Tuesday, November 8, 2016

Airlines developing new ways to boost revenue

The selling of á la carte services by many of the world’s airlines is a two-edged sword. On one hand, the ancillary revenue generated by the sale of such services is credited for returning a large portion of the industry to profitability. On the other hand, many travelers regard them as simply being nickel-and-dimed by an industry determined to wring every dollar possible from the traveling public, particularly in cases where no genuine option exists, such as some airlines that charge for both checked baggage and carry-ons.

Now, a new report details services many airlines are offering that can be considered truly optional and which also add value.

The report, prepared by IdeaWorksCompany and sponsored by CarTrawler, is titled, “Top Merchandising Innovations to Delight Air Travelers and Boost Profits.” The report’s author sets the tone – and reveals his bias – early, with the statement, “We are in an era in which airlines have the technological freedom and the willingness to dismiss tradition and seek seemingly limitless revenue opportunities.” Some, certainly, but not all. More on that later.

Among the innovations is an alliance formed by eight budget carriers in Asia. Airline alliances have been around since the formation of Star Alliance in 1997 but do not generally include low-cost carriers (LCCs). The new alliance, which enables its member LCCs to better compete with network airlines and non-aligned LCCs. Called the Value Alliance, it offers member airlines a merchandising platform that allows the sale of connecting flights on other alliance carriers, optional extras, and product bundles between member airlines.

Photo of Jazeera Park & Fly facility from its Twitter feed
Photo of Jazeera Park & Fly facility
Jazeera Airways, a low-cost carrier based in Kuwait, found a novel way to bypass the congestion and delays at Kuwait International Airport (KWI): it built a remote check-in and parking facility that offers an air-conditioned building for check-in, complete with a Starbucks, cash machine, news stand and currency exchange.

The facility also offers 500 covered parking spaces at daily rates comparable to the airport’s public parking, and shuttles to the main passenger terminal, allowing passengers to proceed directly to the passenger concourse.

Perhaps taking a cue from industry-leading airlines like Emirates, Turkish LCC AnadoluJet is offering airport transfers at the carrier’s two primary hubs – Istanbul’s Sabiha Gökçen International Airport (SAW) and Ankara Esenboğa Airport (ESB). Neither of the airports has rail transit access, making them excellent candidates for pre-arranged transfers.

More modest that Emirates’ complimentary chauffeur-drive service and in keeping with the airline’s low fare brand, AnadoluJet established a relationship with a ground transportation provider to supply passengers with a way to get to the airport for the equivalent of US$5. That compares very favorably to a taxi ride, which costs the equivalent of US$40, and even public bus transportation and its price of approximately US$10 - $16. More than a half million passengers used the service between Oct. 2015 and May 2016.

Spanish LCC Vueling has come up with a way to entice travelers to reserve a seat for up to 10 traveling companions, even if they don’t know who those companions might be. The service, called Pending Passenger, costs €2 and will hold the tickets and lock in the fare for up to 72 hours. The airline keeps the revenue whether the seats are eventually booked, or not.

The appeal of ‘Branded Fares’

Eurowings fare offerings
Several carriers including Austrian, JetBlue, SWISS and Eurowings are offering fares that represent different bundles of services. For example, Eurowings offers Basic, Smart and Best fares. Basic is a seat-only fare with the option to add all the usual á la carte elements such as a checked bag and assigned seating.

The Smart fare includes a snack and drink, one item of luggage and preferred seating. The Best fare adds premium seats on long-haul routes and offers an empty middle seat on shorter routes.

As shown by the graphic, the difference between Basic and Best can be substantial. The graphic, which represents a sample flight from Germany’s Hannover-Langenhagen Airport (HAJ) to London’s Stansted Airport (STN), shows the Best fare is four times the cost of the Basic fare.

Branded credit cards

Airline affinity credit cards have long been a contributor to various airlines’ ancillary revenue streams. Historically, most carriers have affiliated with a single financial institution but Australian carrier Qantas has shaken up the status quo and now has an array of 21 banks and partners offering cards in Australia that buy miles from the airline.

AAdvantage Aviator Red MasterCard American Airlines
AAdvantage Aviator Red MasterCard
Now, following the completion of its merger with US Airways, Dallas-headquartered American Airlines (NASDAQ:AAL) is extending its affinity card reach.

Rather than severing the relationship with Barclaycard, which issued the US Airways card, in favor of the American Airlines AAdvantage card issued by CitiBank (NYSE:C), the carrier decided to maintain both relationships, increasing its paths to potential revenue.

Like in-flight Wi-Fi, premium seating and early boarding, each of these services is truly optional and represents expanded choice for the traveler. However, it is worth noting that, with the exception of Qantas and American, the carriers cited are low-cost carriers. Not that traditional carriers don’t derive significant ancillary revenue from the sale of á la carte services; they do, as IdeaWorksCompany detailed in a report issued earlier this fall.

However, unlike the report’s author who believes the traveling public is coming to embrace the practice of paying piecemeal, I believe we are seeing the market evolve into two distinct business models: traditional carriers who continue to provide a fairly complete package of services with some modest departures for things like checked bags, in-flight meals and Wi-Fi and LCCs that charge for a much broader range of products and services, many of which most travelers would consider necessities rather than options.

Finally it is worth noting, as I did in a previous article, that many of the carriers that derive a high percentage of overall revenue from the sale of ancillary services are among the lowest rated in terms of customer satisfaction, while the airlines rated by their passengers as among the world’s best derive the least from nickel-and-dime charges.

Which category of carrier to patronize is, of course, up to the passenger.

Visit my main page at TheTravelPro.us for more news, reviews, and personal observations on the world of upmarket travel.



Photo of Jazeera facility from its Twitter feed
AAdvantage Card photo provided by American Airlines 
Click on photos to view larger images

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