Ancillary revenues has been a fashionable term for airlines of all business models since the economic downturn started in 2009. They have become a trendy solution to generating additional income in light of declining yields and continuous cost saving approaches. However, organisations seem to copy each other, which has the effect of turning their services into a commodity. While hotels have been offering paid ancillary services for a long time and would now rather work on increased and personalised offers to add customer value, airlines have taken a different road.
In particular, airlines saw charges for luggage, credit card usage and seat reservation as big money makers. A couple of specific third party services such as insurance, car rental and hotels were added. Yet from a customer perspective, this meant that services which they were used to having included in the price were suddenly charged for. Legacy carriers seemed to copy low-cost carriers in a kind of panic approach, without clear communication to their customers or any red line with their brand positioning.
Lufthansa, Iberia and Air France have re-organised their short-haul business based on the low-cost model. British Airways has just introduced a hand luggage-only fee to respond to the EasyJet challenge at Gatwick. The "charge for" trend from the USA is coming to Europe.
Customers are confused, unhappy and have lost trust because of the number of offerings and bad surprises. At the same time, customers have much more control now with the internet and mobile applications, and are likely to switch brands easily if their expectations are not met or if they want to try more suitable offerings.
But there is a way for airlines and airports to put the magic back into air travel if they put themselves in the customers' shoes and take a retailers' approach to creating true value for their guests. As a case study, let's put ourselves in the shoes of Mandy. She is a modern business woman, a frequent traveller, a mother and a consumer. She could probably be better described by the apps on her iPhone, the movies on her iPod, and the choices she makes in terms of food and fashion purchases, than by traditional airline segmentation which places customers into a business class, economy class or tier level box.
Mandy wants to choose her way of travelling, go through the airport fast, pre-order a parking spot close to the terminal and use the fast track to avoid any hassle. She also prefers pre-ordering a really good quality meal in advance if the price is reasonable, instead of having to eat whatever is included in the price. For a business trip, the one-piece hand luggage policy gradually being adopted by so many airlines really stresses her as she wants to take her little suitcase as well as her laptop bag on board - guaranteed. She is happy to pay for this, ideally in combination with being seated in a quiet zone or having the option to buy the seat free next to her.
When travelling with her kids, she loves getting her luggage picked up and delivered back home. She appreciates being able to order food at the boarding gate or on board for her fridge to be filled conveniently when coming home. Recently, she even ordered wine on board for home delivery. She loves giving her parents a treat and surprising them during their flight by ordering them a three-course meal, flowers and a bottle of champagne. And she would pay for a service to guide them through the airport during their transfer because it gives her peace of mind.
Mandy wants to avoid bad surprises. She feels peace of mind when she receives a message from her favourite airline a couple of days before her flight to remind her what to expect on board, what is included or not, and inform her of additional services that she might be interested to buy beforehand. She is also happy to give feedback right after her flight, because it only takes a click via her mobile phone.
This is just the beginning of a revolution that has actually started. All the examples mentioned are already a reality. Aviation stakeholders should be working on improving the customer experience further, through customer-centred retailing and making the best use of the technology already out there. If airlines do not do it, someone else will. Giving the customer personalised choice and control of their journey, and turning them into frequent buyers, is the best guarantee for loyalty and increased revenues in the 21st century.
Ursula Silling is founder of XXL Solutions, a firm helping airlines, airports and others in a number of areas including aviation retail strategy. Find out more about its consultancy and training services at xxlsolutions.us or email firstname.lastname@example.org