Traditionally, airlines chose between focusing on generating ancillary revenue or prioritizing loyalty, but not both at the same time.
That's no longer the case. New and evolving technologies are increasingly making it possible to do both. In fact, today travel experts say airlines must tap two important travel trends to increase revenue and customer loyalty: Traveler quests for authentic experiences, and a door-to-door relationship.
Airlines are accomplishing this by combining their app with the diversity of modern inflight entertainment and connectivity (IFEC) systems and the power of the cloud. More importantly, this combined capability serves to help shift the airline-passenger relationship away from a transactional search-and-book dynamic, towards a future where they act as travel partners with the airline.
This new relationship is further unveiled and supported by data analytics, which may also be utilized to help drive airline efficiencies. For instance, if you can reasonably estimate within a small margin of error that you need 70 chicken dinners, 50 pasta-and-meatball dishes, and 30 vegetarian meals on your next flight, imagine how much more efficient aircraft stocking and meal service will be.
Now, imagine that same result for every other inflight service, and you'll see how streamlined, data-driven ancillaries improve the customer experience and airlines' margins.
"Creating this frictionless environment will help airlines make their revenue-generation strategies truly actionable. Passengers want streamlined, integrated, and personalized digital experiences. Offering them the ability to seamlessly select premium content, retail goods, food & beverages, destination services, all enabled through smart IFEC systems and mobile devices, will inspire more trust, loyalty—and returning customers," says Gaston Sandoval, Global Vice President of Product Management and Marketing at Panasonic Avionics.
Shifting the ancillary framework to improve PaxEx
Ancillary revenue has grown 312 percent since it was first tracked in 2010, to $92.9 billion globally, according to the IdeaWorksCompany/CarTrawler Worldwide Estimate of Ancillary Revenue for 2018.
Nevertheless, a potential challenge to continued growth in this area is the rise in discrete fees charged by airlines: seat assignments, bags, and ticket changes, for example, which may ultimately serve to alienate the passenger.
It is possible, however, to bring the customer closer and make more delightful inflight experiences by delivering the services passengers want to spend money on. Charging customers $35 to bring a carry-on is not a good way to build loyalty—but providing value-added products, services, and tailored ads that are a complement to the travel experience may be.
In that respect, the link between IFE, connectivity, and increased ancillary revenue is incredibly strong.
In its annual global connectivity survey, Inmarsat found that 61 percent of passengers see access to reliable Wi-Fi as a major stress reducer when traveling. We also know from multiple market-research reports that passengers overwhelmingly use their mobile devices to do last-minute shopping and travel bookings while in flight and dependent on accessible airline Wi-Fi.
This presents a major opportunity for airlines to generate more revenue. If passengers are going to pay for a last-minute tour or hotel room anyway, why not do it through your airline's shopping portal instead of a third-party site? Your airline may be able to generate referral commissions through third-party vendor collaboration, without passing the additional cost on to the passenger. This is a way to monetize each seat without making customers feel like they're being nickel-and-dimed at every turn of the travel experience.
Offering passengers the ability to seamlessly select premium content, retail goods, food & beverages, destination services, all enabled through smart IFEC systems and mobile devices, will inspire more trust, loyalty—and returning customers.
Airlines: More than a ticket vendor
Changing the conversation around fees could be very lucrative for airlines as well—but it takes genuinely innovative thinking to make the most of this golden opportunity.
By way of example, we know popular culture spurs travel. Harry Potter fans flock to London. Game of Thrones die-hards head to Dubrovnik. People who watched Salt Fat Acid Heat on Netflix might be inspired to book a culinary tour of Italy or Japan. What if an airline sold the experience first and the ticket second?
Steven Greenway, the president of Swoop, a WestJet subsidiary, and Canada's first ULCC, seems to think as much; recently, addressing the Future Travel Experience Global Conference, he affirmatively rejected the notion of the airline as a mere transportation vehicle.
Swoop, shared Greenway, wants to completely disrupt the relationship between passenger and airline by becoming a digital travel retailer marketing based on an event or destination, rather than the cheapest seat. Once the event is chosen, Swoop's system populates the travel details including flights and hotels to offer a complete itinerary. It can then become the single point of contact for the entire journey.
By making a high-touch hybrid airline-travel agency experience, Greenway believes his airline can increase higher-margin ancillary revenue.
"We're going to be a digital retailer. We're going to be mobile-first. We'll maintain a website, but that will only deliver 20-30 percent of the services. You can buy a ticket on the website, but if you want to talk to us, you need the app. If you want to join the loyalty program you need the app. If you want to make changes you need the app. If you want to check in you need the app. It lets us deliver a much richer experience," he explained to the audience.
Greenway's line of thinking is increasing in popularity as technological opportunities are more broadly recognized across the industry.
Airline Festival Americas (AFA) is an annual gathering of both aviation-industry companies and external vendors all focused on the latest technologies in the business. At last year's event, it was clear that just-in-time marketing is becoming an area of particular interest. This may shift the industry away from traditional ancillary buckets and towards “making the right offer, at the right time, to the right passenger” throughout multiple points in their journey.
Increasing touchpoints will help airlines emulate the relationship Starbucks and Amazon have developed with their customers, AFA speakers asserted. Increasing those touchpoints however—and making them relevant to customers—can only be fully maximized by tapping in to the world of artificial intelligence, machine learning, and data analytics.
Linking ancillaries to loyalty
While airlines are already investing billions in cabin amenities, airport facilities and on-time performance, improving operational performance and personalizing the passenger experience are also key to improving a metric on which airlines are increasingly focused: Net Promoter Score (NPS).
NPS not only gauges how the passenger feels about the relevant company, but how enthusiastic they are in recommending that company to other potential customers.
While there may be many initiatives airlines can undertake to increase loyalty and NPS, they universally center on creating and delivering a personalized relationship throughout the journey. This digital transformation of our industry gives us an opportunity to completely reinvent ancillaries—and revolutionize passenger air travel in the process.