The revenue share from ancillary products is significantly increasing among most airlines. For some players ancillary revenue is even higher than the regular revenue from pure ticket sales.
What is the magic behind boosting ancillary revenue?
To be honest, it is a complex challenge. Four key competencies need to be mastered:
- Strategic fit
- Adorable products
- Retail competence
- A multi channel IT platform
Take Ryanair. All we expect is a naked product. We know that we will have to pay extra for anything and that the rules of e.g. baggage restrictions will be strictly enforced. Very different with traditional full-service carriers that have a long brand history. We expect free F&B and some flexibility regarding baggage weight restrictions. Or take Condor with their newest ancillary product to sell carry-on baggage space. Does that correspond to a happy start into vacation?
The ancillary setup has to be in line with the perceived brand promise. Otherwise customers will walk away.
The selection of ancillary products can be endless, from basic products like advanced seat reservation to very advanced non-air products like football tickets. Understanding the attractiveness and price elasticity is key to sales success. Dynamic pricing can be applied to all products with limited availability like baggage or specials seats.
From over 100 possible ancillary products the most relevant ones need to be identified, ideally by customer group.
Offering ancillary products at the right time, in the appropriate shopping window and at the most profitable price is a complex challenge. Also the McDonald like menu definition of ancillary packages has a great sales impact. Furthermore some products can not be offered in all sales channels, e.g. tour operator business.
The art of running promotions and closing the deal is a process of continuous learning.
A multi-channel IT platform
The most time consuming competence and the biggest botte neck for implementation is to provide a modern and flexible retail IT-platform. It has to serve direct sales as well as third party software requirements from distribution partners. Customers should be able to access the ancillary menu whenever they feel like buying something. From the initial booking to after flight customer service.
IT Infrastructure calls for a substantial investment. An investment that can make a huge difference.
Ancillary champions have long invested into building retail skills and they will continue doing so. Mastering ancillary sales already is a question of competitive advantage and long term survival.