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Ancillary services

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Unbundling its airfares, Lufthansa goads IAG and Air France-KLM. Some have wondered aloud if Lufthansa Group has “gone mad.”

Unbundling its airfares, Lufthansa goads IAG and Air France-KLM

But others say it’s just crazy like a fox. The company has argued that the travel industry must accept freedom in distribution. That’s why it is changing its commercial strategy. De-commoditizing flights One plank in Lufthansa’s strategy is to control how its content is presented on metasearch sites like Skyscanner and Kayak. It has recently revised some of its commercial contracts. Margins have airlines selling more ancillaries through agents: Travel Weekly. Travel agents, the airlines' highest-margin distribution channel, are increasingly able to sell more ancillaries, the airlines' highest-margin products.

Margins have airlines selling more ancillaries through agents: Travel Weekly

And now several airlines are flirting with the idea of compensating them for such sales. This is all happening because more airlines are putting their ancillary products into GDSs, making it easier for agents to book them. In 2012, travel agents booked 9 million ancillary services through Amadeus, which currently sells ancillary services such as lounge access and checked bags and sports equipment for 14 airlines, though mostly in markets outside the U.S. The trend is growing rapidly. Ancillary revenue drives JetBlue unit revenue, margin expansion. Merchandising, Airline Merchandising. q3 10 presentation. One simple chart to show why airline merchandising gets so complicated. At the heart of IATA‘s NDC project and the efforts by global distribution systems to evolve alongside the carriers, is a single concept: airline merchandising.

One simple chart to show why airline merchandising gets so complicated

It’s not particularly new, in some respects, it’s just become massively important to airlines in recent years as they look to boost revenues but also differentiate themselves from rival carriers. In addition, technology and the web is allowing carriers and intermediaries (on and offline) to push these ancillary products to both corporate and leisure travellers as part of loyalty programmes or within the booking flow. And, finally, deep integration and breadth of product gives providers more information about their customers – a personalisation opportunity. On the one hand this should all be relatively easy – just a matter of the right technology, understanding how to target customers and pricing, right? Not so fast. Ancillary watch: Breakdown of airline fees show growth opportunities in 2014.

The projected total ancillary revenues posted by global airlines in 2013 highlight growth opportunities for airlines looking to boost those numbers next year.

Ancillary watch: Breakdown of airline fees show growth opportunities in 2014

The numbers include a steady growth over the past few years, as airlines have both unbundled their offerings and increased sophistication when it comes to retailing additional travel products. Airlines have grown their share of revenue from ancillary fees from 4.8% of global revenue (or $474 billion) in 2010 to a 5.4% share of global revenue (or $667 billion) in 2012. Looking towards the final two months of 2013, the total global revenue from ancillary revenues will come in at $708 billion, or a 6% share of total revenues, according to the IdeaWorks Company and CarTrawler report.

Or, in percentages of share: The larger airlines clearly take a larger piece of the pie, given the total flight counts annually. Dynamic bundling of ancillaries could be future of airline sales. Airlines to triple ancillary revenue via travel agency involvement. Travel agents could boost airline ancillary revenue threefold via technology being integrated by the global distribution systems and other airline system suppliers.

Airlines to triple ancillary revenue via travel agency involvement

According to a report, technology called Electronic Miscellaneous Documents is bringing a la carte transactions to the travel agency community via global distribution systems and airline reservation systems. Shocking news: A la carte travel shopping is good for consumers. NB: This is a guest article by Jay Sorensen, president of IdeaWorksCompany.

Shocking news: A la carte travel shopping is good for consumers

Confession: when looking for a suitable title for a new report, I deliberately chose “shocking” to attract attention to the topic. I also added a sub-headline – “the ultimate compliment for the consumer acknowledges their right to choose” – that is difficult to dispute, even in a regulatory environment in which debates rage about ancillary fees. When big changes occur, there is always a tendency to cling to the past.

It would be nice to return to the 1960s when travel was glamorous, huge meal trays were used in economy class, and carriers such as Braniff were doing crazy things with flight attendant fashions. There were a handful of fares in every market and these were likely set by a government regulator. The “all inclusive” price of travel supported all the glamour, food, and fashion. Now, the newfound global access to air travel is threatened by ever-increasing fuel costs. It’s not the right choice for everyone. Revealed: Winners in the battle for airline ancillary revenue. Airlines raked in ancillary revenues of at least $22.6 billion in 2011, says the latest joint study by Amadeus, a global distribution system, and IdeaWorks Company, a research firm.

Revealed: Winners in the battle for airline ancillary revenue

US airlines led the world by generating about 11 percent of their income from ancillary revenue, with United and Spirit collecting the most in dollar volume. The $22.6 billion figure for 2011 only covers ancillary revenue reported in financial filings by about 100 carriers. Amadeus estimates the actual global figure to be higher, at $32.5 billion — nearly triple the amount earned in 2009. The project examined the disclosed financial performance of 108 airlines and the estimate includes revenue from unbundled services, such as baggage fees and food sold onboard aircraft, to new incremental income, such as ommissions from the sale of accommodation and travel insurance, plus partner revenue generated by frequent flier programs.

Airlines are increasingly innovative in their approach to ancillary revenue. N.B. The global all-stars of upselling and cross-selling have tricks to teach the travel industry. Social media touchdowns in airline loyalty. NB: This is a guest article by Bram Hechtkopf, vice president of business development & marketing, Kobie Marketing (This is the second of two articles on loyalty in the travel and airline industries with the first published yesterday).

Social media touchdowns in airline loyalty

Passenger surveys repeatedly confirm what should be obvious: a positive travel experience is the most important aspect of any flight. While often that has come to mean the little things – on-time percentage, zero re-booking fees, increased legroom, free wifi, a positive travel experience is also impacted by the ease of which the end user is engaged in an omni-channel loyalty experience .

All the while, airlines must continue to balance fee-based ancillary revenues and value-add service-based ancillaries.