Your Top 5 Ancillary Revenue Questions Answered

Thank you for your interest in ancillary revenue. Here are my replies to five questions posted during the January 2019 Ancillary Revenue Question Time.

1. Are there any ancillary revenue categories that are underserved and/or that need a better solution in order to be viable? (submitted by Andrew Hodges)

Jay replies: Airlines fail to capture most of a consumer’s overall travel spending. For example, it’s typical for only 1 to 2 percent of airline website customers book hotel accommodations at the site. Hotel, car hire, activities, and other leisure elements are too often picked up by other vendors such as Expedia, Priceline, and hotel websites. For 2017 the various properties owned by Priceline booked 673 million hotel room nights, and 6.9 million airline tickets. One can imagine almost everyone who purchased an airline ticket also booked hotel accommodations. But except for specialist airlines such as Allegiant and Jet2.com, carriers miss out on the vast majority of hotel bookings. To stay in the travel game, airlines must become better retailers and that begins by boosting hotel and car hire activity.

2. Recently you posted about cabin crews working on gratuities. Will this evolve such that human service may become a separate paid ancillary to the basic package of just a seat on the flight? Is there a regulatory approach you would suggest to prevent this? (submitted by Aravind Ramachandran)

Jay replies: Strictly speaking, tips don’t represent an ancillary revenue opportunity because the airline doesn’t benefit from the activity. Of course, tips could be interpreted as an incentive to increase sales activity by cabin crew ― and to hold down pay for cabin crew. So indirectly, tips could be an area for ancillary revenue professionals to manage. But I think this is more directly a branding issue. Would soliciting tips through the payment path support or harm a carrier’s brand? That’s a question for individual airlines to answer. Frontier and VivaAerobus already include the option for a tip in the payment path of the devices used by cabin crew. Because this involves employee compensation, it will likely involve regulators. That’s a compelling reason why this might be a bad idea. In general, I think it’s better to motivate sales behavior through a bonus commission structure for employees.   

3. What do you think about the effects of technological development on ancillary product? (submitted by Asir Alagoz)

Jay replies: Investment will occur in three areas: travel agency distribution, mobile booking, and revenue management. Here are brief thoughts on each area. Airlines and global distribution systems such as SABRE will cooperate more to create better presentation of a la carte services to travel agents and their customers. Second, mobile applications will be crucial: If you want to see a great mobile booking application for ancillary revenue, download the Ryanair app. The carrier’s investment in technology is paying great dividends. Third, pricing of a la carte products will move from static, fixed methods to those which vary by demand. Ultimately, pricing will be determined by “who” is buying, and that will allow discounting to encourage first time purchase behavior.  

4. What airline customer type (business or leisure) is more likely to purchase ancillary products and why? (submitted by Jon Fjalstad)

Jay replies: All types of airlines find ancillary revenue attractive, from low cost carriers to global network behemoths. It’s true, the big global carriers are embracing ancillary revenue a bit later. All types of consumers are attracted to ancillary revenue because it allows them to click and choose the services they want most. The major determining factor is not customer demographics, but rather length of flight. Airline results demonstrate onboard comfort becomes much more important after 3 hours; personal space, food, drinks, and entertainment sales are much higher on these flights. Of course, if you combine a longer flight with higher income travelers, the results are even better. Couples traveling to a holiday destination, and not surprisingly, business travelers on expense accounts, spend more. Another factor to consider ― motivated employees have an amazing ability to convert travelers into buy-on-board customers.       

5. What do you think are the future untapped or underserved growth areas in ancillary revenue for airlines and why? (submitted by Andy Hwang)

Jay replies: Allow me to return to my answer in the first question. Capturing more travel spending not only generates more revenue . . . it makes your airline more important to the customer. Google looms large as a potential competitor positioned to vacuum up consumer dollars in the same manner as Amazon does for retail merchandise. There is a potential future outcome here which could see airlines being little more than “seat factories” for a global brand like Google. The development of ancillary revenue naturally requires airlines to become better retailers, and that provides benefits well beyond the core revenue boost... not least, overall business viability.