Top three ancillary strategies to drive revenue growth

Demand for air travel is buoyant, signaling a path to industry recovery.

The International Air Transport Association (IATA) announced global traffic to be 84.2% of January 2019 levels ¹. With passengers taking to the skies, profitability has returned for many, or on the horizon for the remainder. Airlines with the flexibility to pivot are best positioned for growth. This required flexibility extends just as much to the retailing domain as it does to fleet and network planning.

The retailing strategies we talk and read about today, such as AI-driven personalized offers are exciting, but they are in the league of the early innovators. What are the top three ancillary strategies that other airlines can focus on for a more straightforward uptick? We caught up with Jan Douglas, Director of Product, Offer Group at Accelya, to learn his views on the topic.

“Really, you don’t have to aim for the skies to make a difference with retailing. The main thing is having the flexibility to innovate, then grow from there,” Jan continued. “If I had three retailing strategies to call out for airlines looking for growth, I would highlight the a la carte ancillary model, seat retailing, and dynamic ancillary bundles.”

A la Carte Ancillaries

“Though nearly every airline is already doing this, there are still many opportunities to expand it. Selling bags, seats, WIFI, fast-tracked security, and other extras is low-hanging fruit. It’s not a case of being able to “unbundle” the core offer (flight) from the other services and selling those as booking add-ons – in most regions, this is largely already the case. It’s about getting creative and more specific about what extras you offer,” said Jan. “The airline leaders we speak to want to get more targeted about what offers they make, to whom, and when. For example, selling targeted lounge access only between 1 PM and 5 PM in Terminal 1 is the type of flexibility airline leaders expect to have at their fingertips.”

“To experiment and try out new things is very powerful, said Jan. “It’s something that airlines can get going with immediately and make significant incremental revenue gains.”

“Another trend is the growing demand to sell flight extras across all channels. The usual domain for ancillary selling is the direct channel – usually the airline’s website or mobile app. Now, we are being asked about ancillary retailing in the indirect channel, so through Travel Agents and Online Travel Agency (OTA) websites. Of course, this is made possible with NDC.”

Advanced Seat Retailing

“After bags, paid seat selection is the biggest flight extra opportunity, and we’re seeing airline leaders more ambitious than ever. It’s about overcoming PSS constraints and getting more revenue from every seat on every flight,” said Jan. “Airlines can adjust their prices based upon the flight load factor, the number of seats assigned, and many other criteria, to entice customers to pre-pay for their seats. The goal is to avoid leaving customers having to get a free seat assigned at check-in.”

“Airlines are getting more interested in personalization, which means making offers more customized to each person’s wants or needs. And with advances in artificial intelligence, airlines can achieve much more! At this time, they are starting with solid foundations of flexibility and building from there. The only limit should be your imagination as the data is all there to be used!”

Dynamic Bundles

“Like when you go to a fast-food restaurant, and they offer a ‘meal deal’ that is better value than if you bought each item separately, dynamic ancillary bundles are packaged deals for flight extras. For example, a bundle could include a checked bag, an extra legroom seat and a meal.

“Dynamic” means the airline can change the content of the bundle, or, how much it costs, depending on any number of factors, such as as time of day or how many people are buying it. The idea is to give customers more options, improve their travel experience, and sell more by making compelling offers. It is quite a sophisticated strategy, but it is being done and is easily achievable today.”

Conclusion

McKinsey & Company predicts that retailing in the airline industry will be worth approximately US40 billion by 2030, thanks to new levels of control, flexibility, and innovation. Investing in retail technology is crucial for airlines that want to increase their revenue, perhaps just as important than replacing their widebody fleet. But where should airlines start? Based on our experience, we recommend focusing on a la carte air ancillaries, seat retailing, and dynamic bundles.

At Accelya, we’re passionate about helping our airline customers transform their retailing experience. We know that airlines succeed when they can offer their customers intelligent and personalized offers that enhance their travel experiences. To achieve this, airlines need the latest technology.

¹ https://www.iata.org/en/pressroom/2023-releases/2023-03-08-01/