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Focus on ancillary revenue


Is customer loyalty more important than ancillary revenue? Richard Williams reports on a hot topic debated at the Airline Information Mega Event in Miami


Contributing to the bottom line


Delegates at the Mega Event in November 2011 had their minds focused by the breaking news that American Airlines had gone into Chapter 11 bankruptcy protection.


JAY SORENSON of Ideaworks presented on ‘Ancillary Revenue – Where the world is headed in 2012’. His first slide was ominous: “Ignore the opportunity provided by à la carte fees, AR, and unbundled products at your own peril.” He underlined the threat of rising fuel prices and the need to increase AR to balance this deficit. Sorensen pointed to AirAsia too, whose


“load active – yield passive” strategy delivers positive revenue results. Lower fares attract higher numbers of passengers, who purchase more à la carte services. He insisted that unbundling is also good for the passenger, who pays only for the services they need. The importance of AR was acknowledged by


Tiago Phillimore, head of strategic marketing for TAP. He made a distinction between LCCs, who have unbundled 100%, so that all services are à la carte, and Full-Service Carriers (FSCs) such as TAP Portugal. His topic was how FSCs need to balance the offering of bundled and à la carte services. “While à la carte drives AR, which is vital


for the bottom line, bundled services drive market share.” His contention was that while à la carte


What the surveys say:


The Airline Information/Guestlogix Onboard Retail Survey 2011 analysed 13 million transactions on board 1.5 million flights over North America. It says: “… as unbundling approaches its apex, airlines that survive and thrive will be those that seek more predictable, profitable and sustainable revenues by focusing on value- added initiatives to tangibly enhance their passengers’ experience at every available point throughout their journey.


50 www.onboardhospitality.com


drives AR, which is vital for the bottom line, bundled services drive market share. He stressed the importance of market segmentation, which TAP does by profiling passengers into five groups: executive, plus, classic, basic, and discount. The offering of à la


“Onboard retail is a challenging environment. Airlines must understand the sales opportunities based on origin and destination, and diversify their onboard selection of products and services to match passenger demand.” The survey also makes the point that those


who focus on the Buy-on-Board element of AR do it much better than the rest. “The buy- on-board leaders – the top performing flights falling in the 90th percentile – outstrip the averages for sales and transactions by more than double.”


"Pursuit of revenue is pursuit of loyalty and successfully pursuing both is the key to profit" Rob Thorne, IBs software svs


According to the Ideaworks Worldwide


Airline Report published in the July 2011 issue of Air Transport World, North American airlines have become increasingly dependent on AR streams. In 2011 this market was worth $15 billion, up 72% from $8.7 billion in 2010, and growth shows no sign of slowing down. The same report noted that AR from other regions, specifically Europe, Asia and Latin America, is much smaller relatively and is also growing at less than half the rate of North America. www.airlineinformation.org www.ideaworkscompany.com


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