For the past years, the industry undoubtedly has been experiencing one of the most challenging times to survive and rebound stronger. Now, more than ever, ancillary sales are crucial to restoring airline revenue and financial stability.
A couple of decades ago, low-cost carriers transformed airline eCommerce, moving the industry away from traditional airline fare distribution and closer to retailing. The reality today is that carriers must adopt more innovative and diversified merchandising techniques to remain competitive and increase revenue per passenger. However, not all airline merchandising strategies are alike: markets and passengers are different across preferences, and consumption habits change constantly. Some carriers see more sales potential in bundling and unbundling capabilities, while others seek to maximize revenues through diversified bag and seat strategies.
Control and flexibility to experiment with the lowest level of detail and a new way of thinking open the endless world of revenue opportunities through airline merchandising.
1. Own Offer Creation and Design Your Products
Many airlines struggle with how much of their offer content they can actually design – like which ancillaries to include/exclude from branded fares, at what price they should be offered, and under what conditions. Commercial systems often impose limitations on how carriers want to sell ancillaries. Seek capabilities that enable your airline to bypass static ATPCO service filing or rigid, one-size-fits-all products.
Design a comprehensive catalog of ancillary products. This can be a stand-alone list of products and services that your ancillary experts manage. It can also be an extension of the ATPCO-filed catalog that you can enhance and diversify. For example, differentiate seat pricing based on row and column for aisle, middle, and window seats in the front and rear cabin and capture money left on the table from travelers who seek more comfort when flying.
Keep a rich library of images and descriptions for your ancillary offers. Visuals help display and differentiate your brand from the competition. Show and explain to shoppers exactly what your carrier offers. Transparency and attractive imagery drive higher conversions.
Diversify with a variety of ancillary bundles. A-la-carte products account for 69% of ancillary revenue (1). Passengers end up adding more to their carts than their fare contains. Offer more choice and convenience with promo bundles: upsell and upsize.
Differentiate the offer for your frequent flyers. These are the passengers you know because you have data about their shopping behavior and purchase history. Be relevant – look at what they buy most often, offer attractive deals or why not a birthday bundle to show that you care.
2. Control All Offer Parameters to Gain Flexibility
Being able to design your ancillary catalog goes hand in hand with how you manage it. In other words, you need the controls for your ancillary strategy - these multiple offer parameters define the pricing and applicability conditions valid for your ancillary catalog.
Make sure you control the conditions of how and when you offer ancillaries.
This can be a long list of parameters, like on what flights ancillaries are offered, when they are available for purchase, and to which fares. Also, specifics like the channels they are sold through (your dotcom, an online travel agency, the GDS, etc.) or the availability depending on the passenger type.Get business rules to help you fine-tune your market strategies. With a powerful business rule engine, you can apply controls over pricing in all phases of the travel journey, regardless of the channel, i.e. as checked baggage prices go up closer to departure, favorite your mobile app to get more direct traffic or differentiate seat pricing strategy for your digital vs. your indirect channels.
Use miles (points) - they are a passenger’s second wallet. Offering ancillary products in exchange for miles is something that increases the loyalty of your customers, but also their satisfaction. Travelers find cash/mile sliders very convenient to help them determine how much cash vs. miles they are willing to spend.
3. Seek Quick and Open Setup to Match Your Ancillary Market Strategy
Inspire your merchandising strategy with insights from your markets and customers, not from the available parameters of your merchandising platform. Get creative with merchandising and experiment with a-la-carte ancillaries and bundles to see what resonates better with flyers. Rapidly make changes and identify revenue opportunities to get ahead of the competition. Remember to seek a deeper level of system setup that allows you to fine-tune your ancillary strategy instantly without the need for additional development. I see carriers who look to explore promotions related to how ancillaries are purchased and offer additional discounts for specific credit card purchases. Others present special ancillary bundles to flyers with a distinctive or VIP flyer status.
4. Let Go of Legacy Practices and Experiment with
Data and Artificial Intelligence
Shift to an agile mindset. Business-as-usual in the digital economy and legacy systems are a barrier for innovation so you need to make change part of how your organization functions. With the current pace of digitization, only 8% of companies say their business model would remain economically viable (2).
The core focus of carriers like you and your competition should be introducing next-gen eCommerce systems for retail fit for the digital economy. Together with investments in business intelligence, AI, and machine learning, you can pave the path to digital retail based on data and the latest SaaS-based technology.
Don’t stop with technology; transform your organization. In addition to the tech stack, carriers are creating new roles and departments (3) around ancillary revenue management, digital projects, data science, and analytics. Identify where your talent and skill gaps are. Set cross-departmental ancillary revenue objectives across eCommerce, revenue management, sales, and distribution and drive a shared merchandising strategy across the entire commercial organization.
In a highly competitive and ever-changing online travel market, it might seem that airlines are lagging behind in digital retailing. The major roadblocks for diversified ancillary strategies relate to existing limitations in commercial systems but also have to do with a shift in mindset and adopting change. However, carriers that realize content is their primary asset and start with these 4 tactics lay the foundations for mastering airline merchandising.
Sources
(1) CarTrawler/IdeaWorks Company 2019
(2) McKinsey Digital 2018
(3) PROS/Hanover Airline Digitization Study 2019
Merchandising
Merchandising is a retailing tool that enables airlines to retail optional services.