Ancillary Revenue Is Growing-So Why Are Airlines Still Leaving Money on the Table?
Ancillary revenue has transformed from being just some extra income into one of the crucial components of the commercial strategy for airlines. Today optional services, premium experiences, and loyalty-related items provide a large part of total revenue of airlines globally. Numerous industry researches indicate that ancillary revenue will continue growing, as airlines will work on improving their airline retailing capabilities and diversifying their commercial strategies
Nevertheless, the fact that the industry reports the growth of ancillary revenue does not mean that all airlines get the maximum possible benefit from this.
A lot of airlines have already worked out such things as baggage options, preferred seating, onboard services, and many branded fares. The problem has shifted its focus from the development of ancillary products to the redistribution of already existing ones to the right traveler at the right time through the appropriate distribution channel.
In many cases airlines lose ancillary revenue not because they do not have any ancillary products, but because they cannot allow such products to earn more.
Here are five of the biggest reasons.
1. Airlines Focus on Products Instead of Traveller Needs
A lot of additional strategies focus on the products themselves, rather than what the passenger wants.
When passengers think of their needs, they do not prefer to see the purchasing of a certain bag or seat. Instead of specific products, they think about issues such as comfortable journey, cost-efficiency and time effect.
When ancillary products are seen as standalone add-ons rather than tackling one’s travel issues, the level of client interest decreases.
Updated airline retailing approaches focus on the consumer-oriented strategy.
2. Ancillary Offers Are Not Consistent Across Distribution Channels
In our time, people book their tickets in diverse ways, using an airline’s website, mobile app, corporate booking tool, travel agency, or contemporary API booking.
However, in practice, it cannot be said that every channel displays all additional products in a proper way.
Among the obstacles travellers can face, we can mention:
- Different availability of additional products depending on the booking channel.
- Lack of information about the service offered.
- Failed offers and premium services.
- Different prices.
When flight offers are inconsistent, airlines lose chances to shape the customers’ purchasing plans.
With the development of airline booking, the importance of uniform merchandising significantly increased.
3. Corporate Travel Remains an Untapped Ancillary Opportunity
The industry traditionally focused on an ancillary strategy concentrating on leisure travellers.
Corporate travel, in contrast, provides a considerable potentiality that has gone mostly unnoticed within many corporate travel programmes.
Business passengers usually demand the following facilities:
- Flexible ticket rules
- Access to lounges
- Services for better priority levels
- Internet access via Wi-Fi
- More luggage
- Flexibility concerning travel within one day
However, such facilities are typically offered separately instead of being part of a holistic product offer.
As corporate travel plans become more tailored to the particular needs of the customers, airlines can add helpful ancillary services into their offers instead of using the traditional upselling methods.
4. Pricing Has Evolved Faster Than Offer Creation
Dynamic pricing has revolutionized airlines’ revenue management paradigms. Airlines can now operate faster than ever to track and respond to changes in market demand, buying patterns, and competitive behavior.
However, with the development of new pricing concepts, it seems that the airlines were not able to make progress in the field of offers creation. The vast majority of airlines still depend on:
- Static packages
- Standard ancillary combinations
- Merchandising rules
- Offers based on specific distribution channels
Consequently, while airlines are able to come up with accurate pricing solutions, their offers tend to be the same as before.
To be successful, airlines have to develop both price optimization techniques and tools for dynamic and contextual offer creation that will account for customer preferences and behavior.
5. Limited Commercial Visibility Reduces Revenue Opportunities
Understanding the performance of ancillary services is among the most significant challenges.
Commercial teams continue to have difficulty answering crucial questions, including:
- Which ancillary products bring in the most money?
- Which customer segments purchase specific ancillary services?
- Which distribution channels have the best conversion rates?
- Where do customers drop out of the purchase sequence?
Without this level of knowledge, airlines rely on historical reports rather than real-time insights.
Modern retailing is more reliant on continuous tracking and analysis instead of periodic performance reviews.
The Next Stage of Ancillary Revenue Growth
Over the last ten years, ancillary earnings have matured considerably. The industry may face its next big opportunity, but success will not come simply by introducing more optional services.
Instead, the focus on growth is basically on providing smarter offers that are:
- Relevant to everyone involved.
- Consistent throughout every sales channel.
- Incorporated into the shopping process itself.
- Continuing using marketing techniques in order to optimize received results.
With the development of airline merchandising, the key objective varies from selling ancillary products to developing travel offers that take into account customer expectations and lead to better earnings.
By connecting marketing solutions, customer context and distribution companies will be in a better position to effectively reach their ancillary revenue growth.
