Flight-related ancillaries are an ever-increasing part of an airline's revenue stream, but arguments remain about how effectively some airlines sell these services to customers - and whether airlines could go further to earn more.
The extra income from selling hotels, insurance and car hire makes the impetus for airlines to sell better even more evident. The word selling is now referred to by airline executives and technology providers with terms such as merchandising and retailing.
OpenJaw Technologies recently hosted a summit in Dublin that looked at the theory and practice of merchandising for airlines.
It has launched a new product, known as the t-Retail Platform - t-Retail is a phrase OpenJaw has devised to emphasise the fact that selling platforms are a thing of the past, and that travel companies, including airlines, are retailers as well as transportation providers.
OpenJaw's chief executive Kieron Branagan says there was a brand-building element to the launch of the platform, but insists: "We have invested more than €3 million [$4 million] in the past 18 months bringing the t-Retail technology into existence."
Promotions, personalisation and social media integration were focused on during the development cycle.
Launch customers for the t-Retail Platform so far include Russian airline and Oneworld alliance member S7 and Scandinavia's SAS.
Branagan says the "rules engine" built as part of the platform was "a huge part of the business' [intellectual property]". The rules engine allows airlines greater flexibility over what they retail, to who and at what price point. Branagan suggests that the OpenJaw rules engine was a "differentiator" between it and other retailing platform options on the market, including GDSs.
The consumer trends driving the airline industry's shift towards retailing were highlighted by Henry Harteveldt, co-founder of the US-based Atmosphere Research Group. Airlines must appeal to customers who Harteveldt describes as "empowered, highly focused on their convenience and less likely to be brand loyal".
Within this, Harteveldt highlights a few areas where airlines' retailing falls short. Atmosphere asked a statistically significant number of travellers in key markets how good travel companies are at sending out targeted, relevant promotions.
Airlines perform better than online travel agencies, traditional agencies and hotels - but with big differences between markets. Less than four in 10 UK travellers think airlines are good at targeting them, compared with Brazil, where nearly six in 10 do.
Effective use of promotions to drive high margins and incremental sales is a key part of retailing. "Getting close to the customer" is a clumsy phrase for what is one of the biggest challenges in all online businesses. Harteveldt feels that data which airlines have about passengers is under-utilised.
"Data offers retailing opportunities to travel firms able to leverage it," he says. He identified 18 different points of contact between the traveller and the airline, each of which generates usable data. Many of the touch points are also sales opportunities.
Branagan talks in terms of "compelling cross-sells" - using the information on the customer to pull up the most appropriate product. As well as the passenger name record, airlines should have historic purchase and credit card information and possible loyalty insights on an individual.
"So there's little point trying to sell three-star hotel deals to someone travelling in business," he says, although it might be worth pitching five-star properties to an economy passenger who wants to fly cheap, stay chic.
Treating each customer not only as an individual but also as an individual with different travelling personalities is essential in the age of retailing and merchandising.
Atmosphere had a look at what point in customers' journey were they most likely to pay for their checked-in bags. Again, significant regional differences emerge, which adds to the complexity of devising different strategies for different markets.
Two-thirds of UK travellers like to buy their baggage allowance when making the reservation, compared with one in three Brazilians. If you want to sell services at check-in, Americans are the most responsive, while none of the three nationalities is interested in being sold to at the gate or on the aircraft.
Research also shows that "only a fraction of passengers buy option products, indicating growth potential". Only three in 10 UK travellers have paid for a seat upgrade or speedy boarding.
A focus on ancillaries does not mean that the seat sale should be overlooked. Vayant Travel Technologies, an airfare flight and search specialist, is one of OpenJaw's partners on the project. Chief executive Eric Dumas says that Vayant also had 20 clients piloting its products - online travel agencies, metasearch sites and global distribution systems.
