Do any of the following questions sound familiar to you? If we offer more than ‘just seats’, will we be able to generate a substantial stream of added revenue?Can we stretch beyond or core offering without diluting our brand?Will this strategy create dissatisfaction among our customers? Do we have the right technology infrastructure in place to implement this properly?

Published: 14 Oct 2009

Do any of the following questions sound familiar to you?

If we offer more than ‘just seats’, will we be able to generate a substantial stream of added revenue?

Can we stretch beyond or core offering without diluting our brand?

Will this strategy create dissatisfaction among our customers?

Do we have the right technology infrastructure in place to implement this properly?

Given the current state of the travel industry, your answer was probably ‘yes’.

What’s more, these questions have likely arisen in the boardroom at countless airlines worldwide, igniting passionate debates, shifts in strategy, and the reassessment of existing technologies, partners and suppliers.

Based on a recent report from IdeaWorks, which reveals that airlines’ global ancillary revenues hit $10.25 billion in 2008, it’s apparent that many airlines are actively implementing new and highly evolved strategies to generate bottom-line changing results.

For instance, leading carriers like American Airlines have more than dipped their toe in the a la carte pricing world and have started to charge for preferred seating and fees for booking on the telephone. American generates almost 10 percent of its total revenue via these tactics. Even Southwest Airlines, who had previously stated that they would never charge for services that were included in the price of the ticket, have softened their approach. Southwest now charges $10 for its "EarlyBird Check-in" product, which offers travelers the luxury of reserving an early spot in the boarding line. These examples are just a fraction of the whole.

As low cost carriers and international leaders alike continue to adopt next-gen ancillary revenue strategies, it has become clear that when properly designed and executed, material ROI ensues. Effective strategies hold the unique potential to generate a valuable source of revenue, increase differentiation and provide highly valuable services to the end-customer.

As low cost carriers and international leaders alike continue to adopt next-gen ancillary revenue strategies, it has become clear that when well-designed and executed, these strategies hold the unique potential to generate a valuable source of revenue, increase differentiation and provide highly valuable services to the end-customer.

However, success is never guaranteed and examples of failure abound. Creating and implementing a smart, elegant and impactful strategy is not a trivial undertaking. What’s more, even the best-laid plans can’t account for snags in execution and uncontrollable market forces.

Airlines and other travel industry players should look holistically at their businesses and carefully consider the pre- and post-implementation details before rushing into what can result in disjointed ancillary product offerings, creating poor customer experiences and negatively impact core product sales.

Choice Creates Opportunity But Multiplies the Challenges

The definition of ancillary revenue includes not only a la carte features, but also commission-based products and frequent flier offerings. Choices are plentiful. But there are also conspicuous challenges. While the scope of this article simply can’t include them all, here are a few:

1. Customer patience is wearing thin. Most airlines, from the early-adopting low-cost carriers to the major airlines who followed in their footsteps, are now charging fees for services that used to be included in the price of a ticket. While these tactics do create added revenue, the nasty side-effect of consumer backlash can irrevocably dent a carrier's reputation, driving current and potential customers away faster than an X-15.

2. The ability to elegantly present consistent a la carte options to customers, particularly online, remains a challenge. Some airlines simply don’t have the internal bandwidth, technology platform or supplier network needed to deploy a comprehensive strategy in a realistic yet rapid time period.

3. Travel is on a decline. The global recession and added fees have brought a double-digit slide in consumer demand for airline tickets and amenities. Corporate travel analysts and experts predict that there will be fewer trips and less spending in the coming year.

Silver Lining in Cloudy Skies

The good news is that there are highly-advanced ancillary product delivery solutions available that are proving their mettle as the smart and strategic choice. These innovative solutions enable airlines to invest relatively little and still increase revenues per passenger.

For instance, two of the world’s largest airline companies, Delta-Northwest and Air France-KLM, have implemented dynamic cross-selling engines, sourced by a robust and relevant product inventory, in order to boost ancillary product sales.

Passengers can now visit KLM.com and book not only air tickets, hotel accommodation and car rental, but also airport parking and transport between airport and city center. These services are available for most KLM destinations in the United States and a growing number of European cities.

Both Delta and Northwest similarly launched a fully integrated approach. Consumers who visit delta.com or nwa.com can purchase relevant ancillary travel services with or without the purchase of airline tickets; they can also opt to return to delta.com or nwa.com anytime to browse lodging, rental car and trip amenity options and purchase any non-air items in one simple transaction. In all cases, this model makes sense for the airlines’ core businesses, as well as their millions of valued passengers who benefit from an easier, richer and much more consolidated travel booking experience.

Best Practices for Success

With all of this in mind, here are some best practices to consider for overcoming challenges and making the most of out your ancillary revenue strategy:

1. Ancillary Revenue and a la carte pricing implementation and management only look simple; leverage proven teams who focus on management, monitoring and upgrades so that your team can focus on enhancing your core business.

2. Have the right technology in place. Many airlines rely on outdated online platforms that simply aren’t robust enough to deliver a streamlined and consistent customer experience. There are technology companies out there who live and breathe this stuff, so take it upon yourself to look outside of the corporate box and consider 3rd-party providers who can quickly solve your problems.

3. On-demand booking and delivery is at the heart of online a la carte services. Your a la carte offering should be easily assessable to your customers across all applicable customer touch points. It should provide yet another reason to endear customers to your brand and direct sites.

4. Relevancy, relevancy, relevancy. What good is it to offer customers a variety of travel products and services if the products and services aren’t relevant? Do your homework: gain an in-depth understanding of your customer demographics and identify the psychographic characteristics of your target market. Source your product and service suppliers accordingly.

5. Don’t panic. If you’ve thought your strategy through, are using a solid technology platform and are offering the right products and services, you are likely on the path to success.

(This article has been contributed by Kenneth Purcell, founder and CEO, iSeatz)