The total industry Cost for Available Seat Kilometres (CASK) fell steadily until the start of the pandemic. This drop means that airlines are increasingly better able to align cost base with a return on investment (ROI). From aircraft operations, and crewing to maintenance and financing, technology innovation has reduced that overhead. Recently, with distribution costs under the spotlight, airlines have generated millions of dollars of cost efficiency and incremental revenue using NDC and merchandising technology. One significant area has remained unoptimized – incentives.
Airlines typically incentivize travel sellers to help stimulate sales and reward sellers for loyalty. To put the cost into perspective, the value can be between 2% and 3% of total indirect channel revenue. In the case of major airlines, that can equate to 100’s of millions of dollars in payments.
Just like distribution costs and payment fees, incentives are an unavoidable cost of sale that airlines factor into their budgeting processes.
When looking at how your airline can maximize the revenue from each incentive dollar spent, we recommend asking these six questions:
1. Does your segmentation look like everyone else’s?
Travel sellers have different relationships with different airlines. Understanding the relevance of travel sellers to your airline is a crucial step toward putting in place the right deal at the right time.
2. How much time do your salespeople spend on analysis and internal reporting?
We advocate empowering sales organizations to make intelligent decisions at scale. Providing them with the tools to do so is critical to enabling faster value. Multi-dimensional understanding and science-backed recommendations are critical to enabling faster value.
3. Do your internal negotiations and approvals take longer than external negotiations?
We argue that sales strategy needs rigorous testing and outcome alignment. Getting that right up front allows individual sales teams to easily create meaningful deals that drive results quickly. Through automation, efficient planning, and outcome simulation, airlines can allocate more time to making deals work.
4. Are your agency incentive programs aligned with your distribution strategy?
The change in dynamic between airline / GDS / travel sellers, the ancillary merchandising opportunity, access to content, and beyond are considerations that extend across the airline commercial spectrum. We see a tight correlation between incentives and executing a modern distribution strategy.
5. Do your tactical, short-term incentives respond positively to your opportunities every time?
Our view is that machine learning (ML) provides the fastest route to identifying budget deficits, spotting opportunities, and responding with certainty. By bringing ML together with sales team market understanding, intelligent decision-making at scale becomes a reality.
6. Are your sales teams equipped to compete effectively in this new world?
Negotiating with increasingly tech-savvy data-centric travel sellers requires a new set of tools that reflect the articulation of a unique value proposition. Being ready and prepared to engage meaningfully provides a head-start over competitors.
As the budgeting process for 2023 begins and travel sellers start to look to your airline to understand its value proposition, it’s worth exploring how commercial strategy and distribution come together to drive revenue from your investment in incentives.