It is clear from our conversations within the industry and the results of our recent survey (sent out in anticipation of the Mega Event) that we can expect to see the travel industry giving more emphasis to up-selling and cross-selling ancillary products and services during 2012.
Virtually half of our survey respondents believe that cross-selling and up-selling will be the fastest-growing area of ancillary revenues for travel businesses in the year ahead. And 30% predict that non-travel related product sales will play a pivotal role in the future of ancillary revenues.
Going beyond the core travel product is a scary step for many airlines. Even today, after a decade or more on the internet there are still major airline websites which do not even offer hotel booking in conjunction with the flight (many of these are in Asia). This is all the more puzzling when any online travel intermediary will tell you that their profits come predominantly from hotel bookings rather than the slim margins from flights. Or taking an example from another industry, fast food operators know that their profits come from the margins on the fries not the burger. Yet many airlines are still selling burgers without the fries, too narrowly focussed on believing they are in the flying business and not the travel industry, or more accurately, the customer service business.
Collinson Latitude believes that the key to successful ancillary revenue sales is in seeking to maximise the benefits of customer data insight. With travel companies holding so much knowledge about their customers, cross-selling and up-selling strategies can be tailored to match benefits and promotions to customers’ wider profiles. To take a very simple example of understanding wider customer lifestyle you need look no further than a glass of wine. Wine consistently scores as by far the number one shared interest across any database of western international business travellers. Not difficult to guess why when considering that international business flyers will be well above average in attributes such as income, breadth of dining experiences, and openness to other cultures. Add to this the fact that the positioning of wine in many airline TV ads underscores that the brand has an implied expertise. And then consider that unlike say soccer or cosmetics, wine is gloriously gender neutral in its appeal. What could be more appropriate? Just ask British Airways about the success of their long established Wine Club targeted at Executive Club members.
But too often ancillary revenue is the organisation’s step-child, a responsibility bounced around between parents. Ancillary revenue may live on its own as a separate team, may be part of sales, part of marketing or even the e-commerce department. If ancillary revenue is to rise up the agenda in 2012 it needs to be taken more seriously with a strong retail minded management team.
The key attribute is that the airline recognises that its customer database is its most important asset. In airlines that are successfully exploiting ancillary revenue we find people who totally ‘get’ the value of understanding and analysing their customer database. They know that by gaining this much wider picture of customer needs they can make money even when the customer is not flying with them. They also understand that introducing customers to products and services with a much bigger margin than the airline business can greatly enhance profit.
Then there is the question of where to put ancillary revenue in the booking process. It can either be separate or integral to the ticket purchase shopping basket. Think about where each opportunity fits in the customer journey. Airlines are fortunate that the flight reservation is pretty much always the first step for any traveller. After all if you cannot get there you will not be needing that hotel or rental car. That gives airlines a huge advantage not to be discarded lightly. The opportunity for a car or hotel booking should be grabbed right upfront. Look at easyJet’s tightly integrated hotel offering which appears on the third screen of the booking process and contrast that with United Airlines where the hotel option is an entirely separate process from a choice hidden as a secondary dropdown on the home page.
You might argue that for non-travel ancillaries there is no need to integrate with the flight booking. Indeed the Lufthansa World Shop is an excellent example of a separate website targeting merchandise at those who have an affinity with the airline brand. And in a brilliant example of a non-travel ancillary channel looping back to the core product they feature this month a Lufthansa Flight Voucher where you can spend 20 euro to purchase a 40 euro money off flight coupon as a Christmas gift for someone else.
But as Ryanair have shown, even physical products can be integrated in the flight booking shopping basket. Their attractive offer of purchasing branded luggage appears on the second screen of the booking process and is paid for in the same shopping basket as the flight.
We are convinced that conventional travel-related offers will remain central to ancillary revenue programmes. 19% of our respondents agree and predict greater cross-selling and up-selling of travel-related products through the booking process. However 21% predict an increase in on-board ancillary revenues for airlines. But the onboard channel comes with some serious physical constraints where in addition to the issues of adding weight to the payload and stock tracking of valuable items, those airline with short sectors or highly regulated unionised cabin crew agreements may find it difficult to grow in this area.
Ancillary selling in the hotel sector is far less developed than it is with airlines, with many of the major groups not offering it at all. One good example is Hilton who offer a single shopping basket experience for adding flight, car rental and attractions through a smooth transition to their own branded white label version of Priceline. However, at this stage this is only available within North America and unfortunately the link is somewhat buried on their website.
22% of our survey respondents currently implement ancillary revenues by unbundling previously packaged products and services. However, this process needs to be handled carefully. Although ancillary revenues can bring costs down for customers – as unwanted services are no longer paid for – the perception is often very different. When services previously viewed as ‘free’ become billed separately, the supplier needs to demonstrate to customers that such services really do provide choice and value for money. And if the service is virtually unavoidable, such as a credit card online booking fee then customers can get very upset when it is presented as a discretionary extra.
So there you have it. We have managed to get to the end of this piece without once mentioning paying for onboard toilet visits.
Iain Webster, Travel Loyalty Specialist at The Collinson Group
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