Part II: Airline Ancillaries and Merchandising
The past few months have turned the world as we know it upside down. It’s clear no one has the crystal ball to tell what the future holds. But the entire industry, including airlines and organizations like IATA, strategize and plan for the time when we will start seeing the travel industry rebound.
I sat down with the PROS team to deep dive into some of the tactics that we believe can help airlines reboot digital sales. I packaged these insights into a series of blog posts that I hope will help spark ideas to recharge your airline’s eCommerce strategy. The first one focuses on airline shopping and distribution and some tactics to improve the flight booking experience for travelers.
In this blog post, I’d like to focus on ancillary strategies. At the beginning of 2020, airline ancillary revenue was increasing rapidly as a crucial component for airline digital competitiveness and profitability. In a recent interview, industry analyst Henry Harteveldt said that ancillaries will be critically important for recovery because of the high-margin revenue they generate for airlines. There is no one-size-fits-all approach to ancillaries as every airline is unique in its market positioning. However, ancillary strategies must be carefully designed to match market and customer specifics and airlines need this flexibility in real time.
The Power of the Ancillary Product Catalog
Your carrier needs flexibility to experiment with flight products and a-la-carte offerings, in both turbulent times and times of growth. Static service filing does not only bring limitations, but also raises significant cost. This is why airline ancillary catalogs are of great importance, regardless of your carrier’s size and business model. Digital retailers, for example, manage large product catalogs that allow them to modify pricing and decide what products to offer and how. There are multiple benefits for airlines to do the same thing. First, it is the flexibility for a carrier to decide whether to use the pre-filed ATPCO catalog of services, create an entirely standalone one directly in their merchandising system or do both. On one hand, this will allow airlines to instantly modify the pricing and applicability conditions of any ATPCO service, like baggage charges for example, while at the same time save money from any additional service filing. On the other hand, a separate independent catalog can help introduce new products and services like protective masks and sanitizing kits, which are in responding to passenger travel precautions. Check out this video to see this in action:
Going Beyond Social Distancing
Social distancing brought up a lot of discussion around leaving the middle seat on a plane empty. IATA and airlines like Ryanair do not believe this is an efficient or long-term solution for the industry. Airlines can set up seat map configurations for blocked seats today in their passenger service system or by using an IT solution like PROS Merchandising. However, I believe there is more beyond this operational setting, should it stay or not. Ensuring the comfort of getting an extra legroom seat or sitting next to your family are things that also matter to travelers. And this could be something they would be willing to pay for. If this is the case, your airline might be looking for extended seat map capabilities. For example, these include being able to price seats by their characteristics (extra legroom, aisle, window, etc.) or by row and column number, and being able to offer “be seated together” to families on the seat selection page during booking. Don’t forget to actually show how seats look across cabins, as it may be a decision-maker for an upgrade in times when personal comfort is everyone’s priority. In this video, you can explore some seat map scenarios for pricing and configuration:
More Bundles, More Choice
Back in February, IATA’s Dynamic Offer Forum was a clear sign that the industry is moving toward a world of dynamic offer creation (take a listen at this podcast episode with IATA’s Head of Dynamic Offers, Sebastien Touraine). In a recent webinar, “Rebooting Airline Digital Retailing”, Mike Slone (PROS) and Iztok Franko (Diggintravel) shared insights for new business models that are likely to emerge given the current situation. I believe this is also applicable for new product offerings and a variety of combinations from them. And now may be the best time to experiment with dynamic product bundling. For example, these are only some of the retail tactics that your carrier can try out: buy one product plus get the second one at half the price, or buy two products and get the third one for free, special business bundles or bundles for families with children … the list of opportunities here is endless. Then, you can decide at which step of the booking journey to offer them – during flight booking, or later – at “customizing my trip” page. You can use images, videos, and product descriptions in different languages. Meaningful offers at special prices will help your airline offer more choice and comfort to travelers. This will inevitably increase conversion and help get revenues back on track.
Whatever ancillary strategy you go for, in order to be a good retailer, your airline needs flexibility. Be flexible in deciding what products and services to offer, but also how to price and present them. As travel resumes, besides increased safety, travelers will look for more relevance and a better experience with the airline brand. To sum it up, “make travel better - not just safer”, as I recently read in a McKinsey article.
In case you missed Part I of my blog post series about airline shopping and distribution, you can read it here.