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Taking Stock: Targeting ancillary revenues to boost airlines’ profits

Ancillary revenue has now become a "must have" to the airline industry; as global airline profits are under pressure from increasing fuel prices and the fluctuating economic climate, ancillary revenue from non-ticket sources are now more important to airline companies. To learn more about ways to increase revenues, Retail in Asia catches up with ancillary revenues expert Raphael Bejar, founder and CEO of Airsavings, SA. In this interview, he tells RIA why ancillary revenue is important and how airlines can make a profit out of retailing and other opportunities.

RIA:  How important is ancillary revenue to airline companies?

Raphael Bejar(RB): In the last three years ancillary revenues have become a vital part of the airline business. From what we would call a "nice to have" option, ancillary revenue has become a "must have" for any airline wishing to be profitable in this fluctuating economic climate. Ancillary revenues have become a priority by offering travellers increased choice to improve the passenger experience: whether it’s the option to purchase headphones, beverages, car rental, travel insurance, hotel booking, or even book their own personal travel concierge, among other things, passengers can now purchase products and services throughout the entire booking path and at almost any point along their journey. This shows that airlines are being pushed to also innovate and come up with more creative ways to create ancillary revenue streams.

RIA: What types of ancillary revenue opportunities may be missed by airlines? Why?

RB: Any ancillary service which has a strong perceived value in the passenger’s eyes is certainly going to be of interest to an airline. For example, a travel concierge service is a clear "missing" service which would help airlines to generate more revenues by going beyond the in-flight experience and connecting with passengers in new ways, while also adding value for them by assisting their clients during their trips. The two biggest reasons why airlines are missing revenues opportunities are:

a)  Airlines often refuse to put themselves in the mindset of "retailers", continuing to think they are "airlines" and only airlines…while more than 40 percent of their income is generated over the internet. Travellers are looking for product immediacy and relevancy, before, during and after the flight, in other words, throughout the entire booking path. That may include destination-specific ground transportation and trip insurance, but it’s often more engaging than that. In some of the latest offerings, environmentally aware travellers can pay a voluntary carbon offset whose fee goes to a non-profit organisation or NGO, which works to protect environments in developing and emerging countries.

b)  Even if airlines’ marketing executives are willing to push the "retailer’s" envelope, sometimes they are slowed down by their IT department which are controlling their web booking flow. In reality, technology is no longer a problem when you need to implement more services.

"If we consider that ‘commission based’ ancillary revenues are the area where airlines can grow their ancillary revenue income, about 60 percent of ancillary revenues could fall into the ‘retailing’ category"   

RIA: How much of the ancillary revenue can be generated by retailing?

RB: As regards how much revenue can be generated by retailing, the answer depends on where the "retailing" starts – meaning, whether it is integrated right from the booking path or only onboard/in-flight. But, if we consider that "commission based" ancillary revenues are the area where airlines can grow their ancillary revenue income, about 60 percent of ancillary revenues could fall into the "retailing" category.

RIA:  In your view, how can airline companies tap into retail for more ancillary revenue?

RB: Airlines should look at what a company such as Amazon.com has achieved in just a couple of years. The company has gone from selling "books" online at a bare 5-10 percent margin – close to what the airline’s margins are now – to selling "anything" possible. Amazon was not afraid of testing new services and then withdrawing them from the market if they were not successful. Airlines however, are ALWAYS afraid to test anything new! Airlines are looking for new services bringing revenues, but most of them are waiting to see others starting to test them first! It is a vicious cycle.

Our suggestions are, that airlines should not be afraid to test a new service. If the service is not rewarding enough, they can pull it out from their website. Period. And test another one again.

RIA: What can they do to enhance their existing platforms for more ancillary revenue from retail?

RB: The technology is already available. We are able to implement any service into an airline’s booking engine in three weeks – with a financial guarantee attached to it! Marketing departments should be the decision-making entity in an airline, not the IT department … For the ancillary revenue retail interface to be successful, regardless of where it is in the booking process, it must be a simple-to-use, enjoyable experience, combining functionality with device or platform personality.

RIA: We know your company, Airsavings, is experienced in providing ancillary revenue solutions. Can you talk us through the company?

RB: Airsavings is a 10-year-old company dedicated to the generation of ancillary revenues. We are providing airlines with a technology platform as well as with the content (Travel insurance, Hotels and cars bookings, Concierge service). We are also perceived as a "think tank" for carriers as we are very often listening to our client’s needs, even in the case of a new service they’d like to test. Often, we build the service from scratch and test it online (on the airline’s web site) to see how attractive it is to the public. Since July 2011, we have been able to implement in any booking engine ancillary services in three weeks of guaranteed delivery.

RIA: Can you share a successful case study from Airsavings here with us?

RB: One case study we a can share is about our work with Cyprus Airways. Through our partnership with global insurance giant AXA Travel Insurance, we are able to provide comprehensive insurance, made available to consumers directly in the online booking path, utilising Airsavings’ proprietary AirlinePlus platform. As an ancillary service hub, AirlinePlus is widely commended for its speed and efficiency in the market and it is used by many European air carriers. Instead of an implementation period of anywhere from six to 12 months, we were able to implement the travel insurance passenger offering in three weeks into Cyprus’ booking engine. Cyprus was very happy (and surprised) with that turnaround time.

RIA: What is your business plan in Asia? Do you have any ongoing projects with Asian airlines?

RB: We have been in the Asian market for the last couple of years and are in the process of launching two of our services with two airlines in the region. But it is too early to reveal the names of these airlines just yet.

 

Airsavings was created in 2001 by a team of dedicated professionals with experience as purchasing managers and operational consultants for fast-growing airlines. Their vision was for a group buying service focused on the fast-growing airlines competing against the vast buying power of established majors.

Raphael Bejar, founder and CEO of Airsavings, SA, is widely considered one of the pioneers of ancillary revenues in the airline industry. The company he founded in 2001 has consistently been in the vanguard of ancillary revenue innovation, leveraging the capabilities of the online booking path to create new revenue generation opportunities for airlines on four continents. Bejar is a 20 year veteran of the airline industry, working primarily in finance and purchasing, eventually translating his expertise in the field into Airsavings’ group purchasing and ancillary revenue development model for many of Europe’s leading low-cost carriers. He has also worked with Jet Finance, Credit Foncier, and SH & E, holds degrees in engineering from ESTACA and in finance and banking from Paris University. He is a frequent speaker at airline conferences on the topics of ancillary revenue development and innovation.

For more information about this company, visit Airsavings.

Taking Stock is Retail in Asia’s fortnightly column dedicated to showcasing opinions from experts in the retail industry.