What is blocking your airline from monetizing ancillaries? A-la-carte products and services have been unbundled for some time now to passengers’ choice and preference but still, on average, ancillary sales make only around 11% of total airline revenue. Low-cost carriers are high-performers: airline ancillaries are a major revenue generator with a share of 30% or higher1. But for many full-service carriers, this percentage is only a single digit. Some airlines say the most common roadblocks to grow ancillary value are insufficient control and flexibility of legacy core and commercial systems. Some also add the lack of a retail-first mindset on their ancillary team. And often, it happens to be both.
In a series of blog posts, I will look at some of the most common barriers that airlines are facing when shaping their ancillary strategies, and also highlight ways to overcome these roadblocks with tips from carriers PROS has partnered with.
1. Poor Content Ownership
The offer is your airline’s core product and its biggest asset. Ownership is a must for delivering personalized revenue-optimal offers to travelers. When your airline is not the publisher of its offers, it cannot control their content and how they are retailed. The inability to design rich airline ancillary offers can impact not only digital conversion rates, but also customer satisfaction due to poor transparency and poor attractiveness. This includes being limited in using a library of images, grouping products and services in promo bundles and differentiating the offer content for occasional and frequent flyers.
2. Lack of Flexibility to Experiment
In a fast-paced digital economy, I’ve seen airlines limited in their ability to create unique or personalized offers. The lack of flexibility over how offers are priced and distributed blocks airlines for experimentation with different market and channel strategies, like exploring the full potential of seat price differentiation or combined miles/cash offers. What ancillaries do you offer, who do you offer them to, at what price and how does this vary across different channels and traveler touchpoints? The inability to tweak ancillary pricing and applicability results in a commoditized airline product. Which, from a customer standpoint, triggers frustration and poor digital experience. And for the airline means, money left on the table.
3. One-Size-Fits-All Setup
Each carrier has specifics when it comes to its ancillary strategy that differ from other carriers. It is some form of personalization not for travelers, but for airlines. I’ve seen carrier requirements for ancillary offer creation and pricing address these specifics. They might relate to the way an airline is looking to manage ancillary offerings or market promotions. The inability to translate these custom requirements into actionable capabilities adds complexity and additional burden on ancillary teams, slowing their pace of go-to-market and innovation.
4. Legacy Business-as-Usual Mindset
The biggest burden I hear airline executives admit to is the aversion to change in their organization which impacts speed of innovation. From a PROS/Hanover study, survey respondents indicated that over 50% of airlines still take more than a year to bring AI optimization across eCommerce to life. In the cases of experimentation and bringing new products to market, this might turn out too slow to positively impact airline ancillary sales and grow their contribution to total revenue.
Stay tuned for the next blog post with tips and insights on how to increase airline ancillary revenue.
1 CartTrawler/IdeaWorks Company, Ancillary Revenue 2018
About the AuthorMore Content by Stanislava Yordanova