Knowing how best to sell something in the airline business is challenging. The most effective airline merchandising initiative requires that you bundle fares appropriately and approach ancillary charges with care. The trick is to keep it simple and present it well – make things too complicated and you’ll put the consumer off.

One department’s revenue opportunity should never end up as another department’s cost but how do you ensure this doesn’t happen? Travel industry solutions provider Amadeus recommends a full cross-airline review to ensure that all opportunities and the potential impact of merchandising strategies are considered. EyeforTravel’s Ritesh Gupta finds out more from David Stoyle, head of revenue practice, airline consulting, Amadeus IT Group.

EFT: What’s your advice for merchandising-related initiatives?  

 DS: First, you need to have a clear objective. Simply saying ‘we’re going to do some merchandising’ is not going to deliver the focus you’ll need to be the best.  There is a need to work out the strategy, consider the competition as well as the brand and customer proposition. Based on these elements, top management should define the revenue targets for merchandising. Once you have a target, you’ve got something to measure against and to aim for. We also see that the winning strategies are the ones built using a cross-airline approach.

EFT: Tell us more…

DS: Building a merchandising strategy in a corner somewhere and imposing it on the rest of the airline is an approach that will get quick results. However it is likely to miss some key points that are going to be a problem further down the line – problems of execution, priority or policy. By reviewing with all the key departments in the airline (operations, marketing, legal, sales, airports, in-flight, and so on), you can build up a great list of new and improved opportunities.  These can be things that you sell to customers as part of a fare family or as an itemised ancillary. You need to be sure to work on all three of the attribute groups that you have available to you: comfort, flexibility, and status.

EFT: What should one avoid in terms of implementation?

DS: I would recommend that you:

·         Prioritise and stay focused. If you launch lots of ancillary revenue initiatives, you’re going to have a challenge to implement and deliver them all. It’s best to work on an opportunity assessment and build up a prioritisation list based on opportunity size, closeness to brand and costs.

·         When you implement fare families ensure your bundles are increasing and not the cannibalising revenue you could have received as an ancillary.

Airlines need customer segmentation in which they group their passengers by behaviours. For example, you might have business day-trippers, the retired and wealthy, backpackers and migrant worker groups. Each one has its own mix of requirements including price sensitivity, willingness to pay for attributes such as extra legroom, priority boarding and so on. Understanding these groups is part of the way to design fare families and items that are relevant and likely to succeed.

EFT: What your insights regarding bundle structure?

DS: Interestingly, we’ve found that there is an effect from the bundle structure that seems to be independent of the value in the bundles – in other words, the price differences between fare families will strongly influence revenue from up-sell. Airlines that define families with a huge price difference do not see much up-sell volume, and those that define very small increments see volume without much revenue. Our studies across a big selection of airlines (over 100) show that there is an optimal structure – that’s why we recommend starting with the structure (number of families and their increments) before moving to the composition of the families. Obviously, it’s an iterative process – you need to revisit the structure once you know the value of your attributes. But if you start with the structure, you can try to fit your design to it as closely as possible.

EFT: How can airlines make their merchandising consumer friendly?

DS: Good merchandising is by definition consumer-friendly because it simplifies the airline offer. Instead of tens of fare classes with varying rules and attributes, the consumer is presented with three or four offerings.

Presentation is key. That means giving the families names that reflect their contents, and providing as much information as possible to the user as they move through the website. But the most effective airline merchandising finds a balance between ancillary and upsell prompting, while not disturbing the booking process so much that the consumer gets put off. It’s also vital to optimise all the customer touchpoints: that means we need to propose upsell to higher families and cross-sell to ancillaries at all possible areas of interaction with the airline.

For example, airlines often miss the opportunity to show the higher families in the initial search response, or to offer ancillaries in the follow-up email.

EFT: What are the major challenges in working out merchandising strategy in today’s business environment? 

DS: The hardest parts are:

·         Identifying the optimal price structure, in other words the incremental price differences and the number of fare families.  

·         Knowing the price to assign to ancillaries, and the value of fare family components. To do this, we need to define the utility of various product attributes. That means we need to know how much customers value them.

·         Knowing what to bundle and what to itemise – it’s a major challenge to know if a given attribute (for example, seat selection) is better to be included in a fare family or sold as an ancillary. Building the customer segmentation and defining utility should help, and so should knowing the target fare family price structure.

·         Another challenge is internal coordination. One person’s revenue is another person’s cost – for example, the ancillary manager might like the idea of priority boarding but airports have to find a way to deliver it.

·         Finally, depending on your brand, market perception can be a big issue. Airlines need to be careful not to be seen to be adding hidden charges. But this is not a reason for avoiding all ancillaries. The approach just needs careful planning.

EFT: How should one work out a list of attributes that can be sold or bundled?

DS: We recommend cross-airline interviews, during which members of staff from right across the airline propose attributes, as well as giving feedback on those currently being used. This helps to improve current performance and identify new opportunities. Taking into account the views of airline employees has two main benefits: it helps the airline to uncover the full range of impacts across its operations, and is an opportunity for the airline to hear from individuals who are not only employees but also passengers, and who have family and friends who are passengers too. A market review is valuable – this means looking at other airlines and seeing what they are doing – there are plenty of great ideas out there. Finally, it is important to play to all the vectors – airlines need to build fare families and sell attributes that fulfil passengers’ needs for comfort (seats, bags, priority boarding…), flexibility (refunds, change fees…) and status (lounge access, variable frequent flyer points entitlement).