Guest Post: Diversifying revenues in the airline industry

Utilise data and innovation to make a seamless customer journey, says Fraser Ellacott, managing director of Rentalcars Connect Continue reading →

Utilise data and innovation to make a seamless customer journey, says Fraser Ellacott, managing director of Rentalcars Connect

It’s difficult to name an industry as notoriously competitive as travel, and more specifically, airlines. The demand for cheaper flights and greater convenience, together with the rising price of fuel, has given way to a powerful pricing model that offers a realm of options to both customers and carriers; the ancillary revenue model.

Having a diverse offering has never been more critical in the name of attracting and retaining customers. In 2016, the top ten air carriers made over £21.5 billion in income from extras beyond the standard airfare, compared to just £1.6 billion in 2007, with some airlines relying on ancillaries for almost 50% of their total revenue.

But what exactly is it that airlines are doing to make this such a successful revenue stream, and where will it go in years to come?

Many low-cost airlines harness ancillaries by simply unbundling the travel experience to sell as upgrades and added extras. This is not a new concept – in the 1970s Laker Airways offered its customers the option to buy a meal on-board, although it wasn’t common until Air Canada introduced ‘a la carte’ pricing as an additional on-board service in 2006. In fact, just this year both British Airways and Virgin Atlantic debuted unbundled fares on transatlantic routes.

Today, the unbundled experience ranges from pre-booked seats, to more legroom and hold luggage, while the development of higher revenue generating streams such as car-hire, travel insurance and hotel bookings give passengers the power to create a bespoke experience that caters to their exact needs. For example, easyJet now offers its customers booking options that range from the basic airfare alone, to neatly packaged holidays, including car rental, hotel deals and the essentials of travel money and insurance.

But as the market becomes saturated with traditional ancillaries, and customers begin to expect these extra services, how can travel companies further improve their offering in order to boost their bottom line?

Some airlines are finding new and creative ways to generate this lucrative source of revenue. Lufthansa is using virtual reality to sell the first-class experience to its passengers before flying, while KLM has introduced ‘Meet and Seat’, which allows customers to choose who they’d like to sit next to based on LinkedIn and Facebook profiles. Both are simple, clever ways of generating extra revenue whilst simultaneously improving the customer’s travel experience.

As technology moves further and faster than ever before, ancillary revenue will only grow in prevalence. Take Artificial Intelligence (AI), for example; it’s shaping the world we live in and penetrating all industries in one way or another. In the coming months and years, we will see airlines and travel companies channelling the power of AI to learn more about what customers really want. This will open the gates to enhance the customer experience during every step of a trip – pre-flight, in-flight and post-flight – with deals and offers becoming more personalised than ever.

Another avenue that hails opportunity is in-flight connectivity (IFC). According to Deloitte’s global TMT Predictions 2018 report, one billion passenger journeys will be kitted out with IFC this year, demonstrating a 20% increase on the previous year. This added extra is expected to generate additional revenues close to $1bn throughout 2018.

To really grasp the full potential IFC poses, airlines must consider that passengers with access to the internet during a flight are a new audience – an audience than can be targeted with advertising to book other ancillaries, such as airport transfers, holiday experiences and restaurant meals, through affiliated companies, resulting in further commission.

It’s clear that developing ancillary revenue streams is a logical move for airlines, airports, hotels and travel agents. But for the industry to evolve further, the key lies in utilising data and taking advantage of innovative technologies that make the customer journey more seamless and enjoyable. It’s a simple concept, and when done well it brings lavish results.