We all know the TV ‘makeover’ programme, a staple of our modern viewing diet. Millions watch with fascination (or perhaps horror) as a member of the public’s personal appearance is completely restyled by a team of experts, from hair to heels.
Is there a place where words and phrases can go for a ‘makeover’ – a quick, new, healthy look? If ever there was a misunderstood phrase in need of a new image, that phrase is ‘ancillary revenue’. Too often, ask a traveller to talk about ancillary revenues and you will hear a tale of dissatisfaction, recalling how: “We were late checking in and had to repack our bags to meet the weight limit or pay an extra £20 per KG!” And yet, more often than not, ancillary revenues do not deserve such negativity. There may be companies that have exploited ancillary revenues for swift financial gain, but businesses with intelligent long-term strategies know ancillary revenues belong to the department marked: ‘Customer Service’.
There are different ‘types’ of ancillary revenue – products and services that were previously included (charged) with core product such as baggage and onboard meals with a flight – these ancillaries fit the ‘unbundled’ or à la carte category of ancillaries. They represent the early days of ancillary revenue. Then there is ancillary revenue derived from products and services sold around the core product – travel related inventory such as travel insurance or co-branded credit cards, both accounting for huge revenues in the travel sector. For many travellers the latter category of offering satisfies convenience needs – adding travel insurance or taking advantage of a great car rental deal at the time of booking a flight, meets their time constrained lives and travel requirements. These ancillaries should enhance the core product proposition.
How then did ancillary revenues become so misunderstood? How did offering customers a more personalised service become seen as a bad thing?
We have to admit, some travel companies have made mistakes in how ancillary services have been presented to – and therefore perceived by – customers. The ‘unbundling’ era permitted airlines, for example, to compete on lowest price but airline passengers are most angry when they feel they are being charged extra for a service that used to be ‘free’ (or at least was once understood to be an essential part of the flight and therefore included in a single fare). Of course, none of these services were ever really free – baggage handlers have always needed to be paid, just as food, drink and newspapers have always cost money – but passengers somehow felt they were basically paying for a flight from A to B and receiving, say, the newspaper and lunch as a bonus. The majority of negative publicity around ancillary revenue originated with this unbundling and the often lack of transparency around charging for the extras.
Equally when ancillary products and services that could be core enhancers are ‘pushed’ at customers, there is similar irritation. We all relate to having to deal with shutting several pop ups, or having to correct / complete the confirmation page several times in order to de-select unwanted baggage (or other ancillaries) and finally complete the purchase. In these cases it is more often the wayin which the products are presented and sold, intrusively within booking processes and requiring several separate purchases, as opposed to seamless single basket purchasing, that annoys customers.
The trends in next generation ancillary revenue reflect the need to focus on bringing value to loyal customers who want and deserve the best possible travel experience – an experience targeted to their specific needs and desires. Memberships that allow customers to ‘bundle’ these products and services will be on the increase; incorporating own valued flight or hotel inventory, along with relevant other products and services – re-bundling will return but the benefits will be significantly more valued than an on-board sandwich.
In retrospect, many companies might feel they would have benefited from a little PR advice around introducing ancillary services to customers, and a few self-interested businesses acting for profit alone probably did generate disproportionate levels of public negativity toward ancillary revenues in the travel industry as a whole. So has the term ‘ancillary revenue’ now been irreparably tarnished? Will there even be ‘ancillary revenue’ professionals in the travel industry in a year’s time? We think ancillaries are here to stay – the models will change, the job titles might change but the roles will remain. The terminology itself may see a rebranding.
Will this rebranding be nothing more than a cynical exercise? Will those companies that really did seek to exploit the public behind the name of ‘ancillary revenues’ simply try the same approach again under a different guise? Let us hope not; we certainly do not believe so at Collinson Latitude. We believe some companies might rebrand their ancillary revenue activities simply because ‘mud sticks’, as the saying goes, even if that reputation is unfair. Good companies want the chance to start again, avoiding repeating past mistakes and proving to customers that ancillary revenues – by any name – are part of a process of continuous customer service improvement.
