Airlines rethink strategy

Johannesburg - Globally, aviation is expected to lose close on $9bn this year as the stranglehold of the continued commercial downturn is not letting go, yet. But, says Mango CEO Nico Bezuidenhout, the recession has forced many companies to rethink the way in which they do business.

This in particular holds true for aviation where a renewed focus on ancillary revenue generators has seen many airlines focus significant energy on extracting margins outside of the core business of moving people.

Bezuidenhout was speaking at the World Low Cost Airline aviation conference in Barcelona, Spain.

"There are compelling reasons for airlines to take ancillary revenue opportunities very seriously," said Bezuidenhout, "and airlines have an advantage: a base pre-qualified as having disposable income, an audience which has already illustrated a level of trust in the airline's own brand and, thirdly, knowledge of the consumer's travel trends.

Not only do airlines have substantial insight into who they carry, but air travel typically represents the first purchase activity in the overall travel procurement cycle, followed by destination content, hotels and cars bookings - all of this serving to provide airlines with the ideal contextualised sales opportunity."

While every potential in the world exist for airlines to extract financial benefit through a focus on ancillary revenue, the reality is that airlines have not traditionally done very well in this regard.

Bezuidenhout notes that historically factors such as ancillary offerings were mostly limited to direct distribution channels, a narrow-interpretation that the ancillary opportunity is limited to on-board duty-free sales and a lack of functional specialisation have all contributed to today's ancillary revenues being a fraction of what it could be.

Pursuing new opportunities

Bezuidenhout added that while some airlines turned the chase after ancillary revenues into publicity stunts, such as charging for lavatory use, the reality is that both low cost and full service carriers are seeking greater opportunities to turn revenue.

"The focus on, and revenue from, ancillaries have picked up pace and now account for 10 - 20% of best-of- breed carriers turnover.

"American carriers have seen revenues from baggage charges increase 280% to $670m during the second quarter of this year whilst airline websites now regularly count as the largest hotel and car rental referrers, having realised the importance of incorporating the cross-sell opportunity into booking flows."

Increasingly airlines are including commercial content into their IFE (In Flight Entertainment) offerings while airline dynamic packaging is now commonplace.

From this base, airlines are more aggressively pursuing new opportunities - with onboard mobile telephony is seen as one of the next greatopportunities, serving to directly address the passengers communication needs while being an enabling platform for transactional activity in much the same way the internet is.

Common airline ancillary charges presently comprise charging for checked baggage, seat assignment, catering, blankets, magazines, priority airport treatment and sales of travel insurance, personal cargo, event ticketing, cruises, rental cars, hotels, parking, tours and even amusement parks among others.

In fact, data shows that US airlines have collected more than $670m in baggage fees in the second quarter of this year, up some 276% from the year-earlier period.

Extra revenue streams

"The caveat though is to create opportunities within your market hemisphere," said Bezuidenhout. Recently some full service carriers instituted a business class preferential seating fee, a traditional low cost carrier practice.

"Difference being, of course, that the high cost of a business class seat with an added seating fee drives negative PR while paying a low cost airline a nominal fee to choose your seat, on top of an already affordable fare, is a totally different value proposition."

Mango presently enjoys ancillary revenues from commercial space on its IFE, sales of on board static media, hotel and car rental bookings as well as cargo among others.

"These ancillary revenue streams help us keep our ticket prices low and we plan to expand our revenue streams beyond traditional airline thinking," he said. This includes the ultimate development of greater online retail opportunities, brand extensions and continued creation of value driven products such as the airline's business travel Mango Plus and Mango Flex offerings.

"Non-Ticket Revenue is highly dependent on passenger volumes, technology support and employee training and incentives. In fact, ancillary revenue can account for up to 10 to 20% of passenger revenues."

Airlines have a big benefit: a captive audience with disposable income. The challenge therefore for airlines is how to leverage its brand and retail space without compromising the core service.

"By getting this right low cost carriers can ultimately gain additional income, serving to help lower the core ticket price in the hands of consumers."

- I-Net Bridge