Ancillary advice: Know your strategy, and find inspiration outside the industry

Among all the marketing concepts that have arisen in the airline industry, perhaps none has created more buzz than ancillary revenues.

But for all the attention it has received, some airlines still do not have a clear strategy, according to David Stoyle of Amadeus Airline Consulting.

In a presentation to delegates to the recent Amadeus Airline eCommerce Conference in Cannes, France, Stoyle quoted Sun Tzu, author of the ancient "Art of War": "Tactics without strategy is the noise before defeat."

"High-value airlines are making a lot of money with ancillary revenues," Stoyle said. The $20 billion worldwide that airlines took in last year in ancillary revenues has taken pressure off base fares and in many cases is subject to lower taxes or no taxes. 

But ancillary revenue projects can fail if an airline lacks clear overall objectives and priorities or if their "bundling" and "a la carte" efforts are going in two different directions, he said.

A properly thought-out strategy includes six steps, Stoyle said:

1. Define the ancillary scope. Do you want to earn commissions on sales of other travel components? Sell miles or advertising to other businesses or offer a cobranded credit card? Do you want to focus on the passenger, selling lounge access, Internet access, priority boarding, seat selection, etc.?

2. Measure current achievements. How much are you earning on change fees, extra legroom, excess baggage?

3. Set your objectives. Do you have a per-passenger or percentage of overall revenue target, or are you benchmarking against a rival?

4. Identify your opportunities. Look across all your operations for opportunities to further develop existing revenue streams as well as for new opportunities.

5. Prioritize your efforts. What ancillary products and services have the most revenue potential?

6. Build a roadmap so that everyone is on the same page. Look at all the systems that will be affected, and recognize that ancillary products are sold in many different channels, from online to onboard.

Getting inspired

Robert Friedman of Amadeus North America's e-Business Consulting unit advised delegates to look to other industries for ideas for ancillary services.

"Find inspiration from salon services," he said. That is an industry that knows how to upsell, from a manicure to a "spa manicure" that costs 50% more.

Take a look at a sushi restaurant menu, Friedman said. There are a la carte items and bundled items, sometimes with "basic" and "deluxe" options.

Look at how auto shops offer "good, better and best" oil changes and offer ways to save money with "combination service programs."

Ancillary airline revenue: Who’s doing it right?

Eloi Prado de Assis, manager of sales and marketing systems for TAM, gave delegates to the Amadeus eCommerce Conference a pop quiz: "What is more likely?" he asked. "That passengers keep adapting to what an airline offers, or that they will move to an airline that adapts to their needs?"

Adapting to passenger needs is what ancillary services are all about — or what they should be about. The needs of a backpacker, and tourist and a business traveler are all quite different, he noted.

Market culture counts, too. In TAM's home, Brazil, the weak infrastructure suggests opportunities to take the pain out of the airport experience, such as lounge access, priority check-in and door-to-door luggage service.

Prado advised careful consideration of an airline's brand when weighing ancillary products.

"Every time you take something away that was free, you make people angry," he said. "We don't want to be perceived as Ryanair."

There are technical challenges as well, he said.

"We need a system to control inventory and revenue management of ancillaries; control of the actual consumption at the touch points, and integration among all systems, especially departure control systems, Prado said.

He cited KLM, which offers upgraded meals on long-haul flights from Amsterdam, and Qantas as examples of airlines that are "doing it right."

Qantas, which does not charge for the first checked bag, is giving passengers "confidence to enjoy the journey" with the pre-purchase of an excess baggage allowance, John Lonergan, general manager for direct sales, told delegates. That takes some stress out of packing and out of the airport experience.

"That's the beauty of it," Prado said. "It gives you peace of mind."

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