Its technology brings up sub-second search results and is GDS agnostic, pulling real-time pricing and availability from multiple sources. Dumas says that "redefining search parameters" is a good way to boost conversions.
Vayant's flight search sits along the GDSs on OpenJaw's platform, another example of the way in which travel technology companies cross over, compete and partner each other.
Brandon Winn, Vayant's chief commercial officer, suggests that the GDSs were a valuable distribution network within the travel retailing ecosystem, but that the shopping/retailing/merchandising innovations were coming from elsewhere.
Close and connected
If getting to the customer is essential in the new retailing world of aviation, then so is getting close to the supplier. Branagan notes that launch customer S7 individually contracted hotels at the major cities on its network, and wanted to use OpenJaw to prioritise the high-margin high-return sale of its own inventory.
Harteveldt questions whether direct contracting was actually the best approach.
"Airlines shouldn't contract for their own inventory," he says. "Doing so requires too much time and effort and would be a management diversion," he says. "Direct connections to hotel chain CRSs or using a hotel booking aggregator like hotel chain-owned Roomkey would give them a wider choice of hotels."
Indeed it would, but at a lower margin. The debate is yet another headache for airlines looking at the cost of sales as well as at the sales themselves.
South African carrier Comair is an interesting example of an airline that is embracing the retailing concept.
Chief executive Iain Meaker says that "direct relationships with the supplier are necessary to survive." Comair operates the British Airways franchise in South Africa and also has its own low fares carrier Kulula.
But as Meaker transitions Comair to "a proper travel business", it has been acquiring businesses that give it a wider reach. A deal to buy HolidayTours in 2010 gave Comair a traditional B2B2C tour operator. Meaker explains how adding Comair/Kulula flights into Holiday Tours, while using its hotel contracting experience to bring higher margins to air packages "allows us to manage supply from a yield management perspective".
It would be remiss to look at airline revenue dynamics without bringing in social media. Over the past three years the medium has taken off to such an extent that it is no longer a fad but an integral part of 21st century retailing. Regional differences again complicate matters, but the fact that social media is widely used in all markets is something airlines need to be aware of.
Social media integration is a key part of what OpenJaw's t-Retail Platform can offer. Branagan hinted that its social media capabilities were a big reason why SAS signed up. Arguably, one of the most effective airline users of social media, the Star Alliance carrier is working with OpenJaw to ramp up the offers it distributes through Facebook and Twitter.
Branagan explains that using the rules engine and social media functions it is possible to automate posting offers on to Facebook. "We can deep link, in real-time, directly from the deal or offer on social media page directly to a pre-populated booking page on the airline's website," Branagan says, "so there is a much better chance of converting the customer".
Harteveldt says airlines should see social media more in terms of a media channel useful for customer service, marketing, story telling and generating revenue. Social media could also be used to "preserve a customer relationship, which can be just as valuable from a financial standpoint".
While the airline industry is becoming more innovative when looking for revenues, one opportunity identified by Branagan is payment. "Most travellers know that flights are unbundled, and accept a transaction charge as another component of the total price," he says.
"Payment is also emerging as a potential revenue stream for travel companies. While many airlines view payment as a cost, there are those that drive significant value from payment through the introduction of payment fees that are charged to the consumer."
An effective, secure and robust system therefore needs to be in place. Global payment systems do exist, Branagan says, "but our experience is that a multitude of local payment models, which are specific to geographical regions, must also be supported in order to drive on-line conversions."
Whether or not the phrase t-Retailing will enter the vernacular remains to be seen. Airlines realised a decade ago that they cannot exist on seat revenues alone, and have been selling ancillaries fairly successfully. The relations battle with the travelling public in favour of unbundling appears to have been won.
There are still areas where the airlines are leaving money on the table - to say nothing of revenue streams yet to be dreamt up. But if any sector can succeed in the online retailing environment, it is aviation.
As Harteveldt says: "We should tell the Facebook generation that we - the travel industry - invented e-commerce."