E-COMMERCE

Revenue Window
of Opportunity

Airlines that arent

selling ancillary products
on their websites are
missing a big payout

By Brian Straus

ay a visit to Ryanair.com and it immediately

will be apparent that it is no ordinary airline website. The large,
flashing reminder that millions of seats are available for just
10with no hidden chargesinvokes the mood of a used car
dealership or a county fair. The bouncing cartoon bunnies on the right draw
attention to the Irish LCCs Easter deals.
atw | APRIL 2008 37

FACT FILE

Airlines Reporting Ancillary

Revenue Results
Most recent full-year period

Airline

Ancillary
Revenue
(Euros,
000)

% of
Total

63,407

4.2

7.35

Aer Lingus
Air Arabia

Euros
Per
Pass.

4,531

3.2

2.57

AirAsia

22,713

6.8

1.62

Air Berlin

58,100

3.7

3.46

Air Deccan

32,745

9.0

4.82

Alaska

134,662

5.8

5.61

Alitalia

49,357

1.0

2.04

Allegiant

21,675

12.8

9.95

Austrian

54,100

2.2

4.99

easyJet

189,477

8.8

5.74

Emirates

23,864

0.6

1.65

Frontier

25,603

3.2

2.55

Korean

55,380

1.0

2.51

LTU

38,000

4.2

7.17

Norwegian 1

12,166

4.1

3.59

362,104

16.2

8.52

3,026

0.1

0.12

SkyEurope

10,827

6.8

4.23

Spanair

47,277

4.0

5.69

Ryanair
SAS

SpiceJet

2,036

1.6

0.78

416,117

3.6

6.00

Vueling 2

33,512

14.2

9.55

WestJet

54,573

4.2

4.89

United

1. Half year. 2. Vueling reported ancillary revenue of

68,612,000. IdeaWorks reduced this by 10 per
passenger which represents an unavoidable booking fee
charged to all passenger segments. Source: IdeaWorks

Sure, you can check an itinerary or

book a fare. For a customer looking
simply to go from Point A to Point B
on the cheap, Ryanair.com is sufficient
and user friendly. But why stop there
when you can avail yourself of so many
more bargains? Supplement your vacation
with a hotel or hostel booking, automobile rental or ski pass. While youre at it,
buy concert or football tickets, arrange for
car insurance, save on your energy bill or
indulge in a bit of online gambling.
Those options have little if anything to
do with commercial air travel, yet they are
just a mouse click away for the 16 million
people who visit Ryanair.com each month,
many of whom wind up buying more
than just an airline ticket. In some cases,
it would be like leaving the bakery with a
loaf of bread and a set of tires.
38 atw | APRIL 2008

Asked what Ryanair wouldnt sell,

Head of Ancillary Revenue Santina
Doherty answers, Anything illegal.
Doherty tells ATW, We recently
launched our car insurance product in
Ireland and to be honest, I was fairly
skeptical about it just because it was really
quite removed from the travel experience. The company, FBD Insurance,
wanted to launch a no-frills offering
and was willing to pay for access to a
sympathetic market. Enter Ryanair.com
and its massive price-sensitive audience,
and in the first six days FBD generated
16,500 insurance quotes. Thus Ryanair
was in a position to make more money
without purchasing a single extra gallon
of fuel or hiring a single new pilot. In
its first fiscal semester ended Sept. 30,
2007, the LCC generated 252 million
in ancillary revenue, a 54% increase over
the year-ago result. In FY07 it reported
362.1 million, which accounted for
16.2% of its total turnover.
Not everyone should do what
theyre doing, says Jay Sorensen, president of a Wisconsin consultancy that
recently released a guide to the global
ancillary revenue scene. His company,
IdeaWorks, estimates that airlines are
generating 1.7 billion in ancillary revenue and that the figure represents just
the tip of the cumulonimbus. Its a brave
new world for carriers, that, according
to Sorensen and several other industry
experts, will find that rising fuel costs
and falling yields will be more manageable hurdles if they are flexible enough to
rethink the way they package and market
their product and savvy enough to implement the right technology.
Certainly there is a continuum on
which no-frills airlines like Ryanair and
traditional full-service carriers must find
their places, but for the most part it seems
clear that the nearly ubiquitous presence
of the Internet and a maturing traveling
public have forged a market in which customers are accustomed to paying more for
extras that formerly were integrated into
the travel experience.
Younger Internet-savvy customers,
who are unfamiliar with a bygone era of
air travel luxuries, happily embrace low
fares and the ability to create customized travel through a-la-carte pricing,
IdeaWorks says, while the Raymond
James investment bank claims, There is
a greater willingness on the part of consumers to pay up for an ancillary offering
than to absorb a base fare increase, which

is particularly relevant in light of the

industrys current fuel challenge.

