Amadeus has launched its new study, Cross-Sell Your Way to Profit, which charts the untapped revenue potential of third-party ancillary services to the travel industry.

Published: 19 Jan 2011

Amadeus has launched its new study, Cross-Sell Your Way to Profit, which charts the untapped revenue potential of third-party ancillary services to the travel industry.

The study, conducted by Forrester Consulting, identifies the growth of new ‘extreme’ services such as virtual reality tours and digital concierges set to transform the customer experience in the next 10 years; highlights what travel providers must do to effectively market new services; and outlines the central role of mobile in driving adoption of new services in the next five years.

(Third-party ancillary services have been defined as follows: Third-party ancillary services are those operated or delivered by a third-party provider to the travel supplier, for which the supplier earns revenue via the payment of fees or commissions from the third party).

According to the study, third-party ancillary services provide travel suppliers with an underexplored revenue-generating opportunity, expected to increase by 30 percent by 2015 compared to 2010. There is growing recognition that third-party ancillary services will become important revenue contributors to travel suppliers, provided they offer a relevant product mix and make these services available throughout a journey and across channels. Third-party ancillary services offer the potential for travel suppliers to extend the length and breadth of traveller interactions before, during, and after a trip.

The study is based on quantitative research with 67 percent of respondents drawn from travel brands that generate annual revenues in excess of $1 billion.

Marcos Isaac, director, Travel Services Business Group at Amadeus, said, “Today the industry is focused on the opportunity à la carte’ ancillary services offer, but this study spotlights the growing and significant contribution of third-party sales. Travellers are set to benefit from a host of innovative services in the future, often delivered by companies outside the travel industry. Travel brands of all types need to understand who to form partnerships with, what the revenue potential is and how best to sell third-party services if they are to maximise this opportunity.”

For the 67 percent of travel suppliers surveyed who count on 2010 revenues of $1 billion or more, third-party ancillary revenues are expected to represent approximately $25 million by 2015. For today’s $560 billion global airline industry, that translates to $16.2 billion in revenues coming from the sale of third-party ancillary revenues by 2015. These significant figures are based on the findings that revenues from overall ancillary revenues today account for 13 percent of travel supplier income. Suppliers expect 19 percent of their ancillary services revenue to come from third-party ancillary product sales by 2015, meaning this will equal approximately 2.5 percent of total travel supplier revenues. The benefit for travel providers is that this uplift can be achieved from relatively low levels of investment — and with healthy margins on third-party ancillaries, profitability is very attractive.

Key findings

Third-party ancillary revenue to grow 10 times faster than general sales in next five years: Third-party ancillary revenue is expected to increase by 30 percent during the period 2010 to 2015. Set against estimated travel industry growth of 3 percent during this period, analysis demonstrates third-party revenue growth is 10 times greater than that of general sales. The study finds third-party revenue is likely to represent 2.5 percent of total provider income by 2015 - or $25 million for a $1 billion company.

‘Extreme’ ancillary services set to transform the passenger experience allowing providers to innovate in the next 10 years: While traditional third-party services such as insurance, car rental and hotel room sales are expected to remain popular, travel providers see great potential in a range of ‘extreme’, as yet unexploited, products and services. By 2020, more than half of travel providers (54 percent) expect to offer virtual reality services that can help passengers experience airports, hotels and cruise ships before arrival, digital concierges to improve the in-hotel or airport experience (80 percent) and in-journey spa treatments (37 percent). Travel providers expect future services to be shaped by a combination of macro-trends with mobile having the greatest impact (81 percent believe it very important) and the rise in travel to-and-from emerging economies is also viewed as important (59 percent believe it either important or very important).

Mobile to match websites as primary channel for third-party sales: Although respondents recognise the limitations of mobile’s effectiveness to sell third-party services today, ranking it behind traditional channels such as airline ticket offices and hotel front desks, they expect a dramatic increase in importance over the next five years. Driven by the increasing penetration of smartphones and tablet devices, as well as the industry’s desire to develop more flexible selling capabilities travel providers believe mobile will be a very close second to websites in terms of effectiveness to sell third-party services by 2015. Increasingly mobile will be a primary channel for the sale of third-party services beyond the booking stage.