An airline's approach to gaining additional revenue from services is usually dictated by which side of the legacy/low-cost divide it sits on.
While full-service carriers look to unbundle services and charge for them, they seek to do so without damaging their brand's reputation, mindful of the consequences of a public backlash if they are perceived to have gone too far with those charges.
For budget airlines, ancillary strategy is generally seen as less complicated, as they seek to offer the lowest base fare possible and improve yield with ancillaries directly through their websites.
Virgin Atlantic's head of loyalty and ancillary Alan Lias says the airline is unusual as it is expected to offer new ancillaries, but can't compromise its core offer.
"Because of our brand, people expect us to offer innovation and good value for money. We are looking at ancillaries that are going to improve the experience and give customers more choice, still with a good solid full-service proposition as part of the base fare," he explains.
Lias sees low-cost carriers as the innovators when it comes to developing ancillary revenue as "generally speaking they are direct businesses, so distribution is less of a problem for them". He says the challenge for low-cost carriers "is more around how ancillaries are positioned - they don't want to look like expensive airlines, but it's a nice problem to have in a way". Air Baltic - an airline noted for introducing branded shoes and intelligent assigned seating - also sees ancillary charges as a means to cut back on costly services. To this effect it has introduced a surcharge to customers who check in at the airport instead of online.
Speaking at Airline Business's recent Airline Merchandising, Ancillary Revenue and New Commercial Models Conference in London, Air Baltic vice-president corporate communications, Janis Vanags, said the charge is €10 ($13) or €15 for the economy or business. He says they were not designed as a revenue generator, "but to save time and encourage passengers to use modern technology".
Lias says Virgin receives about £20 ($31) of ancillary revenue per passenger, which he says is helped by the fact it is principally a long-haul carrier "and people spend a lot of time on the plane, therefore the will from the passenger to customise their experience that little bit more is probably greater given the length of time they are on the aircraft".
When developing and growing ancillary revenue, Lias says full service airlines are often disadvantaged by "front-end or back-end systems that are focused very much on flight only" and, as such, have a challenge in getting their products to market. "Full-service carriers are channel agnostic and tend to want to sell products through multiple channels and of course we are waiting for the channels to be enabled," he says.
For these carriers, if ancillary strategy is to follow their multichannel distribution strategy, the issue is more complex.
IATA believes its New Distribution Capability (NDC) will help resolve many of the issues carriers face in selling ancillaries across multiple channels, by creating a technical standard that defines a format for how airline products and services should be displayed.
However, before the association has even called for participants in a pilot, which is likely to happen in the next few months, NDC has already been the subject of a great deal of controversy, including suggestions it is a rival product to the global distribution systems.
IATA project manager for e-services Sébastien Touraine says: "It's not a new GDS. It's all about a standard, nothing more." Touraine says NDC "should only be a win-win for everybody" and is "about giving the ability to airlines to know who's requesting tickets at the time of purchase".
He says NDC is being designed to bring additional functionality that airlines have on their websites and internet booking engines through third parties.
"It's not about a GDS bypass, it's a model that whoever wants to take content and control the content can dynamically provide it to anybody - this could be a GDS, it could be a travel management company, it could be a travel agency. But they must take it through one set of standards unique for the industry," he says.
With question marks over how the NDC will facilitate ancillary sales or if it will be worthwhile in commission terms for third parties to sell them, the prospect remains of airlines reserving ancillaries for their own websites to drive more direct business.
Lias believes "when the big carriers start making their moves then the industry will follow, but most airlines will reflect their basic distribution strategy in ancillaries".
Source: Airline Business
