition is high, profit margins are tight, and there are constant risks to revenue (ranging from fuel price fluctuations to terrorism to volcano ash!) Any edge in conducting business can add substantially to an airline business.

Optimization of certain processes using data and statistics has become a substantial competitive tool in the airline industry. For example, statistics have been used to build models that can:

Frequent flier programs can be substantial tools for airlines in attracting and retaining customers. Having said this, they can be expensive, so assessing the relative gain/loss ratios of these programs is key.

In a recent example of predicting the value proposition of frequent flier programs, Berengueres & Efimov (2014) worked on Etihad Airlines data from 2008 to 2012, comprising approximately 1.8 million unique passenger flight records, demographics, frequent flier program transactions, and the like. This is already ”big data” in that it is a dataset of substantial size, which grows and expands rapidly as data is added to every day and every flight. See Chapter 18 for more on the notion of big data.

In their study, Berengueres & Efimov (2014) demonstrate statistical methods that Etihad can use to predict key issues in the frequent flier program, such as whether new passengers are likely to join the program soon, and whether members are likely to upgrade to higher levels in the scheme, giving them more privileges. Etihad incorporated these predictions into Customer Relationship Management software, which led interactions with the passenger.

In massive improvements over previous predictions, the model accurately predicted 97% of new or promoted members if three months of data was used.

The model was finally used to create a computer app, which guides airline personnel in decisions such as whether to grant a given passenger an upgrade.

It is such clever links between data and real on-the-ground business decision making that can turn statistics from a boring subject to a serious strategic edge for organizations in the 21st century.