Imagine if airlines actually had the same finesse as other major retailers at selling their extras, then the revenues would really start piling up.
When airlines broke up their basic offering, the flight, into retail pieces ranging from ticket price to Wi-Fi, they gave themselves a new challenge: How do you market extras to consumers wary of the basics?
Travel delays and airfare sticker shock, and more recently fee creep, haven’t groomed a clientele eager to be upsold. Still, with amenities such as streaming TV, in-seat power and extra legroom―and new ones being devised all the time―airlines are keen to emphasize the virtues of their tricked-out cabins.
This business model has become a fundamental aspect of their financial health. U.S. airlines’ take from baggage fees alone rose more than 9 percent in the first quarter of 2015, to $864 million, along with $768 million in ticket-change fees, the Department of Transportation reported Monday, during a period when net income totaled $3.1 billion. In a friendlier vein, major carriers are using mobile and social technology to “personalize” travel―wishing a customer a happy birthday when she flies on that occasion, perhaps with a free drink, or remembering which wine varietals you and your spouse prefer.
There are still lots of marketing opportunities they’re missing. The question is, would they work on you?
Take United’s June 19 schedule from San Francisco to Chicago. The carrier had 16 nonstop flights on five aircraft models, with even further variations given the subtle differences within an airline’s sub-fleets of a particular model. And there are more flights to consider, counting United’s one-stop connections on that route. Some of the planes on that route offer live TV, or the ability to stream video to your personal Wi-Fi device. The carriers are looking for ways to feature such amenities on their websites, but it’s hard for them to keep up with the endless array of new gadgets connected to the Web, and they don’t have much experience as merchants.
“The airlines are becoming retailers, and they’re not doing a good job of it,” said Henry Harteveldt, a travel-industry analyst with Atmosphere Research Group in San Francisco. “Travelers very much want to shop for things besides price,” he said. “We use price as our evaluation criteria because we don’t have much else to go by. Flight displays have been terrible” beyond price and schedule, he said.
Air travelers who shop on price alone are less satisfied as customers than people who also consider an airline’s reputation or its customer service, J.D. Power said in May when it released its 2015 North American Airline Satisfaction Study. The airlines know it. Southwest touts a friendly staff. Virgin America and JetBlue point to their in-flight snacks and video options. Delta CEO Richard Anderson noted in a recent interview that “a hotel operator can have a low-end leisure product and a high-end midtown hotel, and the half-a-dozen different brands at different price points in their hotel portfolio,” and that “we have to do all of that on the same airplane.”
But the mass unbundling of amenities in the airline industry, which began amid a crippling spike in fuel prices in 2007-08 and continued into the recession, is testing the carriers’ marketing skills. What’s the “right” way to present a $25 charge for checking a bag? What makes a particular service valuable to a customer and not just an annoying new fee? How would you price an in-flight package of movies plus Wi-Fi access?
A New York startup called Routehappy is trying to exploit this opportunity by sorting out which airlines offer which amenities on which flights. It plumbs the vast and ever-changing set of amenities data and assigns each flight a score based on attributes such as seat space, food offerings, Wi-Fi availability and quality, trip duration, and whether a flight offers in-seat power outlets. In November, Expedia began incorporating the flight scores into its search results, with Google Flights following four months later. Routehappy is also building a software platform to help airlines show off their stuff.
“Today, airline shopping is about price, schedule and loyalty,” or frequent-flier programs, said Bob Albert, Routehappy’s founder and chief executive. “There’s a missing fourth component, which is experience.” The quality of the Wi-Fi or the size of a seat-back screen might tip a shopper to one airline over another, assuming the fares aren’t substantially different, he said.
Routehappy declined to share market research to support such a scenario or to release information on how much its amenity-tracking influences online travel bookings, citing the confidential nature of ticket sale data from its travel agent clients.
The broader question for the industry is: Will the unbundled amenities ever trump price and schedule, helping airlines collect higher fares? Since U.S. airlines were deregulated nearly 40 years ago, airfare shoppers have focused on ticket prices.
“What drives flight selection is price, price, price, and then schedule, and then price,” said Douglas Quinby, vice president of research at Phocuswright, a travel industry research firm. Does fast Wi-Fi or a decent sandwich menu matter? It depends on whether the ticket is bought with other people’s money―by a client or an employer, he said. “All of that [amenities] stuff is well and good, and certainly for your more elite and frequent fliers and business travelers it may be a little bit more important,” Quinby said.
One reason these ancillary products and services have trickled out so slowly to vendors beyond the carriers’ websites, or on board, is the contentious relationship between airlines and their major ticket distribution partners, tech giants such as Amadeus IT Holding, Sabre, and Travelport Worldwide. Lufthansa Group recently announcing an extra 16-euro ($18.25) “distribution cost charge” starting in September for its tickets sold through these global distribution systems.
“The conventional wisdom is that fliers only care about price,” Routehappy’s Albert said. “If that were the case, then everyone would be flying Spirit. And they’re not.”
This article was written by Justin Bachman from Bloomberg and was legally licensed through the NewsCred publisher network.
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Photo Credit: A plane passenger checking her cell phone before a flight in Boston Matt Slocum / Associated Press