Peter R Gerstle - Mega_Event_Worldwide_2015_presentation for distribution
1. Is there any innovation left
in Ancillary Revenue?
Discuss!
Peter R Gerstle, Head of Travel
Collinson Group
Mega Event, 4/5th November 2015, San Diego
2. Innovation in
Ancillary Services is dead!
• My hypothesis: There aren’t any true innovations
left in ancillary services, fees & charges
• Innovation itself is very much alive, just in a
different area of ancillary revenue
• There are a few exceptions – e.g. Spirit
continues to explore the limits. But this
is not for every airline in every market
• There will continue to be service innovation at the
fringes and debate on how far the un-bundling idea
can be pushed:
• Treat fuel as a variable cost in line with spot price of oil
• Consider pricing by total passenger weight – a heated debate
Mega Event, 4/5th November 2015, San Diego
3. • I have a track record of ancillary innovation at easyJet
• Responsible for dinner-party favorites such as checked bag and
special equipment charging, excess weight policy, and of course
Speedy Boarding
• Also introduced easyJet Plus, a membership concept that holds
much potential for airlines’ future ancillary revenue potential
Authority in Ancillary
Mega Event, 4/5th November 2015, San Diego
8. The Differentiation Introduction
Mega Event, 4/5th November 2015, San Diego
vs.
vs.
• Differentiation around service classes, with all-inclusive fares
• No optional services or add-ons, no fees & charges
9. Advent of Low-Cost / Low-Fares
Mega Event, 4/5th November 2015, San Diego
Freddy Laker –
Godfather of Low-Cost Aviation
SWA –
The Original Business Model
10. Today: Golden Age of Ancillary
Mega Event, 4/5th November 2015, San Diego
12. Changes
affecting Ancillary Revenue
1. Consumer tolerance / regulatory framework
1. Loyalty and Brand Devotion are becoming the bedrock of AR generation capability
2. Convergence of flag- and low-cost carriers
1. AR no longer just ‘what LCCs do’ (e.g. BA: upgrade your meal)
3. Changes in Financial Services sector
1. Pressures on interchange rate and tighter regulatory environment result in
1. Diminishing points funding / tipping options
2. Co-brand arrangements to become far less juicy
2. Airlines need to have a long-term strategy to counter revenue and customer loyalty risk
4. Leaner & Meaner FFPs
1. Shift to revenue-based status qualification
2. Tightening up of points earn and burn rules
3. Value erosion of points
5. Technology – the last frontier of AR service innovation
1. Glimmer of hope: On-board connectivity opens up a new range of possibilities
Mega Event, 4/5th November 2015, San Diego
13. The source of true innovation:
Selling Ancillaries
“It’s not what you sell, it’s how you sell it”
1. Yield management
2. Fare brands
3. Impact of NDC
4. Memberships/Subscriptions
5. Extending the engagement
Mega Event, 4/5th November 2015, San Diego
14. 1. Yield Management
2. Fare Brands
Yield management:
1. Rigorous application of economic principles
1. Extend existing fare yield mgmt. practices to airline ancillaries
2. Drive and reward early revenue commitment
2. Rational reflection of value for constrained supply
1. But: consider consumer irrationality backlash (‘seat next to me’ argument)
3. Ever considered yield-managing your FFP currency?
Fare Brands (aka: plus qu’ ça change…)
1. Re-bundling of services
1. Essentially, a re-introduction of class-based services, but not around cabin
alone
2. Tool for behavioral psychology in selling
1. Well-proven up-sell strategies
2. Simplification of sometimes dizzying list of ancillary services
Mega Event, 4/5th November 2015, San Diego
15. 3. NDC (New Distribution Capability standard)
1. OTAs and airline.com sites have raised the bar
1. GDS distribution channel left behind in terms of retailing
capability, esp. ancillaries and service differentiation
2. IATA’s NDC is just the logical consequence
1. Enriching an important distribution channel
2. Specifically designed to improve ancillary and service retailing
3. Airline = Retailers ?
1. Visible, but gradual improvements in adoption of FMCG retail
skills
2. Still many optimization opportunities for most airlines globally
Mega Event, 4/5th November 2015, San Diego
16. 4. Memberships / Subscriptions
1. Free vs. paid?
1. Question of content and strategy
2. Learn from other sectors: Hotels; Car rental; Retail
2. The “Paid-for Loyalty” concept
1. Lock-in principle anchored in consumer economics, yet few airlines have yet
considered, let alone implemented such a concept
2. Proven success for those who have…. So? Introduce it to your business!
3. Memberships & FFPs – coexistence or contradiction?
1. No single answer for all airlines – requires careful strategic consideration and
program design / rules development
2. Paid memberships can live inside an earn-based status FFP:
1. Generates a revenue stream from lower-engagement tiers
2. Motivates consideration bias in competitive markets
3. Option: Allow accelerated points earning but not status (cf. Scoot and SIA)
4. Earn revenue even when not travelling with you
1. The headroom view: Few passengers only ever travel with one airline only
Mega Event, 4/5th November 2015, San Diego
20. √(ε+σ)n
Mega Event, 4/5th November 2015, San Diego
(BrEq × km2) + AR2
L(pax) =
The Engagement Equation
NB: Meaningless formula!
I want to highlight how customer engagement and success in ancillary
revenue are strongly linked:
“Customer Loyalty = relative Brand Equity * Reach +
AR generation capacity divided by earn and redemption
options”
21. 5. Extending the Engagement
1. Landscape of FFPs is changing
1. Qualification rules and earning basis
2. Co-brand relationships
3. Points value erosion
4. Balance sheet accounting exposure
2. Extending the presence beyond own brand
1. Extending and deepening brand reach
2. Create engagement points in wider travel and in retail space
3. Relevant and more context-aware communication
3. Extending the digital market place
1. Clicks and Bricks: Extend the successful online model to high street shopping
2. Seamless customer experience across all channels and modes
4. Re-definition of partnerships
1. Funding: turn to merchants / retail partnerships to reduce dependency on
financial services
2. Communications: Super-brand coalitions / multi-brand engagement
Mega Event, 4/5th November 2015, San Diego
25. Conclusion
1. The leading source of innovation in Ancillary
Revenue is how you sell
2. Drive revenue and engagement through innovative
memberships and subscription models
3. Extend your customer engagement beyond
traditional loyalty models
4. Develop your strategy with a partner with
experience in Loyalty and Ancillary Revenue
Find out more!
peter.gerstle@collinsongroup.com
+44 7743 40 16 13
Mega Event, 4/5th November 2015, San Diego
