Fulfilling airline potential

This in particular holds true for aviation where a renewed focus on ancillary revenue generators has seen many airlines focus significant energy on extracting margins outside of the core business of moving people.

“There are compelling reasons for airlines to take ancillary revenue opportunities very seriously,” said Bezuidenhout, “and airlines have an advantage: a base pre-qualified as having disposable income, an audience that has already illustrated a level of trust in the airline's own brand and, thirdly, knowledge of the consumer's travel trends. Not only do airlines have substantial insight into who they carry, but air travel typically represents the first purchase activity in the overall travel procurement cycle, followed by destination content, hotels and cars bookings - all of this serving to provide airlines with the ideal contextualised sales opportunity.”

Ancillary revenue

Whilst every potential in the world exist for airlines to extract financial benefit through a focus on ancillary revenue, the reality is that airlines have not traditionally done very well in this regard. Bezuidenhout notes that, historically, factors such as ancillary offerings were mostly limited to direct distribution channels, a narrow interpretation that the ancillary opportunity is limited to onboard duty-free sales and a lack of functional specialisation have all contributed to today's ancillary revenues being a fraction of what they could be.

Bezuidenhout added that while some airlines turned the chase after ancillary revenues into publicity stunts, such as charging for lavatory use, the reality is that both low-cost and full-service carriers are seeking greater opportunities to turn revenue. “The focus on, and revenue from, ancillaries has picked up pace and now accounts for 10 - 20 percent of best-of-breed carriers turnover. American carriers have seen revenues from baggage charges increase 280 percent to USD670 million during the second quarter of this year, whilst airline websites now regularly count as the largest hotel and car rental referrers, having realised the importance of incorporating the cross-sell opportunity into booking flows.”

Commercial content into IFE

Increasingly, airlines are including commercial content into their IFE (In Flight Entertainment) offerings, whilst airline dynamic packaging is now commonplace. From this base, airlines are more aggressively pursuing new opportunities - while onboard mobile telephony is seen as one of the next great opportunities, serving to directly address the passengers communication needs whilst being an enabling platform for transactional activity in much the same way the Internet is.”

Common airline ancillary charges presently comprise charging for checked baggage, seat assignment, catering, blankets, magazines, priority airport treatment and sales of travel insurance, personal cargo, event ticketing, cruises, rental cars, hotels, parking, tours and even amusement parks among others. In fact, data shows that US airlines have collected more than USD670 million in baggage fees in the second quarter of this year, up some 276 percent from the year-earlier period.

Preferential seating fee

“The caveat though is to create opportunities within your market hemisphere,” said Bezuidenhout. Recently some full-service carriers instituted a business class preferential seating fee, a traditional low-cost carrier practice. “Difference being, of course, that the high cost of a business class seat with an added seating fee drives negative PR while paying a low-cost airline a nominal fee to choose your seat, on top of an already affordable fare, is a totally different value proposition.”

Mango presently enjoys ancillary revenues from commercial space on its IFE, sales of onboard static media, hotel and car rental bookings as well as cargo, among others.” These ancillary revenue streams help us keep our ticket prices low and we plan to expand our revenue streams beyond traditional airline thinking,” he said. This includes the ultimate development of greater online retail opportunities, brand extensions and continued creation of value-driven products, such as the airline's business travel Mango Plus and Mango Flex offerings.

A captive audience

“Non-ticket revenue is highly dependent on passenger volumes, technology support and employee training and incentives. In fact, ancillary revenue can account for up to 10 to 20 percent of passenger revenues.”

Airlines have a big benefit: a captive audience with disposable income. The challenge, therefore, for airlines is how to leverage their brand and retail space without compromising the core service. By getting this right, low-cost carriers can ultimately gain additional income, serving to help lower the core ticket price in the hands of consumers.”