21 October 2009

Ancillary revenues Ã¢â¬ËœpriorityÃ¢â¬â¢ for airlines

Almost 65% of airlines expect to grow their ancillary revenue profit by between six and 20% in the next year, according to a new study.

And 61% say their role has changed to incorporate more focus on ancillary revenue in the light of the financial crisis.

The research by ancillary revenue specialist Collinson Latitude reveals that 63% of carriers have a formalised ‘AR’ strategy in place.

Of those that don’t, 61% intend to implement one in the next six months.

But the majority still fail to focus on the customer.

The study, conducted in conjunction with Airline Information shows that 44% of those surveyed considered pure revenue the ‘one key metric’ used to measure ancillary revenue strategies.

Only seven per cent of the global airlines surveyed said that customer satisfaction or customer insight was their key measurement.

‘Profit per customer’ was the second most popular metric, with 28% of those surveyed saying it was the most important metric.

Collinson Latitude business planning director Janet Titterton said: "Obviously the key to an ancillary revenue strategy is to generate additional income, however in our experience, appreciation of the customer’s needs in the first instance delivers far better commercial results in the long term.

"To achieve sustainable growth look to develop long term relationships and formalise a strategy that encourages loyalty and drives advocacy to maximise your return on the relationship.

"If your starting point is pure revenue, assess the opportunity cost of short term profits. You could risk implementing a complicated AR strategy that actually alienates your customers."

She added: "Clearly, ancillary revenue is still seen as a key growth area for airline brands, particularly as the wider economic environment is still so uncertain.

"We would advise the huge number of airlines looking to implement or invest in their AR strategies to do so with the customer firmly in mind.

"That means effort needs to be applied to gaining insight from customer data and travel purchase behaviour. Only then can you put in place a strategy that will position you to thrive when the economy recovers."

by Phil Davies

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Your Comments (4)

Added Value? No, It's all about the money!

Totally agree. Does '˜added value' or '˜appreciation of clients needs' really hold true if the price is not competitive?! It's all about the money. To become one of these ancillary suppliers with the low cost airlines is a bit of a circus. Hefty '˜closed bids' are paid in advance before one even mentions commissions. Low-cost airlines in particular have a long way to go still to integrate useful extras into the same basket as the flight, in a clean way, and more importantly at cheap rates. It appears they'd rather feature a supplier who say gives 10% commission on a product than another supplier who gives 5% on the same product, but whereby the price for the client is 30% cheaper. Don't they realise most clients will just go and compare?! They'd be better off thinking about working closely with ancillary suppliers to find a happy medium between lowest prices for clients and taking less margin for the privilege of '˜adding value'. We at SkiHolidayExtras are specialists in our field; we know that every skier needs at least a lift pass and/or ski hire or lessons. The margins are scarily low if you want the client to get the right price, but these are real added value elements to anyone heading to the white stuff this winter. No worries for us though, we know people will find us if they are looking for the cheapest prices.

By Callum Chiverton, Wednesday, October 21, 2009
what is "ancillary"

I was interested to read the following by @scarkeek on Twitter: "Ryanair: can anyone explain how obligatory &#pound;5 online check-in fee is not simply part of ticket price? You can't fly without it!" The airlines (not just budget airlines, but full-cost airlines too) are now decomposing the ticket price and almost everything is ancillary revenue: drinks'n'snacks, seats, luggage, boarding cards, ... I wonder if any of their "a formalised 'AR' strategy" starts with a definition of what 'AR' is in a first place.

By Martino Matijevic, Wednesday, October 21, 2009
Good point but...

I suspect that these airlines, just like many other companies, are content to live off the suckers who fall for their overpriced offers. Some industry pricing seems bizarre - for example car rental via Nova often is at almost 50% less than the cost if one goes to the rental company direct - and always seems to beat the airline deals as well.

By Gilbert Archdale, Wednesday, October 21, 2009
Little hint - be realistic in your extras pricing

I've got no problems with them trying to make extra money from passengers, but they'd do an awful lot better if they were a bit more realistic about the pricing. Very often if you compare things like car hire prices offered via the airline against the price from a reputable agent the differences are staggering. Even worse when you get onto the budget airlines. Looks like they simply don't realise that people do shop around now and won't just accept everything they're offered. Maybe then they'd have a chance of actually turning a profit from the little extras.

By Trev Hartley, Tuesday, October 20, 2009