Over the last decade, ancillary products have increasingly become a significant portion of airline sales, and contribute anywhere between 10-40% to overall revenue. Often, an airline’s success or failure can rest solely on sales of bags and seats.
Faced with lower demand due to travel restrictions, customer sentiment and public safety, it has become vitally important for airlines to cater to their customer’s needs and increase per-passenger revenue through intelligent (up-)selling of ancillaries.
However, many airlines continue to frustrate customers with their current ancillary sales strategies:
- Charging for basic services: Numerous ‘full service’ carriers fall into the trap of copying aggressive low-cost airlines and charge for services the customer feels entitled to (e.g. reserving a standard seat or checking luggage for a long-haul flight).
- Incoherent and confusing fare-bundle structure: Often, basic fare and upsell fare bundles offer the same flexibility options and ancillaries, which only differ in quantities. The massive price differences between bundles are only justified by the potential refund amount and do not reflect individual customer needs at all.
- Prohibitive ‘fare flexibility’ offers: Rebooking options are usually attached to expensive fee structures that make it cheaper to buy a new ticket instead of rebooking the old one.
With these negative experiences in mind, the question remains: how can airlines more effectively incentivise customers to purchase ancillary offers or opt for the more expensive fare bundle?
The post-COVID-19 era will usher in new ancillary products that improve the inflight experience. Not only will hygienic goods like personal sanitation kits be added to the onboard offering, but more importantly, we’ll see the introduction of innovative chargeable seat products such as ‘throne seats’ (buying an entire aisle) or a ‘middle-seat free’ option (where not offered automatically). Further enhancements to airport safety offerings – like security and health-check fast-tracks or priority boarding – will also feature prominently. For peace-of-mind, customers will also require new flexibility options like expanded ‘time-to-think’ periods or flexible rebooking and cancellation products.
In order to ‘nudge’ customers to purchase more expensive fare options, airlines need to reconsider their approach to upselling through introducing more lenient flexibility options and differentiated ancillary bundles. Some airlines have started on this path and introduced dynamic pricing solutions that, with a mixture of pricing experimentation and big data models, predict a customer’s ‘willingness to pay’. Through targeting customers with a higher propensity to buy with contextualised and differentiated products, airlines could successfully utilise intelligent upsell pricing to convince customers to select higher fares without driving potential customers away. Effective and constant experimentation will be needed to refine targets further and maximise revenues.
Many airlines still don’t differentiate ancillary products based on customer type and travel situation, choosing instead to feed the same baggage and dining offers to business and leisure travellers alike. Furthermore, those who do personalise ancillaries often rely on overly simple business rules to target their offer. To truly allow personalised offers and begin to see results from their efforts, airlines will have to invest in customer data analysis and product engines that enable segmentation by meaningful personas or down to the individual customer.
Better integration with customer touchpoints
Today, most ancillary offers are only presented at the time of booking, sometimes as an afterthought to the flight purchase process. While this staging is due to the way products are sourced from stand-alone internal systems or external partners, the journey forward will need to be altered considerably with successful airlines integrating these ancillaries into their main customer touchpoints. Delivering offers at the right time and in the right channel will be the winning strategy. For instance, continuing on the theme of airport ancillaries or special seat products, these offers might be much better served in the check-in flow or online servicing flow (Manage-my-Booking).
Airline executives around the world are already fully aware that they need to step up their game in terms of product offers and pricing, as shown by nearly a decade of continued investment in ancillary innovation and dynamic pricing solutions. Their ability to turn massive amounts of data into actionable insights that help them shape the future ancillary product range, its bundling and pricing, and the delivery of the right offer at the right time, in the best-suited channel, will define the winners and losers in these challenging times for the airline industry.
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