We asked industry expert Mladina Connolly, commercial director – transport and logistics, at Terrapinn (the company behind the
‘Ancillary Revenue World Europe’ event), for her perspective. Mladina says: “
Ancillary revenue is an immensely hot topic right now and not just in the airline industry. Everyone from high-speed rail operators to telecommunications companies such as Orange are looking at ways in which to monetise their client database through a sound ancillary revenue strategy. In many cases, customers are happy to be offered relevant and interesting ancillary products and services from their chosen airline, rail operator and so on. What is even more interesting is the co-relation between the uptake of ancillary revenue products and services by customers engaged in a loyalty or rewards scheme with a particular company, compared to those customers who are not part of such a scheme.
“Loyalty and customer engagement are the most certain channels through which companies can effectively boost their ancillary revenues, and the importance of loyalty across the travel industry is set to grow rapidly. With airlines such as Ryanair looking to implement a loyalty programme, there is no doubt about the power of such programmes and the effect they have on a company’s bottom line. Any company, especially in the travel sector, that does not have a coherent loyalty programme is essentially leaving money on the table in the form of ancillary revenue.”
It is proven that many frequent flyer programmes and frequent guest programmes are the ancillary models that companies should aspire to – where loyal customers are rewarded and recognised for behaviour. These programmes are highly profitable because members see the value exchange for their patronage and the owner of the loyalty programme also benefits from customer data.
Michael Smith, managing partner with Airline Information, the company organising
Mega Event 2011 – The Airline Profitability Summit, agrees with Mladina about the financial importance of ancillary programmes. He says many airlines, especially in the US, have found ancillary revenue programmes to be “
the difference between staying in business and going bust”. Smith adds: “
I think the airline industry is getting better at merchandising. In the future I would, for example, expect to see more ‘fare families’, where distinct benefits are associated to each fare brand. Customers can therefore enjoy the flexibility of choosing the particular fare with the benefits they want. Getting the merchandising right is all about creating a better customer experience.”
Intelligent companies will move forward secure in the knowledge that satisfied, loyal customers are also profitable customers. These companies will seek out innovative means of building customer loyalty, engaging customers in many areas of their lives, not just when the customer is travelling. The options, from subscription-based membership programmes to mileage malls, are diverse, low-cost, sustainable and, most importantly, effective. Customers will start to see airlines and hotels as companies that offer extra benefits, not extra charges.
And the companies that refuse to move forward on customer service and engagement? Welcome to the world of social media. Your failures can circle the globe in seconds. From Facebook to Twitter, a bad customer experience in Shanghai can be shared at once with friends and colleagues in London, Los Angeles and Lagos. But so can a good experience. Channels of communication may change but some established facts remain true: positive word of mouth is still the most powerful and influential marketing of all.
“Perhaps we will see the phrase ‘ancillary revenues’ fade away, but only the phrase. The principles behind good ancillary revenue programmes, the notion of continuously striving to offer relevant products and services when customers most need them, to personalise these, and to improve customer engagement, should flourish. Leveraging brand equity to drive revenue outside core products and services will increase. We hear words like ‘merchandising’ and ‘partnerships’ in the context of ancillary revenue discussions – perhaps these will become dominant words over ‘ancillary’.” Janet Titterton, business planning director, Collinson Latitude.
We are keen to hear your thoughts around ancillary revenues and the topics discussed in this article. Please email us at info@collinsonlatitude.com
In light of developments in the industry and the opportunities within other sectors to include travel inventory in their (ancillary) revenue models, we have rebranded our newsletter to reflect our extensive activity in driving incremental revenue in dynamic ways for multiple sectors. Future editions will consider revenue opportunities across these extended sectors and review the value of customer centric revenue models.
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