The airline revenue model has changed significantly over the last 20 years. Deregulation, hefty distribution costs, the price of oil and increasing taxes have all had a major impact on this sector. As a result, airlines have had to analyse their businesses and look at alternative business models to drive revenue and survive.
Initially airlines invented fees for making changes to passenger reservations or cancellations. Some of you may recall the “fuel levy” which was then introduced as an additional fuel surcharge to try and combat the spiralling oil prices. This was followed by some airlines introducing seat reservations and early booking privileges to reward their most frequent flyers. These ‘perks’ soon became “a commodity” and today it’s common practice to see airlines unbundle fares to drive additional revenues through ancillary services. This is ‘big’ business and it is reported that airlines made as much as US$50 billion via ancillaries in 2018. (Source: 2018 Car Trawler Ancillary revenue yearbook)
The ‘Idea Works Company’, defined ancillary revenue as ‘revenue beyond the sale of tickets that is generated by sales to passengers, or indirectly as a part of the travel experience.’ This definition has been widely accepted by the industry. This practice of unbundling gives the airlines the opportunity to market their lowest airfares, generating interest and ultimately sales.
As the list of ‘ancillary services’ grows to include not just seat reservations and baggage, but WIFI access, food, drinks, frequent flyer purchases, the impact on traveller spend becomes more of an issue for the travel buyer. Travel buyers can aim for 100% travel policy compliance through online booking tools but still experience significant “leakage” in their travel programme through additional onboard purchases or last-minute additions made offline or outside of the booking channel.
There is no quick solution to this and as ancillaries continue to rise, fragmentation is an area that buyers need to be aware off, working with their TMC’s, technology providers, payment solutions and finance departments to try and calculate the true cost of travel.
NDC, the data transmission standard introduced by IATA was launched to help the airlines identify customer groups and provide personalised offers and services in a flexible way. The move towards a more retail shopping experience has been on the agenda for some time and with the engagement of all providers in the distribution channel, including the GDS’s, changes are starting to happen as the industry moves towards a richer more user-friendly customer experience. The downside of this is the acceleration in the fragmentation of content – multiple channels offering different products and services at any particular time to a segmented audience.
For travel buyers this is clearly a concern and the challenge will be keeping a handle on costs and ensuring that their travellers remain safe. Fragmented booking channels make it hard to compare and collate travel details, check compliance, total costs and quickly identify where travellers are in case of an emergency. Personalised bundled airfares negotiated in advance should be on every travel buyers airline agenda!