Taking care of "brand" concerns when it comes to garnering ancillary revenues
Published: 13 Mar 2008
EFT Ancillary Revenue in Travel 2008 Special
From traditional carriers perspective, it is being said that airline executives have other non-operational concerns about launching ancillary revenue strategies.
One is that selling more frills to economy passengers would dangerously blur the distinction between first-class and economy service.
According to Bobby Healy, Chief Technical Officer, CarTrawler, the primary concern of traditional carriers has been the effect of ancillary selling on "the brand".
"I think a lot of snobbishness relating to the brand has evaporated, and the hard cold financial realities of competing with low cost carriers have changed this thinking. I don't know of a single airline (low cost or
traditional) that has not appointed a "head of ancillary revenue" with a view to really making this an important addition to the bottom line for 08. I think the only divergence now between low cost carriers and network carriers is in their selling style - and that reflects the brand values of the airline. British Airways for example, are not going to wake me up mid flight to sell me a lottery ticket, but they would really love to offer me a top quality car rental for my trip...Does that negatively effect BAs brand ? No way."
Healy, a speaker during EyeforTravel's inaugural Ancillary Revenue in Travel 2008 conference in Dublin recently, spoke to Ritesh Gupta about technology being a barrier when it comes to car rental companies and airlines joining hands for ancillary revenues and much more. Excerpts:
Ritesh Gupta: Do you think technology is a major barrier even in Europe when it comes to car rental companies and airlines joining hands together for ancillary revenues?
Bobby Healy: Big time. The most successful airline in Europe - ok arguably - is Ryanair, yet their poor neighbours in Aer Lingus have done a better job at integrating their car hire supplier.
This was down to technology, and little else. The other problem is that the car hire suppliers themselves haven't been (to date) incentivised to do this integration for the airline, So airlines like Ryanair, and many others are left with a click out to a white label website run by the car hire company. While this is definitely the quickest route to market, it misses out on many opportunities to increase the revenue from this product. There is movement here though. Most major brands have now produced some flavour
of XML access to their product so that the airlines could integrate their content in a more seamless fashion.
The problem, however then shifts to the IT providers to the airlines and their support for the myriad of XML interfaces and car hire companies out there. The world would be (technically) beautiful if
there was only one car hire company, but we in CarTrawler know that's not the case, and in order to really get the most from car hire an airline needs to have more than one, possibly up to 5 or 6 - and that means a big technical challenge. That's where we come in.
Ritesh Gupta: Technology is now allowing airlines to completely outsource the car rental ancillary product, and shift more of the benefits of the channel towards the airline rather than others. What kind of progress do you think airlines have made in this direction in Europe?
Bobby Healy: That's an interesting question, and its a point that is starting to really drive the negotiations between suppliers and the airlines. I think its early days yet but we do see that the airlines will definitely aim to take more of the pie when it comes to the car hire revenue. That will come from three areas:
1) Airlines will push for higher fees from the car hire companies,
2) Better conversion (through technology),
3) Channel shift (the airlines will displace competing channels).
This is not a bad thing for car hire companies either - more choice means that companies that have been prevented from selling on certain airlines, will get access to that channel, and it is still going to be a premium channel to them as compared to brokers, OTAs or meta search. On top of that, when selling through an airline channel, suppliers can maintain complete control of their distribution and pricing (using CarTrawler as their distribution system) - not the case with other channels.
Ritesh Gupta: Airlines generate traffic to their websites that should be used to capture a larger share of the total spent planned by the traveller. But add on products and upselling requires a change culture of those facing the customer and the tools they use. From car rental company perspective, how easy is it for them to fit in talking of culture change?
Bobby Healy: Well there is certainly a culture change, but that tends to be more in the air (onboard selling) than during the pre trip selling process. In other words, all the pre trip selling is done anonymously - through a well designed website and so there is little no internal change of process or culture. There is a small change in the call centre for upsell of insurance or car hire, but its unobtrusive and easily avoided by the passenger, so I don't think the relationship changes there. The net effect of adding ancillaries such as car hire, hotel and insurance is positive for the passengers, not negative.
Ritesh Gupta: To what extent do you think dynamic cross selling of car hire through airline websites is replacing existing channels for car hire such as meta search, brokers and the suppliers own sites?
Bobby Healy: We are predicting that by 2012, 40% of European car hire at airports will be sold by airlines to airline passengers. From published statistics, Easyjet have already achieved that, and others are catching up. That's huge. And that volume will displace primarily the car hire suppliers own websites, but also brokers and meta search to a lesser extent. The reason for this is that price sensitive customers will continue to use meta search and brokers, whereas quality sensitive and price flexible customers will book on the most convenient channel that delivers the product they are looking for - which is going to be the airline. That reinforces my previous point about choice. Would a loyal AVIS customer book a car with Ryanair? Would a loyal Hertz customer book a car with Easyjet ? Food for thought.
Comments
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Pharis said on 13 Mar 08:
The loaf of bread is only so big. Cutting that loaf into smaller and smaller pieces will not increase the amount of bread available to consume.
So, of course, airlines will push for higher fees from the car hire companies. And, quite naturally, the car hire companies will push back. There is a finite amount of profit to squeeze from one side or the other -- unless the car hire companies raise their rates and at the point a low cost car hire company, unaffiliated with an airline, will offer serious competition.