Ancillary Products & Services: A win-win for airlines and travelers alike

For the longest time, domestic and international airlines relied heavily on business travelers to grow revenues. Although we are seeing some increase in business travel, the full recovery is yet to happen – both companies and their employees are still embracing virtual meetings and events, remaining somewhat cautious about returning to pre-pandemic travel behaviors.?Instead of waiting for business travel to fully return, airlines quickly identified opportunities early on within the leisure travel market to potentially make up for revenue gaps – specifically, through ancillary products and services which enhance the travel experience… and the airline’s bottom line.?And with the proven popularity and acceptance of ancillaries, we know they’re here to stay and have embedded themselves into an airline’s sustainable business model.

?In 2019, an estimated USD $109.5 billion was generated through sales of ancillary products and services.?While each airline has their own menu of ancillaries on offer, the most common ones globally are those which have been “unbundled” from traditional airfares – checked baggage, advance seat assignments, and food & beverages.?In other words, previously you’d get these items included with your airfare, but today they’re stand-alone and optional because not everyone wants or needs them.?While this USD $109.5 billion statistic is impressive, it is equally impressive to recognize Spirit Airlines, who in 2020 generated more than 55% of its revenue from ancillary services.?Although one approach does not fit all, airlines that haven’t already done so, should take a serious look at what ancillaries would align with and complement their brand image and their identity.

?Understand travel needs

While pent-up demand for leisure travel is a silver lining, airlines should transcend checked (prepaid) baggage, priority boarding, seat assignments, and F&B services to augment the ancillary business – if they aren’t already doing so. This requires a clear understanding by the airlines of the unique dynamics of ancillaries: what, when, where, and at which price points do leisure travelers seek such services. Airlines need to engage with customers and track their journey to identify specific needs, proactively offering the right ancillaries at the right time.

?The airline website and mobile app are go-to destinations during trip planning. Most leisure travelers visit an airline’s website or launch an app of their preferred airline when finalizing the destination, based on key factors such as their personal interests and trip budget. Being key touchpoints, airlines should use the website and app to engage in conversations that reveal latent needs across the travel lifecycle. Deeper probing provides an intimate understanding of the needs and preferences of all types of travelers, enabling airlines to evolve their ancillary revenue streams by recommending bespoke products and services, specifically curated for a customer’s travels.

?A traveler who hasn’t yet selected a destination can be offered options based on interests and intent (beach, city, nightlife), combined with their travel style (budget, mid-range, luxury). At the time of booking an actual flight, the airline can, for example based on a luxury profile, proactively suggest premium ancillaries such as airport VIP escort/concierge services, lounge access, gourmet food and beverages onboard, and arrival meet-and-greet services. Post-purchase, the interaction needs to be time bound and based on the travel itinerary. For instance, car rental services, accommodation and entertainment activities at the destination can be recommended to a family on a short holiday; while a solo traveler working as a global nomad is more likely to require travel insurance high-speed mobile Internet, and access to shared co-working spaces.

?Prioritize experiential travel

Airlines that prioritize premium services from the boarding gate to baggage claim should make journeys comfortable and trips more memorable. Customer experience programs that were limited to rewarding elite passengers with upgrades should be expanded to span pre-flight, inflight, and post-arrival services; and apps for tracking flights and remote check-in need to be improved for a consistent digital experience.

?The website should be a comprehensive platform that genuinely serves travelers. The visibility into passenger demand for entertainment and travel services should be used to develop offerings that underline the brand experience. A choice of à la carte and prix fixe services providing choice and convenience for travelers at every stage of the trip will not only grow the share of ancillary revenue, but also cultivate loyal customers for a range of services provided the airline can demonstrate value and reliability in their offerings.

?From simplifying the redemption of frequent flier miles to enabling fliers to maximize reward points, and from recommending destinations to creating the ideal itinerary, airlines should fulfill services that enhance the experience, be it for friends on a weekend trip or for a family to experience the Northern Lights.

?Create a digital ecosystem

Digitization facilitates consumption of ancillaries, while enabling airlines to add value to the travel experience through a network of collaboration with brands outside of the airline industry (but enhance the end-to-end travel experience).?Airlines around the world currently offer various ground-transportation options – from luxury chauffeured pick-up and drop-offs to bus services from airport to ski resorts.?Beyond the realm of transport per se, airlines also offer partnerships with airport retailers to promote online shopping in the air for travel accessories or tourism experiences, or destination-specific SIM cards.?In the financial industry, airlines worldwide have their preferred credit card issuers in various countries and offer co-branded credit cards offering a wide range of benefits such as lounge access, priority boarding, travel credits and fast-track security screenings.

?While robust mobile apps drive upselling, seamless integration of the network of international partners is an imperative to avoid operational issues in consuming ancillaries, anytime, anywhere. Legacy carriers should integrate sales, marketing, pricing, distribution, and core processes with partner systems, thereby creating an ecosystem that supports a global portfolio of products and services. On the other hand, low-cost carriers with limited IT budgets may adopt an incremental approach to enhance the maturity of ancillary services. Digital tools help gauge spends on ancillary services across activities, destinations, time of travel, and customer segments. Initially, standalone systems for the most profitable services can be integrated with existing backend systems for booking and loyalty management, for instance, exclusive dinner reservation or discounted theater tickets at stopovers.

?An integrated digital environment boosts the ancillary business, while supporting tools to rationalize costs and prevent revenue leakage. For instance, chatbots aim to provide accurate assistance and address common queries. e-learning modules upskill flight attendants, cabin crew and front-line airport agents. Suggestive sales training enhances the efficiency of employees in offering ancillaries, thereby maximizing sales and enhancing the experience for passengers. ?

?A digital ecosystem empowers airlines to monetize travel before, during and after the journey. This shift can be combined with targeted selling to maximize ancillary revenue per passenger.