Although the first two panels of the CAPA Summit were seemingly on different topics, one major theme emerged during both sessions: merchandising, what it entails, how it should be done, and what it can achieve.
From the outset, merchandising was on the tip of everyone’s tongue. European Aviation Club Chairman, Rigas Doganis set the stage by comparing ancillary revenues from LCCs and from FSCs. “Ryanair tells me that 96% of their ancillary revenue is pure profit,” said Doganis. His slideshow also showed that Spirit Airlines leads the pack among LCCs: the airline makes 38.7% of their total revenues from ancillary sales. On the lowest end of the LCC segment, Air Asia makes 20% of their total revenues from ancillary sales.
Figures and opportunities
In the same presentation he also showed that, FSCs make between 15.5% of ancillaries and 1.9%. The gap between LCCs and FSCs was large enough to dominate the conversation. Finnair’s Chief Commercial Officer, Juha Jarvinen said that Finnair is aiming to make 20 euros per passenger in ancillary sales.
Meanwhile, Daniel Roeska, VP Business Development at Lufthansa, says that they are aware of the opportunities and the urgency of the matter: “In the airline of the future, there will be almost no profit to make from selling seats, all the profit will come from ancillary sales,” he said. Roeska said that Lufthansa wants to reach 30% revenues from ancillary sales on short haul flights. However, he was quick to add that an ancillary strategy shouldn’t mean unbundling, “we need to look at what the customer actually wants,” he says. He mentioned giving the traveller an opportunity to book an airport lounge as an example.
When Chairman Doganis asked the audience what percentage of an airline’s revenue should be made up of ancillary sales, more than 50% of the audience said that it should be between 20 and 25% of total revenues.
Dealing with change
In the second panel “Disruption: have airlines got a future,” Ornagh Hoban, the Chief Marketing Officer at Datalex, highlighted that airlines are actually dealing with an incredible change in the online ecosystem and are dealing with it very well. “When it comes to online commerce, airlines are ahead of the pack compared to other travel industry players,” she said.
However, she also noted that she was perplexed by the use of the word “ancillaries” when describing the industry’s most profitable product. “Ancillaries are more core to the airline business than that name suggests.”
Decius Valmorbida, VP of Distribution Marketing at Amadeus, said that, “The key that unlocks growth for the industry is more revenue per passenger.” He emphasized that the most successful players will achieve this by identifying what travellers want, and being in touch with them through each stage of their travel experience, from inspiration to post trip.
Stay tuned for updates from day two of the CAPA Summit coming soon.