Airlines have reaped huge rewards in recent years from sales of ancillary products. But as we discovered during this Skift Global Forum panel, their future success is by no means assured. Airlines will need to learn to think more like retailers, using what they know about customers to deliver the right products and services that meet passengers’ constantly changing needs.
Business has never looked better for the global aviation industry. Carriers around the world are reporting record profits as more airlines get smarter about marketing and selling “ancillary” products that passengers add to their basic fares. In fact, industry-wide ancillary revenue is expected to grow by 15 percent between 2017 and 2021. But for all their recent success, today’s airline industry sits at a critical crossroads. That’s because the same tactics that are helping carriers increase their ancillary revenue can also have a negative impact on customer satisfaction, potentially impacting an airline’s long-term brand image.
In order to sustain their recent success with ancillaries, airlines need to adopt a more retail-oriented mindset in their offer creation process. This means that simply “unbundling” products and services from airfares will no longer be enough. Instead, carriers will need to embrace the concept of “hyper-relevance,” meaning that they understand and serve customers differently based on their constantly-evolving needs. However, many airlines have been slow to make this link between relevance and offer creation. How can airlines be ‘smarter’ with their offers? And are there new techniques that forward-thinking airlines are using to increase ancillary revenue while remaining focused on customer satisfaction?
These questions were at the heart of a recent panel discussion at the 2018 Skift Global Forum, presented in partnership with the Accenture Amadeus Alliance, entitled “Maximizing the Results of Ancillary Merchandising for Airlines.” The session, which featured executive participants from United Airlines, Amadeus, Seabury Consulting (now part of Accenture,) and Etihad, examined emerging strategies that airlines are using to increase ancillary revenue, along with opportunities to leverage new technologies like machine learning and artificial intelligence in service of this process.
Participants in the session were quick to emphasize that the airline industry’s ancillary strategy has always been focused, first and foremost, on giving consumers more choices. “At Etihad we’re putting our ability to adapt the customer experience at the heart of our strategy going forward,” confirmed Tristan Thomas, head of corporate strategy, analytics, and innovation for the airline. “In fact, in the next few weeks we’ll launch a new brand campaign with the word ‘choice’ as a tagline…it’s not credible for a customer to not be able to customize their experience on a 16-hour flight. It’s a long time to spend in the air and only receive a ‘one size fits all’ proposition.”
In fact, many airline industry executives believe that ancillary products are helping to drive even higher positive sentiment among passengers. “At United, we’ve found that customers who buy ancillary products have higher customer satisfaction when compared to those who don’t,” said Kajal Narasimha, managing director, merchandising and personalization at United Airlines. “So it’s really important for us to create products and services that resonate with our customers, and to create a buying experience that caters to their different needs.”
Narasimha’s point about different needs was an important one, particularly for panel participants like John Luth, chairman and CEO of Seabury Consulting and Corporate Advisory, Part of Accenture. Luth pointed out that many of today’s most successful airline ancillary merchandising strategies depend on the concept of hyper-relevance, a practice where brands try to meet consumers on their own terms, using insights to deliver buying experiences that dynamically adapt to their changing needs. “It’s not just personalization, it’s personalization in the context of where the traveler is,” said Luth. “If you’re on a business trip and an airline is promoting something that has nothing to do with that business trip, that’s a wasted opportunity. Thanks to technology, we’re not only able to make travelers feel recognized and special, but to also deliver something that’s helpful for them.”
Still, many airlines struggle to figure out how to build the right tools and systems to make this type of hyper-relevant offer possible. Even if it may seem daunting, panelist Meg O’Keefe, director airlines customer unit – digital merchandising and customer experience management solutions for Amadeus, emphasized that evolving airline ancillary merchandising strategies can be easier to implement than executives might realize. “It is possible to put together an approach which allows airlines to build upon the assets that they have already,” said O’Keefe.
She notes that the Accenture Amadeus Alliance is already helping carriers like Scandinavian Airlines figure out how to get started. “They said, ‘We’d like to know how we can do better – how can we increase our revenue adoption per passenger if we change the pricing [for ancillaries]? We have a static price across routes, but we want to see what happens if we start to alter the price,’” explained O’Keefe. After running different types of pricing scenarios on behalf of the airline, the Accenture Amadeus Alliance was able to produce a significant incremental lift in revenue. “Just by adding advance seats as a product…we were able to project a 15 percent revenue uplift over a year.”
As airlines get more sophisticated in their strategy for ancillary merchandising, techniques and technologies are helping them to get even more accurate in how they anticipate and satisfy passengers’ changing needs.
One technology with big potential is machine learning. According to United Airlines’ Narasimha, her company is using machine learning techniques to assist passengers as they make purchase decisions. “When you look at our seat map today and you want to pick one of our seating products (like extra legroom, or an upgrade) normally you’d have to go in and look around for what’s interesting to you,” said Narasimha. “What we’ve done with machine learning is use what we know about your past choices: whether you’ve picked an aisle, or a window seat. So we make a recommendation to you based on your previous choices, or what people like you are looking at. And we’ve seen a double-digit increase in people taking us up on that offer, just because it’s made it easier for customers to decide.”
There are also new innovations emerging in the realm of pricing. Etihad’s Thomas explained how his organization is now experimenting with auction-style techniques to encourage customers to bid on flight upgrade products. “We’re starting to see `bidding processes work well when people already have a seat and they’re looking to upgrade,” said Thomas. “We offer an eBay-style experience, and it taps into a point we’ve made a few times on this panel, which is that it’s a pretty tactical initiative…but we’ve seen a 23 percent increase in the average fare we receive.”
In fact, as Thomas notes, it’s a great example how a relatively small project to further optimize airline merchandising can yield big results. “There is so much in the airline industry that can be optimized,” said Thomas. “Even something as playful as introducing a bidding process has yielded substantial benefits for us.”
Check out the video above to watch the full 20-minute conversation.
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