Ancillary revenue is the bread and butter of commercial airlines. All those “extras”—checked baggage, seat upgrades, premium content, food and beverage, inflight Wi-Fi—make up the majority of total passenger revenue growth. But profit margins are still slim. Prior to the COVID-19 outbreak, IATA forecasted the net profit per passenger to top out at $5.70 in 2020.
Further, there are limits to what passengers are willing to pay for on top of their ticket price. Drip pricing can degrade the passenger experience and chip away at long-term loyalty.
However, there is a whole reserve of revenue-generating opportunities waiting for data-savvy airlines. So much of the passenger and operations data presently being collected by airlines—especially through inflight entertainment and connectivity (IFEC) systems—isn’t being used to its full potential.
Venkat Eswara, Director, Software Product Management at Panasonic Avionics, says data analytics is essential to identifying and maximizing that potential.
“As the technology matures, and as our ability to use the data improves, airlines suddenly hold the keys to technology that can unlock a whole new world of ancillary revenue opportunities. Data provides a path towards personalization – understanding the behavior and tailoring services for passengers. And now, as the industry faces immense challenges, it will be essential for airlines to identify new opportunities to grow revenue without making huge investments—and this is one of those areas that holds massive potential,” he says.
In fact, many existing IFEC systems are capable of handling new revenue-generating ancillary programs. Not tapping into that is leaving money on the table, plain and simple.
Getting the best return on your existing investments means having a savvy, holistic view of digital operations. Airlines should be mindful—and actively work against—these three pitfalls.
1. Impersonal Ads
If you’ve ever searched for something online then seen it pop up on your social media feed, later on, you know about ad personalization. But in today’s IFEC world, ads are still mostly one-size-fits-all.
Think about how much you already know about the passenger before they even get on the flight: Where they’re going, where they’re from, and if they’re a frequent traveler. You may know where they’ve been in the past, where they’re staying, maybe even some of the tours they’re taking, and if they have any ground transportation reserved. If they pre-booked any special meals, you know what they’ve got a taste for.
You could be serving ads based on this information—ads that customers would find relevant to their interests and needs. However, unlike much of today’s internet where ads are often dynamically served based on past behavior and other factors, inflight advertising currently does little to optimize advertising engagement with passengers.
With advanced analytics, however, airlines can start to adopt these kinds of insight-driven and behavior-based advertising practices. The results will be increased engagement and likelihood of passengers clicking to purchase. According to the London School of Economics, by 2035 inflight connectivity will generate a potential total revenue opportunity of $30 billion for the airline industry, of which $6 billion will come from passenger advertising.
2. Inflight Promotions, A Missed Opportunity
For the longest time, airlines have been unable to create and manage inflight promotions in real time.
Take, for instance, gourmet sandwiches or wine left over from a five-hour flight, with one hour left to destination. Normally, you’d have two options: Let it go to waste or deploy a flight attendant to try offering them to passengers in person. With onboard connectivity, inventory systems, and quick promotion management you could offer it as a just-in-time rebate via the IFEC system.
There are myriad other opportunities to present time-limited promotions to people once they’re inflight. Ground transportation options, destination tours, accommodations, and last-minute travel items are other products and services that captive audiences may be receptive to while in flight.
“As the technology matures, and as our ability to use the data improves, airlines suddenly hold the keys to technology that can unlock a whole new world of ancillary revenue opportunities.”Venkat Eswara
Director, Software Product Management at Panasonic Avionics
3. Loyalty Is An Afterthought
As inflight connectivity and other digital options become increasingly available, airlines are gaining a better position to mirror the best of what’s possible on the ground.
Imagine airlines becoming a source of consistent communication and commerce in the same vein as Starbucks and Amazon. That’s the holy grail of using customer engagement data, says Eswara: “It’s not about technology for technology’s sake; it’s about using the data that works for your business by building a real, meaningful, and lasting customer relationship.” Those companies have fervently loyal customers in large part because of how predictable their processes and personalized services are. In the airline context, companies that can use technology to create a simple and personalized customer experience—perhaps a notification when meals will be served, or the exact time a passenger’s zone is boarding or a just-in-time targeted promotion— will help increase customer loyalty. Also good to keep in mind is that, according to Forbes, 55% of ancillary revenues come from banks and other merchants who buy mileage points in the carriers’ frequent flier programs (as opposed to travelers “earning” those miles by actually flying). Creating smart inflight campaigns aimed at passengers with reward miles credit cards or frequent flyer status can increase passenger uptake of such programs.
All this goes to show that airlines don’t have to make huge, new investments—nor do they have to create more friction with customers through increased drip pricing—to improve their bottom lines. At its core, it’s all about using what you’ve got in more creative, dynamic, data-forward ways.