ITancillary revenue

Tapping the
Ancillary
Revenue Well

Enabling technology is
an important but
overlooked aspect

By Michele McDonald

aving
cut
most costs
as deeply
as they can, airlines are
looking to regain profitability on the other end,
by boosting revenues.
United Airlines, for example, has estimated that baggage fees and other
add-on charges for meals and seat selection will generate
$700 million in additional revenue in 2009. There are a host
of formulas in the marketplaceancillary revenues, merchandising, bundling and unbundling of faresbut successfully
incorporating them into a carriers business model requires
some understanding of the technology requirements of each
approach and a clear sense of the direction in which the company wants to go.
Typically, the airlines website acts
as a laboratory for testing new sales
ideas. David Doctor, director-airline
distribution for Amadeus, advises carriers to start by taking baby steps with
easy deliverables that dont create
operational disturbance. An example
is lounge access. Whether a passenger

buys entry to a lounge has no effect on

the airlines operations. The lounge is
there, he notes, so all I have to do is
deliver a voucher.
On the other hand, itemizing something like electric cart service at the
airport requires the airline to ask how
many are available, how many are

already
booked,
where they are at any point in time and
where they will meet the customer. Its
harder to do, Doctor says. You have
to think about where you can do things
and whether it makes sense. Anything
that requires a review of inventory and
stock will change the way you operate.
Even itemizing onboard entertainment requires some management of
service delivery and stock. It adds
the complexity of knowing where
your stock is and needing continuing
updates of what you can sell and the
airline has to start acting more like
Wal-Mart, he points out. It requires a
lot of systems and a lot of discipline.
Some of the easier paths to increased
revenue through itemizing, such as offering priority boarding, have the added
benefit of making the customer feel
important. But even something as simple
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as the order in
which passengers board can
present unforeseen issues if
the airline does
not know conditions on the
ground.
Early
adopters of
itemization,
or a la carte
pricing, the
term invented
by Air Canada
and since used
by others,
have made
mistakes from
which others can learn.
When easyJet,
a pioneer in
the unbundling of services, began offering
Speedy Boarding for a fee, it worked very
well at London Luton and Gatwick. It did
not work at all at airports where passengers
were not accustomed to queuing up or
where they were bused to the plane. The
carrier pulled the service on return flights
from those airports until it could address
the problem.

Elite Expectations An airline also

should be aware that if it has reserved

services for its upper-tier frequent fliers,
it may experience some backlash from
them if it makes those services available

60 atw | MARCH 2009

to all comers
for a price.
United, for
example, got
mixed reviews
on blogs and
frequent-flier
bulletin boards
when it put
Premier Line
on its a la carte
menu. For
$25, passengers
holding a discounted ticket
could check
in at counters
reserved for
Premier members of Mileage
Plus, use the
elite security
line and board
in the first
coach group. Some elite UA fliers saw
the sale of their perks as a betrayal.
Doctor advises that even when carriers stick to the low-hanging fruit of
a la carte pricing, they need to have a
Plan B. Expect your service delivery to
fail, he says. Things will go wrong.
Airplanes get delayed. Service isnt
delivered and you didnt consider what
to do if a guy complains. An airline
also needs to brief its entire staff about
what it is doingand about what to do
when it doesnt happen. The airline
that doesnt think about post-sale management will get in trouble, he says.

Suzanne Rubin, American Airlines

MD-merchandising and distribution
strategy and president of AAVacations,
says AA is in a paradigm shift in how
people shop for travel. Its an evolutionary shift because of certain things
introduced by low-cost carriers. There
has been a concerted effort to redefine
the product. Airlines need to find the
sweet spot from a distribution channel
perspectivethe right combination
of a low-fare offering and protection of
value for premium customers, she says.
American has taken some risky steps
the $15 fee for the first checked bag,
for example, which applies to nonelite
economy passengersbut also is examining ways to use its technology to boost
revenues without disrupting the passenger
experience. Were looking beyond customer revenue, Rubin says. For example,
making the most of its incredibly valuable customer base and boosting ad revenue on its website.

