By Mark Pilling in London
From up-selling to cross-selling, via dynamic packaging and customer servicing, airline websites have moved a long way from merely being online ticket shops.
It is startling to learn that AirTran Airways, the US low-fares carrier with over $1.4 billion in annual revenues, employs just one person to run its website. “Her job is to run the website for the customers,” says Tad Hutcheson, AirTran’s vice-president of sales and marketing. “My job is to keep everyone else from her. Everyone is an expert on the website at AirTran – they all want to tinker with it and muck it up.”
That, clearly, is not an option. AirTran is typical of many players who rely heavily on the web. Over 55% of its sales come through its own site, a number that rises to around two-thirds if other online channels like Orbitz are taken into account.
Whichever business model a carrier adopts – from legacy to low-cost – the use of a website is becoming ubiquitous. As the latest Airline IT Trends Survey, produced by Airline Business and SITA, shows, online sales now represent just over 21% of a typical carrier’s total tickets sales (see table below and related feature on page 42). This data is weighted by how many passengers an airline handles. Perhaps more significantly, one in 10 carriers sell over half their tickets on the web, while 29% sell over half their tickets across all online channels.
However, website maturity is a widely variable picture among carriers worldwide, and a surprising number still do not offer their tickets for sale online, often because local internet penetration is low. “There is a huge spectrum from the well-established web-oriented carriers in the USA and European players like Ryanair and easyJet to the more traditional international carriers with their more complicated products,” says Murray Smythe, head of Sabre Airline Solutions in Europe.
It seems there is no stopping the rise of the online world. Many carriers have embraced not only the web power of bringing customers directly in touch with their product, but are weaving other products like insurance, hotel and car hire into the sales pitch.
This can be as simple as offering click-through links on the website to these products, with the carriers receiving commission on each sale, or, as a few pioneers are showing, these products are offered in the same transaction stream as buying the airline seat. Some dub this dynamic packaging. Ian Wheeler, head of e-commerce at Amadeus, does, however, sound a note of caution: “Dynamic packaging is important but don’t let it distract you from selling the airline seat right.”
That means not selling too many seats too cheaply. “At first it was just about cost,” says Wheeler. “Selling direct has driven a lot of yield down because airlines only show the lowest price.” In addition, the web is today predominantly a lower-yield market compared with bookings that are made via the global distribution systems because in most markets higher-yielding corporate business still tends to go through travel management companies, says Sabre’s Smythe.
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For many, a top priority is to reverse this trend and extract greater web yields. “A key factor for us is trying to get more yield in our sales – it’s a must,” says Javier Perez-Rios, vice-president of Iberia.com, which currently accounts for 15% of the Spanish flag carrier’s ticket sales. Iberia rolled out its “up- selling” programme in March 2005 in the Spanish market. The website shows all prices and a range of dates for a particular journey, giving travellers the option to mix and match their itinerary. For example, a business traveller could opt for the cheapest outbound fare when he has certainty over his travel plan, and upgrade the return to a more expensive and flexible ticket for the more uncertain end of the trip.
At the same time, Iberia gave customers the ability to manage their frequent flyer programmes online. Some 55% of tickets bought on Iberia.com are sold to frequent flyers, says Perez-Rios. “This is very important for us and gives us access to our main customers,” he says.
“Putting these two things together is responsible for the increase in yield we’ve achieved,” says Perez-Rios – a yield that has risen on average by 20% per booking over the past year. The carrier is working to add the ability to up-sell to its international services shortly. Air Canada, British Airways and Qantas are other traditional carriers that have embraced up-selling and are making significant yield gains because of it.
Up-selling can also include items like preferred seating or priority boarding. These options are offered at the time of the ticket purchase. At Australian low-fare player Jetstar, which offers both, they can represent 10-20% of the ticket fare, says Bruce Buchanan, commercial group general manager. In 2006, the up-sell campaign of United Airlines, particularly on getting passengers into its premium-economy class, is expected to generate $50 million in incremental revenue, rising to $100 million in 2007. In another example, AirTran’s Hutcheson estimates that it makes $2 million a month up-selling passengers from economy to business.