Ahead of the Curve Once carriers

implement the technology required

to charge for trip-related perks like
checked baggage, onboard catering or
extra legroom, they can put just about
anything else up for sale. Companies
like Amadeus have produced platforms
enabling airlines to restructure and
unbundle their fares or market and take
commissions on products from thirdparty vendors. All drive revenue, allowing carriers to keep fares competitive.
Some, like Ryanair, forward-thinking
legacy Air Canada and US leisure carrier Allegiant Air, are ahead of the curve.
While it is conceded that traditional
network airlines may find it more difficult to abandon the full-service model,
there is no excuse for standing pat considering the current environment. There
are airlines all over the world who habitually ignore economic imperatives. Its
against logic, but it exists, says Sorensen,
who worked for Midwest Airlines before
starting IdeaWorks. And the transition
will be eased by two factors: Suppliers
are responding to the demand for new,
nimble technology and passengers are
beginning to understand the realities of
21st century air travel.
Last summer, IdeaWorks surveyed
airline executives around the globe and
found that the number of assets still
provided free to passengers is significant.
Free online booking was offered by 95%
of respondents, the first piece of checked
baggage was gratis with 92% and assigned
seating was free on 87%. It all represents
unrealized revenue. Sorensen tells a story
of a United Airlines flight he took from
Chicago OHare to Honolulu before
which the gate agent reminded passengers
that they might want to purchase food in
the terminal prior to boarding. Heres an
airline thats trying to practice ancillary
revenue activities and theyre failing in
spite of themselves because theres something wrong with their system thats not
ensuring that theres adequate food available on the flight.
The key can be as simple as priorities. Airlines should consider themselves as an e-commerce company,
says Raphael Bejar, whose Paris-based
firm, Airsavings, has grown from a
group purchasing and consulting concern catering to small and mid-size
carriers into one that now provides an

Internet platform, AirlinePlus, that

can be installed in a matter of weeks
and acts as the basis for an airlines
ancillary activities. SkyEurope Airlines,
Aer Arann and Atlas Blue are among
Airsavings clients.
Carriers can use AirlinePlus to pitch
one-time lounge access, SMS itinerary
notification, gaming, catering and other
ancillary items in addition to what Bejar
calls the big three that the general
public has come to expect from popular
online booking agentshotel rooms,
car rental and trip insurance. The technology already is adaptable to Navitaire,
Lufthansa Systems and SITA and can
boost sales by pitching more appropriate
solutionsa five-star hotel for weekday
business travelers or a three-star option for
weekenders, for example. But an airline
must be able to make those basic trip addons available. Without these, it is nearly
impossible to capture a customer with the
more esoteric ancillaries, he argues.

Key to the Kingdom Capturing that

customer is the key to the ancillary
kingdom. Airlines, especially legacy carriers and those based in the US, slightly
miscalculated the effect that the Internet
revolution would have on revenue
streams. Enamored of the unprecedented reach and penetration of online travel
agencies like Orbitz and Expedia, they
worked to make as much of their content as possible available to those sites.
Much of the traveling public became
accustomed to buying their tickets from
those third-party merchants. Certainly an
Irish motorist looking for an insurance
deal will not find one on priceline.com.
Ancillary revenue opportunities are in
part driven by the extent to which carriers directly control the customer booking
process, which is best managed on an airlines own website, Raymond James says
in its January Growth Airline Outlook,
adding that many third-party reservation
systems simply cannot support the more
advanced options and permutations that
airlines now can offer.
The power of the online travel
agencies has startled the airlines. They
are realizing slowly that we can do
this too, Sorensen says. Ryanair and
Allegiant accumulate ancillary revenue
because their customers buy from
them. The former sells 98% of its tickets through its own website while 87%
of Allegiants customers buy at allegiantair.com, helping it realize $21.53
40 atw | APRIL 2008

