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Ancillary Revenue and Unbundling are Not Always Dirty Words

If you fly, you probably cringe every time you hear the words “ancillary revenue.” You likely associate those words with airlines charging for something that used to be included in the price of the ticket, and that doesn’t make you happy, right? But there’s more to ancillary revenue, which really is just anything that you pay for beyond the price of the ticket. At the Phoenix Symposium, a panel got together to discuss this in-depth.

Dennis Cary, the man in charge of the ancillary revenue plan at United, started off by saying that for United, “it’s unbundling, offering new travel services, and protecting and enhancing benefits for frequent fliers.” In other words, yes you’ll pay for what you used to get for free (unbundling), but they also want to add other things you’ll pay for as well (new travel services) unless you’re an elite traveler (protecting and enhancing benefits for frequent fliers).

Louis Saint-Cyr from Hawaiian had a similar thought, but he smartly emphasized the importance of Ancillary Revenuethe airline’s brand. Hawaiian will continue to offer free meals because it fits with their brand, but he added, “we made the free meals better and started selling premium meals. On my flight out here we sold out of premium meals. It is a hit, people love it.” It’s those types of enhanced services that make money for the airlines and make customers happy. But what about charging for things that were free? When is the breaking point?

Louis initially said there wasn’t one, because airlines would just keep experimenting and then reverse course if necessary, but then he himself reversed course. “In terms of an airline, when you diverge so much from the expectations of your customer relative to your brand, you’re done. There are things we aren’t going to touch. When you come to Hawai’i, Hawai’i itself is a brand and Hawaiian is part of that brand. You’re not going to put someone in the back of an airplane and not give them anything . . . here’s a glass of water, we’ll see you in 5 hours.”

Greg Schulze of Expedia tried to change the tune a little bit by talking about future opportunities to make money outside of the basic flying experience. “If you’re not making money throughout the life cycle, you’re really missing the opportunity. I think there’s opportunity to make revenue in places that don’t anger the customer.” A novel approach indeed, and one that Gordon Whitten of Sojern kept emphasizing. His company currently puts those contextual ads on your boarding passes you print at home, but they have many more initiatives involving targeted advertising to fliers, most of which won’t drain your printer cartridge.

Dennis didn’t really pursue that line of discussion and instead brought it back to the core product. “When we can create products and services around the core travel experience that add comfort, convenience, and more, that’s how we can create a different financial outcome for the company.” Louis however, agreed with Greg and said that he thought the big money was outside the cabin.

My favorite topic of the day was when they began discussing when airlines would finally get to the point where people could arrange this at the time of booking and wouldn’t have to keep whipping out credit cards for everything as they go.

Louis liked that plan. “I love that idea. What we’re trying to do is migrate toward the website. If I was able to eliminate all transactions on the airplane and do it on the web, that is absolutely doable. It’s just a question of getting there in the next 12 months.” That seems a bit extreme to me. You’ll always have people who want to buy on the plane, so you need to offer these options at multiple stages, but at least he’s on the right track.

Dennis agreed as well. “Go check out united.com/traveloptions and the direction you’re going is the exact analogy that I’ve been using with my team over the last couple years.”

But all this talk about airline websites ignored one very important thing. Greg shot back with a warning. “The great majority of customers who are impacted by baggage fees [leisure travelers] are going to sites like TripAdvisor, the TripAdvisor metasearch site, by far the most popular feature of that is the fee estimator. Airlines need to remember that not everybody is a 1K [United’s top elite status tier] and not everybody shops on united.com.” Good point, but the discussion never touched on when online travel agents would be able to handle that type of transaction. My guess is that it’s a long ways away.

In the end, there wasn’t much talk about including everything in the price of the ticket as it used to be. But it is clear that airlines will continue to try new ideas and reverse course on others as they search for what people are willing to pay for and what they aren’t.

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