Feature: Ancillary Revenue


crankyflier.com Investigating the parallel with BoB services on


trains, the whitepaper looked at Swedish Rail, which has grown its BoB business from 7 million to 20 million euros in five years. It has done this by offering a wider range of fresh food and beverages, benchmarked against the products on offer on station platforms. Pre-order chef-designed meals are available in First Class. The programme relies on an incentive sales


scheme for cabin crew, relying on competition with colleagues. Cost savings have also been generated by waste reduction, achieved through close cooperation with the caterers, who work on a supplier basis.


“With low-cost carriers you expect a basic product, but passengers expect the price premium of traditional airlines to be justified”


Airlines have an even greater need to cut waste


and weight onboard, and caterers can help them with this by predicting demand. They can design attractive menus and packaging, create new product lines, such as snack boxes with high ROI items, provide payment solutions and tools and drive staff training. They can also help airlines to provide balance.


For legacy airlines, this means balancing high- quality offerings in First and Business with BoB products in Economy that offer revenue, reduce waste, enhance the brand and satisfy passengers. For LCCs, it is the balance between revenue and passenger satisfaction. Janet Titterton of marketing consultant Collinson


Latitude, says: “With low-cost carriers, you expect a basic product, but passengers expect the price premium of traditional airlines to be justified.”


While airlines jostle each other to unbundle their service and increase AR, it’s worth remembering the reaction of the humble passenger, without whom they would not have a business. Here is one comment, dated July 2009, from the website www.crankyflier.com. It gives a breakdown of the fare charged by Allegiant, one of the airlines described as an AR ‘champ’ in the Amadeus Guide. “My cousin and aunt flew from Oakland to Eugene last week, and my cousin sent me a copy of his itinerary with the fare breakdown. The basic airfare was $156 for two, but by the time they were finished, it came out to $387.40. Here’s the breakdown. “The government taxes and fees are standard, of course, so they should have expected to pay $196.40 on most airlines. But here’s where things start piling up. • Prepaid Bags – Each of them brought one bag and they paid for it in advance. That’s $15 per bag each way for a total of $60. • Seat Selection Fee – You can just get assigned a seat at the airport, but if you want to reserve one in advance, you’ll pay $13 each way per person. • Priority Boarding – You will have your seat assigned by the time you board, so for $5 each way, you simply get to hop on early and claim your bin space. • Convenience Fee – You’ll pay $14 [actually $14.50] per person to book online or via the


And as Patrick Murphy, former chairman of Ryanair, says: “It boils down to price and product competition. Either you’re the lowest price or you’re differentiated.” British Airways, for example, is never going to


be the cheapest choice for passengers, so it has to rely on differentiation. Passengers currently expect a meal to be provided as part of their ticket price. And it makes sense to provide the best quality possible, as it reflects on the airline brand. As one industry pundit commented: “No one remembers what they ate last week, but if they had a poor-quality meal on their last flight, they’ll never forget it.” Lufthansa is another legacy carrier that is


phone. The only way to avoid this fee is if you buy your ticket at the airport. • Trip Flex – For $15 per person, you can have unlimited name changes until the day before departure. If you don’t purchase this option, it will cost $50 per name change at a later date. This is unique to Allegiant since nobody else will let you change names at all. “They do not make it easy to opt out of some of these fees, in particular the priority boarding and seat selection fees. The checkboxes come pre-checked, and if you click the small link to uncheck them, it pops something up suggesting that you really shouldn’t do that. So you really do have to pay close attention when booking on this airline to make sure you’re not paying more than you bargained for. “And this isn’t even all the money they can extract from you. This doesn’t include the cost of food and drink on the plane. They also ran a raffle onboard that I’m sure nets them some cash as well. It also doesn’t include the money they can make from hotel and car rental bookings. Even with all these fees, I think my cousin sums it up quite well: ‘I think that the price may have still added up to less than a regular United flight out of SFO.’” www.ideaworkscompany.com | www.aiglobal.org www.jetera.com | www.lsgskychefs.com www.farelogix.com | www.collinsonlatitude.com www.omanair.com | www.vivaaerobus.com www.crankyflier.com


not relying on AR as the way forward. Their spokesperson commented that it was: “Not a business sector in which Lufthansa is active…. it’s not Lufthansa’s strategy to develop ancillary revenues or to charge for extra services offered on an á la carte basis. Our product is rather all inclusive and any extra revenue made through additional services is very small.” However, the LSG Sky Chefs whitepaper


concludes that BoB is here to stay. Jim Davidson of distribution services provider Farelogix says: “We’re getting back to where meals become a value…. This can create new revenue, save on waste and preparation costs…. Customers will choose a flight because they are offered choices.”


www.onboardhospitality.com 29


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