in ancillary revenue per passenger in

2007, higher than Ryanair and a 33.6%
year-over-year increase. Its Trip Flex
product, which allows for reservation
changes for $7.50-$10 per segment, has
been especially successful. In this new
ancillary age, it is incumbent on airlines
to make their websites the first destination for any potential traveler.
This is especially true in the US, where
legacy carriers traditionally have relied
on selling miles and/or loyalty program
points to anchor their nonticket revenues
while remaining wary of offending passengers by nickel-and-diming them.
This fear of offending customers is
misplaced . . . and has left margin on
the table for carriers slow to the punch,
Raymond James says. Bejar says an
e-commerce revolution, not consolidation, is the key to fixing the industrys
American ills. They should completely
change their vision, he argues. If you do
not have the Internet tools, you will not
have the right business model.
The network carrier that arguably
has adopted this outlook more enthusiastically than any other is Air Canada,
which received ATWs Market Leadership
Award in 2007 in recognition of its
branded fare program. What Air Canada
has done is frankly amazing, Sorensen
says. Its so advanced that the GDSs
arent there yet.
Working with AC on cementing its
website as a destination is Amadeus,
whose e-Commerce Airline Suite is used
by more than 75 airlines to power in
excess of 250 websites in approximately
80 markets. Half of the worlds top 50
airlines have selected Amadeus to provide
their e-commerce solutions, with 80%
of those outsourcing their user interface
as well as their booking and shopping
engines to the technology giant.
According to Amadeus Global DirectorAirline Direct Channel Philippe Der
Arslanian, AC has developed a set of products that allow us to upsell and still promote
and entice end users to buy more. It even
offers customers the option to reduce their
fare by opting out of certain elements,
which he says is quite unheard of but will
contribute to customer loyalty. IdeaWorks
says that ACs unit revenue has risen 22%
since it launched its branded fares in 2003
and 48% of customers buy up at some
point during the process.

Power Shift They are creating a unique

selling proposition for their own website,

Sorensen says. I believe that is going to

be a trend were going to see more of in
the future, shifting the power away from
the big travel agency sites back to the
main airline sites. Der Arslanian claims
carriers can enhance their sites indispensability through concentrating on
post-sales servicing such as rebooking,
loyalty program or voucher redemption
and any additional opportunities that
only the supplier youve used has the
capacity to do.
Delta Air Lines is another legacy
carrier making an effort and is the
most advanced among the US majors,
Sorensen claims. It has integrated
hotel, car rental and lounge access into
the booking process while taking an
approach entirely consistent with the
airlines reputation for professional
and businesslike product branding
and customer service, according to
IdeaWorks. No bouncing bunnies here,
but if DL is able to sell add-ons to 5%
of those buying tickets on its website,
that will equal more than 1.3 million
customers per year.
Doherty will not apologize for what she
calls her shop window, especially now
that there is more to it than meets the eye.
Ryanair upgraded its Navitaire platform
in February and can offer more ancillary
options throughout the booking process
rather than just at the front or back end.
She affords space on the home page to those
partners who can guarantee the attractive
minimums and says the LCC is looking to
add kiosks with ancillary functionality and
handheld computers to track and expedite
buy-on-board sales of everything from foreign currency vouchers to liquor.
US low-cost counterpart JetBlue
Airways went to a cashless cabin last
November and has recorded robust results:
Project Manager Sam Kline says onboard
revenue doubled in the first week and rose
more than 100% through January.
Although integration of mobile phones
into the reservations, booking and boarding process has been slower to come online
(although it has picked up steam in Japan),
Web-based applications are advancing and
soon will be limited only by an airlines
imagination. Its a very creative environment, Doherty concludes. I can take a
risk on a product and if it doesnt work
it doesnt matter. We can come back. Its
important to keep up a high degree of
activity and keep exploring every avenue.
Its a fantastic advantage when were going
into unfavorable economic times.