A 3-step Guide to Making Money with Merchandising

Over 80% of passengers today are ready to use one digital ID on their smartphones for as many travel activities as possible, from booking flights to passing through the airport. This is a fascinating statistic presented by IATA just a few weeks ago, during the last World Passenger Symposium in Barcelona.

The digital revolution keeps changing the industry at a dizzying speed. It was only a couple of decades ago when low cost carriers (LCCs) turned the distribution model upside down: they spearheaded direct web sales, abolished the complex fare structure for low consumer-friendly fares and introduced us all to the e-ticket! Today, LCCs have strong brands that are part of the top 10 airlines globally. Pretty amazing, don’t you think?

One growth driver for LCCs is the ‘unbundling’ of services, or teasing with a low ‘no-frills’ fare, then upselling with ‘ancillary sales’. Today this additional revenue makes up to 40% of their total revenue[1]. But that is not yet the case with all carriers, as almost 2/3 state that this number is below 15% for them[2].

The formula for successful ancillary sales is a different mix-and-match for every carrier, but 3 key ingredients are musts: relevance, price and experience.

  1. Relevant offers. When presented with choice, passengers tend to spend more rather than limiting themselves to the ‘bare fare’. Bestseller services are extra baggage (47-68%)[3], seat choice and extra legroom. Beyond that core proposition airlines need to create a wider relevant offer to satisfy different passengers’ profiles and present the right offer at the right time for each traveler. Airlines have a wealth of data about passengers and the value of a smart merchandising solution is to integrate this data to intelligently determine what is optimal for the passenger and the context. Practically, this means dynamically building bundles with the services a passenger would expect and tailoring the offer with à-la-carte services throughout the entire travel journey from booking, to check-in or at the airport.
  2. Price matters. LCCs have proven that passengers want to enhance their flight experience by purchasing various à-la-carte offerings when they are at the right price. Don’t leave money on the table – do not price too low, rather propose exactly the level the traveler is ready to pay for that service at that moment. Travelers are ready to spend an extra 100 dollars[4] to tailor their flight experience. However, airlines need the right triggers to make it to the shopping cart. For a ‘full service carrier’ remaining consistent with the brand means offering the best value by bundling services with branded fares, or proposing bundles that include multiple services, and even dynamically adjusting their price to the context to maximize the sale.
  3. Customer experience first. Do not just sell – deliver the best buying experience. Most of us do not like to enter a store and have someone hand a bag over to you and harass you until you buy it. You would rather enter, view a display and choose from a large variety of sizes and colors, and make your purchase decision on a promotional price targeted to you. On the path to becoming digital retailers, airlines should create a true shopping experience. How airlines present passengers with ‘seat choice’ is as important as how easy it is to buy it. So brand it, make it ‘talk’.

Technology is there to fuel merchandising creativity and enable the evolution of your airline’s merchandising program. It should be simple to use, but sophisticated to adjust on price and translate to hundreds of thousands of dollars in additional revenue across all distribution channels. It is up to each airline to find the best recipe for their brand and market and adjust to match competition.

2016 Yearbook of Ancillary Revenue, Ideaworks/Cartrawler 2017 Global Airline Ancillary Revenue Survey, Diggin Travel/Switchfly 2016 data for two LCC carriers (Ideaworks/Cartrawler 2016 Top 10 airline ancillary revenue rankings) Industry sources

About the Author

Stanislava Yordanova

Stanislava leads the go-to-market strategy for PROS airline eCommerce portfolio as Senior Product Marketing Manager. She is passionate about the impact of digital on businesses and how fast technology is changing the way consumers shop for travel.

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