Why airlines should take ancillaries more seriously

The impact of the pandemic will be felt by airlines for many years. One revenue driver has suffered in particular: Business travellers are not going to come back fast –and some might even stay away forever as virtual meetings and more restrictive corporate travel policies take over. Is there a way for airlines to be more innovative and find ways to replace this lost revenue?

I believe that one possible way is to focus on generating new revenues in the leisure segment. This means going beyond the traditional efforts of trying to sell a business class upgrade to a one-off customer, but rather by selling more air and non-air ancillaries and doing so in a more engaging and relevant way. Already today, many airlines offer car rentals, accommodation and travel insurance on their website. That’s a good start –but they’re only doing a small portion of what they could do.

How can platforms boost your ancillary business?

Building a partner ecosystem and integrating their services into an airline’s legacy system is almost impossible. It simply doesn’t work without investing huge sums; and it could take many months if not years if it is even possible. The good news is that a platform for ancillaries can run completely independently from the existing systems. Still, it can be highly personalized with custom offers for travellers. Accenture’s Net New Revenue Platform, for example, only requires very few data points such as the travel destination and the travel dates of a passenger. No complex integration into existing backend systems is required. Airlines can still use their conventional systems for bookings and sell ancillaries over the new platform. This allows them to move ahead much faster and in a more flexible way.

1. Legacy systems are not a showstopper

Several individual airlines have reported significant increases in per-passenger ancillary revenues compared with the period prior to Covid-19. Allegiant, for example, reported ancillary revenue per passenger was up 14.6 percent in the second quarter compared with the second quarter of 2019. For Ryanair, ancillary revenue per passenger was up 16 percent during that same period.

2. Offer ancillaries when they’re relevant for travellers

Airlines have not been able to venture beyond the classic way of offering ancillaries. In most cases, these are being offered at the time of booking. Do you need a rental car? Extra luggage? Hotel stay? These are all relevant offerings for many passengers, but they are not necessarily happy to answer these questions when they book a flight. Boosting the ancillary business will only work if the right offer is made to the right customer at the right time of their journey! For example, someone who booked a short weekend getaway will probably not need extra bags at all. However, closer to travel date, this passenger may well be thinking about the best way to reach the airport. A family going on a two-week summer vacation might be very happy to receive an offer for additional luggage; but they might also be interested in offers for activities and points of interest at their destination. In short: Ancillaries need to follow the customer journey, not the other way round. This requires a platform that covers all traveller needs for all phases of their trip as a one-stop shop.

3. Expand the partner ecosystem, but focus on your top destinations

Ancillaries can be sold at every stage of the trip –before, during and even after. Currently, most airlines focus on the “obvious” offers; and they usually cover the time from booking to flying. Once a traveller has arrived at their destination, airlines are no longer part of the journey and don’t have much to offer. I think that’s a lost opportunity. I am convinced, that in the future, a large part of ancillary profits will come from services offered at the destination. This could be something as simple as restaurant vouchers or offers for reduced entrance fees to a museum. However, such offers could also be much more exclusive: Imagine the first row at an opera house being reserved for the passengers of a specific airline –and all you need to do is book them through the platform a few hours in advance. Most importantly: Focus on a few very popular destinations initially, then decide which services you want to offer. Finally, find the right partners that offer attractive commercial models. Both the kind of service and the partner need to match the airline’s brand strategy. All this sounds convincing, right? Still, one of your biggest questions might be: Why should travellers use an airline’s marketplace and not buy ancillaries through a booking website or platforms such as Airbnb? Airlines are in a better starting position than they might think. For most people, planning a trip starts with browsing the website of an airline. They want to know if a destination can be reached easily and at what cost. Airlines should use this advantage of being the first touchpoint for many travellers to boost their ancillary business!