Fares that bundle a unique set of features require a targeted and comprehensive marketing plan. Tom Bacon, a former airline executive and consultant in revenue optimisation tells us what we should be thinking about in this guest article penned exclusively for EyeforTravel.

It seems that today there is a fare for everyone. ‘Economy Saver’, ‘Classic’, ‘Latitude’ are among branded fares that are bandied about in a bid to attract a range of customers from both the leisure and business segments. These are, of course, fares that represent a unique set of travel features that can be purchased on select carriers for a ‘bundled’ price.

‘Branded’, of course, implies that the name means something to customers.  One of the first such branded fares was American Airlines’ ‘Super Saver’ which was introduced back in the 1980’s.  Back this saver fare represented a bundle of restrictions, which allowed American to it at up to a 60% discount to normal.  By contrast, today’s ‘branded’ fares generally represent additional features above the no frills service that in turn command a price premium.  As airlines have unbundled their product, there is now room for a package of features that can be sold as a new re-bundling of a la carte features.

However, this initiative poses challenges for airlines.  In fact, branding fares requires a comprehensive marketing plan which can be broken down into four stages. These are:

1. Product definition or positioning

Here several questions must be asked. What features should be bundled together?  What segment of traveller is targeted?  What is the value to the customer of such bundling? Frontier Airlines, or example, offers two free bags as part of their ‘Classic’ fare; this could be attractive to either business or leisure travellers.  Air Canada offers more flexibility (lower change fees) as part of their ‘Latitude’ fare – targeted to business travellers.  Determining the right bundle of features requires market segmentation and analysis of the features desired and price elasticity for each segment.

2.  Pricing 

Once you’ve identified the target segment and the associated features to be included, how do you price relative to the a la carte option?   Is it constructive to simply offer a lower total fare for features that customers would have paid more for separately on an ala carte basis?   What is the incremental profit opportunity (higher revenue per passenger? Or it increased share of that segment or perhaps lower costs?

3.  Promotion

Communicating the value proposition to customers paying more than the lowest fare is a challenge.  Each airline that offers branded fares displays the features included with each ‘brand’ on their website but communicating this more broadly can be very expensive.  In fact, no airline offering branded fares today has successfully established what ‘Super Saver’ did decades ago – a clear ‘brand’ in customer minds.  This requires large advertising budgets that are currently more often devoted to promoting the lowest fare.

4. Fulfillment and Distribution 

A significant hurdle for any ancillary fee is tying into diverse airline systems (reservations, check-in, inflight).  System challenges exist in both fulfillment and distribution.  To ensure the bundle of features purchased by the customer is delivered properly, each feature must be tracked and delivered along the customer timeline (pre-flight change fees, check-in, inflight).  For example, because of the difficulty of integrating systems, bag fees were only collected at the airport initially; for onboard meals, most customers must purchase the feature simultaneous with delivery.  With a branded fare, links to the various systems must be implemented upfront at the time of the booking.

From a distribution standpoint, purchasing branded fares via external distribution channels is often extremely limited.  In fact, branded fares targeted to business travellers may require special marketing, systems and training with corporate travel agent sites.  Third party airline distribution channels are working hard to offer ancillary fees on their sites - branded fares represent yet another new capability that needs to be prioritised and addressed.  Of course, some airlines have specifically said part of their strategy is to move more sales to their websites; although ‘branded fares’ may support this objective, more limited distribution of such fares dramatically reduces what can be achieved in the short-term from a revenue standpoint.

Recently a representative of a major IT innovator in this area had this to say:  “There is much more to learn about how to optimise the use of ‘branded fares’.”  I agree.  The statement also implies that there is a bigger revenue opportunity available than has been realised in the industry so far.

Tom Bacon, a former airline executive and consultant in revenue optimisation