New Frontier When Frontier Airlines

decided it needed to change the way it

sold its product, it opted for bundledservice packages rather than a la carte
pricing and turned to Datalex, the
Irish company that built the matrix
fare display for Orbitz. In a nod to
Air Canadas branded fare strategy, it
introduced AirFairs with three levels:
The stripped-down, no-frills Economy
fare; Classic, which includes access to
DirecTV, two checked bags, advance
seat assignment and lower change fees,
and Classic Plus, which also provides

priority boarding, full refundability and

inflight snack and beverage.
Depending on a passengers needs
for a particular trip, the Classic fare
package could be a better buy. A family
traveling with two small children, for
example, is almost certain to check at
least two bags, and it will want the certainty that the family can sit together.
It is also likely to want DirecTV to
keep the kids occupied. In many cases,
buying those services separately, still an
option for Economy passengers, would
cost more than the $20 differential
between the Economy and Classic fares.
VP-Distribution, Sales and Marketing
Jim Young says that within the first few
hours of the launcheven before the
airline had announced the change publicly30% of bookers were opting for
either the Classic or Classic Plus fare.
Frontier started out with a lot of
value-adds, but they had no way to monetize them until people were on the plane.
It wasnt available in the buying experience, explains Datalex GM-Americas
Gianni Cataldo. The carriers desire to do
low-price searches across three fare types
over seven days each way was a technical challenge few companies could meet,
he notes. For each variant of fare with
packaging options, you increase complexity. He says Datalexs APTCO-based
shopping engine allows users to shop for
fares at no cost to the airline, a plus when
the carrier is trying to add revenue rather
than costs. Because the company has
basically an off-the-shelf product, we
can take it to an airline and deploy it

within three to four months, he adds.

Revenue from third-party service
providers is another route to increased
revenue, and by partnering with a company that provides the technology platform, an airline can focus on its core
business, sell a variety of travel-related
products and services and not worry
about losing the customer to a thirdparty travel site.
EzRez Software CEO Tina Fitch says
carriers have done a good job of training
consumers to go to their websites. We
did customer surveys that show that 87%
of direct consumers believe airlines have
the best deals on their sites. Those consumers went in believing that airlines flying into those markets will have the best
travel deals overall, she says, and carriers
should take advantage of that by offering
hotels, car rentals, destination activities
and trip insurance. Now youre crossselling, not harassing.
New technology enables airlines to
integrate fully branded multisource
inventory and run it on a shoestring, she
adds. Gone are the days of the 100-person product team with huge development
and IT infrastructure. Such companies
also can provide sophisticated clickthrough behavior analytics and other
tools that enable the carrier to own your
customers in a more meaningful way.

Car Connections When it comes to selling car rentals, many airlines begin by
pairing with a single preferred supplier and simply linking to the providers
website. That works fine if the provider

happens to be the customers favorite.

But Bobby Healey, CTO of Dublinbased CarTrawler, says, We launched
with one supplier on Hawaiian Airlines
website and got a certain conversion
rate. We waited for four weeks and put
two more suppliers on. It immediately
grew conversion rates by 98%.
A certain percentage of car rental customers are brand loyal and price-flexible,
he says, but others are brand-neutral and
just want the cheapest car. They accept
the airlines offer as a trusted offer, he
says. Both EzRez and CarTrawler allow
the carrier to select which partners it
wants to work with; they supply the
technology and assemble the inventory.
JetBlue Airways once had ambitions of
building its own cruise booking engine
to complement its services to a number
of US cruise ports. But it has seen the
wisdom of not reinventing the wheel; like
American and several other US major carriers, it uses the booking engine of NLG,
which long has dominated the field.
It is a low-maintenance solution, says
JetBlue Director-Product and Business
Development Brett Cochran. Theyre
good at what they do, and they manage
everything once its set up.
JetBlue also has stuck its toe into the
upsell pool. It still offers free sodas
and snacks, but it also offers upgrades
to vitamin water, Stirrings drink mixers
and upscale edibles. We have a really
great core product that were keen on
protecting, Cochran says. But we
definitely feel that there is a market for
a little bit extra.

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