Whenever we meet airlines and talk to them about their revenue strategies, the same major themes seem to crop up: how to maximise yield without damaging sales volumes and loyalty; how to build and deploy a successful ancillary revenue strategy; and how to shift passenger behaviour away from buying the cheapest fare and move it to paying for value.
At the heart of all these things is the way the airline develops its offer with bundling or itemisation. Some airlines started by charging passengers for luggage, or for seat selection. Now the range of attributes and added value that airlines sell has become very broad. And for some, the way to leverage this value has been to create packs of value, and to sell them to the passengers.
What do LCC’s Do?
Some low cost carriers are using itemisation alone, with added costs for things like seat reservation, priority boarding, and checked bags. For other airlines, the value attributes are lumped together in packs of services. For example, some offer bundles of services at fixed prices as add-ons to the base fare. Finally there are airlines that offer fare families, where they sell different fares with different attributes attached to them. So you might buy the “Basic” fare, and have little or no Frequent Flyer points, no flexibility about changing or cancelling your flight, and no right to select your seat or carry hold baggage without paying for it. Other fare families like “eco” or “eco plus”, will then give you more miles, more flexibility, and more comfort. These fare families are not at fixed prices – they vary according to demand and to how the airline designs the price increments.
Amadeus has many airline customers using such strategies, therefore we can offer our insights into the things that work well in merchandising design. We have masses of data to study, and hundreds of case studies. Without breaking any confidentiality, we are able to determine the best practices and key performance indicators that help airlines succeed.
Amadeus’s Study Approach
In the recent Airline Information Merchandising Conference in Vancouver, Canada, I presented our analyses on the ways to define when you should bundle and when you should itemise – a topic many airlines struggle with. The approach we take is to study passenger purchasing behaviour, and especially the timings of purchases. For example, if an airline sells nearly all of its pre-reserved seating at booking time, and very little in the time between booking and flight, then it makes sense to consider bundling the pre-reserved seating into a fare family. We call this the booking context.
Another key factor to consider is who is your customer base? If an airline has lots of corporate passengers, it’s probably not a very good idea to run an itemisation-only strategy with no bundling or fare families. Corporate travel managers find itemisation very difficult to handle – and it can drive business away from your airline or drive your yields in the wrong direction. The damage to passenger loyalty can also be considerable.
Our work covers lots of aspects of revenue optimisation – here we have only looked at a couple – but the message that comes back to us during each mission is the value of our big customer base and the insights we can derive from it.
Using all of the many channels available to an airline is a crucially important tactic in maximising merchandising opportunities. I will take a look at this and other merchandising practices in my next post about this increasingly important subject.