Forecasting demand
In parallel with these moves, carriers are upgrading their revenue management of web fares. “The next big wave is in the area of science behind the demand curve,” says John Dabkowski, managing director of Navitaire, which supplies the reservations systems for many low-fare players. He believes the days of using historical traffic data are fading and carriers need almost immediate intelligence to react to competitor fare sales or price changes. “It needs to be much more real-time,” he says, giving carriers the data needed to respond.
Sabre’s Smythe agrees, with the main driver being the increase in unrestricted fares in the market available on websites. “There is a great deal of interest in flexible revenue management for web fares. Carriers need more sophisticated prediction of future demand to ensure they are selling at the right price.”
The software to perform this kind of predictive work is available, but data on competitor behaviour is harder to acquire. This has led to some “very smart web-sniffing tools” that scrape or check websites to obtain current pricing, says Dabkowski. Some airlines put tools on their sites that combat these data robots. “It is almost like a little war going on out there,” he says.
The amount of cash flowing online demonstrates the importance of revenues generated through websites. It is often business made over and above the basic price of the seat. Low-cost carriers typically describe these as ancillary revenues. They can include insurance, in-flight food and drink and other services like gambling or mobile phone usage, which Ryanair for one says it is pursuing aggressively.
“All our profit effectively comes from ancillary revenues, so it is critical,” says Jetstar’s Buchanan. “The beauty of ancillary services is they are in general very high margin,” says Dabkowski.
Taking these sales to the next level requires some of them to be brought into the booking process. Examples from the general world of e-commerce show that retailers “get three to four times better adoption rates if the product is in the normal booking flow”, says Dabkowski. EasyJet and Ryanair, for example, have websites where customers have to actively opt out of their travel insurance during the booking process.
However, only a handful of carriers are doing extensive dynamic packaging where the main travel elements – accommodation and car hire – are actively sourced as part of the booking. Jetstar has just rolled out its solution with good initial results, says Buchanan. Jetstar had extensive discussions with US low-fare carrier JetBlue Airways about how it runs its Getaways holiday booking feature.
“Dynamic packaging will be a very useful channel for us, but it has to feel easy,” says Paul Coby, chief information officer at BA, which plans to roll out comprehensive online packaging next year. “It is extraordinarily complex getting all the inventory and payment systems online and integrating it all into one single price, online, instantaneously,” he says.
US Airways has its own vacations division based on a separate website that it intends to dynamically package, says Travis Christ, vice-president sales and marketing at the carrier. The 20-year-old business unit has plenty of hotel rooms to sell in this way. “We sell about 3,000 rooms a night in Las Vegas alone,” he says. “It is not fully integrated into our website but is on our roadmap. It is an incredibly complex procedure.”
While dynamic packaging has some way to travel, putting the online world at the heart of the business is something many buy into in a big way. BA’s vision of re-engineering its business to transfer the entire customer relationship online is paying dividends, believes Coby. “We have recaptured the relationship with our customers,” he says. An online drive has helped BA to be competitive, especially on short-haul services where low-cost rivalry is at its fiercest. “To achieve this we have got to automate the hell out of it,” he says, of every aspect of the business that touches passenger servicing. “If you do that you can provide a better product than low-cost carriers but you can do it at a competitive price.”
Transferring the servicing of passenger bookings, frequent-flyer programmes and a host of other functions around buying air tickets to the web is what customers want. It also saves money. Today around a third of BA’s passengers use the booking management service online. The target is to reach 50% by March 2008. “Our aim is not to contact the customer in any other way than on our website,” says Iberia.com’s Perez-Rios.
The constant mantra of those with website responsibility is to make using the website fast and easy. AirTran echoes the views of several carriers who crave such simplicity on the net. “We have been very focused on making sure we have the easiest website in the industry to use,” says Hutcheson. US Airways has just endured the pain of merging the America West and US Airways sites. Its focus is getting the basics right to boost the proportion of passenger revenues coming through the site substantially above the 29% achieved by America West when it was independent, says Christ. “We’re not looking at a lot of flashy, showy new products. It’s not necessarily very sexy but it’s practical. Our goal is to make their life [customers’] as easy as possible.”
This will be a critical element for carriers who want to make their transition to the web as effective as possible. “The airline keeps control of the customer, but more importantly, the customer keeps control of the booking experience,” says Henry Harteveldt, vice-president, airline and travel research at consultancy Forrester Research.■
Source: Airline Business
