Last week, thought leaders across the Farelogix organization shared their ideas and predictions on the future of airline commerce. In the final chapter of this series, Mark McDonald and Manish Nagpal share their opinions in advance of the Turbo Charge Your Revenue Workshop, taking place in Singapore on the 17th February 2020. For more information about this event, click here.
2020 Vision: Airline Merchandising in Asia Pacific by Mark McDonald, Director Asia Pacific
In my 2019 paper – Are Asia’s Flag Carriers really behind the curve in airline retailing? – I predicted that Asian full-service carriers (FSCs) would make bold moves by adding value to existing offers, creating new revenue streams through ancillary sales, and expanding their distribution portfolios using IATA’s New Distribution Capability (NDC). The focus across the region is now on strategy and implementation, driven by the growing list of retailing transformation success stories from airlines in North America and Europe, and the leadership from some airlines in the Asia Pacific region, such as Qantas.
The question is no longer why airlines should implement dynamic offers (including advanced merchandising of ancillary products and dynamic airfare pricing) and NDC, it is what strategy and roadmap makes sense for each airline. The reason for this is that on top of ever-present regional and global economic challenges, cost-cutting is becoming more difficult. According to a leading Credit Suisse industry analyst, inflation remains persistent, and a declining return on capital means airlines need to look elsewhere for strategies to drive profitability. This imperative is as relevant for Asia as any other region. A structurally improved pricing model and a more extensive range of ancillary products to sell can counter profit challenges, with incremental revenues going directly to the bottom line.
The commercial benefits of Airline Retailing Transformation are estimated at around $7/passenger (source: McKinsey & Company). Given the wafer-thin margins that airlines run on, this is a significant opportunity not to be missed. From Farelogix experience, there are four pillars of an airline business case for retailing transformation.
1. Increased revenue through advanced merchandising of ancillary products
2. Optimized revenue through dynamic pricing (of airfares)
3. Competitive advantage
4. Maximizing distribution efficiency
In 2020, airlines in the Asia Pacific region will start to take advantage of this opportunity by implementing dynamic offers and NDC.
Advanced Merchandising of Ancillary Products
For some time, many FSCs in the region have had conservative ancillary strategies that reflect their five-star propositions. In 2020, many will start to bolster their revenue streams with ancillary products they haven’t sold before.
⦁ Selling extra legroom seats - offering preferred seating
⦁ Selling fare families that include ancillary services - offering personalized bundles
⦁ Selling static products such as excess baggage - dynamically priced ancillaries.
At the IATA Air Retailing Symposium in Bangkok last October, the penny dropped as the industry reached consensus on why airlines should move from current outdated static airfare pricing to a world of dynamic offers. In 2020, airlines in the region will take their first steps on this journey, and success stories will emerge. To learn more about dynamic offers, read Manish Nagpal’s article below.
New Distribution Capability
As of writing, only five Asia Pacific (excluding mainland China) FSCs have NDC implementations underway. In 2020, this will likely double as the region’s airlines gain the required knowledge and stakeholder buy in. The drivers for this are as follows:
- Airline control over their distribution strategy and who they distribute to
- The ability to quickly expand an airline’s distribution portfolio with exciting new players such as Duffel, Kyte, and others coming into the market
- Revenue potential of ancillary offers in the indirect channel.
As I posited in 2019, airline retailing is not lagging in the region; it’s already ahead. Airlines in the region are on the cusp of creating value-added ancillary services that customers want, that add to their superior brand propositions, and that contribute to their bottom line. To realize this vision, airlines in the region know that they must support new ancillary services within current technical and operational constraints by leveraging the latest technology. Many initiatives are underway, and 2020 will be the year rubber hits the road.
🛩️Mark McDonald and Manish Nagpal will host the Turbo-Charge Your Revenue - Dynamic Offers Workshop in Singapore on the 17th of February. For more information, click here.
Dynamic Offer Maturity by Manish Nagpal, VP Global Sales Engineering
A maturity model outlines evolutionary stages of capability. The further you are along a path, the more ‘mature’ you are. The dynamic offer maturity model has found a foothold in industry zeitgeist, driven by the certainty that dynamic offers are the future of airline commerce. ATPCO, IATA, and Farelogix each have introduced their perspectives on dynamic offer maturity. Our own Path to Dynamic Offers maturity model plots a journey from static flights and ancillaries to a stage where the offer as we know it is wholly transformed. The Farelogix maturity model takes Dynamic offers from concept to reality by defining specific use cases for each step in the journey.
We define the phases as:
- Classic: Customers can buy static fares and chose to add ancillary items in an ‘à la carte’ fashion.
- Enriched: Ambitious airline executives use rich media and ingenious workarounds (such as multiple fare filing) to make the offer more flexible.
- Adaptive: Data insights act on retailing rules to produce customized offers in real-time.
- Advanced: Early adopters experiment with non-traditional offer creation and bring recommendations into the fold.
- Transformed: Innovators create and price all offers from scratch with data science for precise delivery of the desired traveler experience achieving total offer optimization.
Airlines come to Farelogix eager to progress along their journey, and most begin their relationship with us in the Enriched or Adaptive phase. We are also fortunate to be working with airlines who are leading the Advanced phase by implementing and experimenting with dynamic offer creation without fare filling. For example, Lufthansa is doing continuous pricing by creating several new price points between filed fares. United has delivered dynamic corporate bundles, and another airline is experimenting with dynamically changing fares based on competitive data.
Such endeavors are not only aimed at injecting a significant amount of flexibility into their pricing strategy but are also about simplifying the airline business. They allow airlines to be customer-centric, and offer relevant products at optimal price points for greater conversion and customer retention.
Last year, several airlines took the first steps towards a more customized offer and are now on the road to unlocking value from dynamic offers. In 2020, we expect to see more airlines starting to rethink how they will meet their business objectives, and considerably more activity and experimentation in the Advanced phase of the Farelogix Path to Dynamic Offers maturity model.
👓For further insights, look out for the Farelogix Path to Dynamic Offers maturity model paper, which will be published in the coming weeks.
Interested in exploring these topics and more? Join us at Turbo-Charge Your Revenue - Dynamic Offers Workshop. Taking place on February 17 in Singapore, this workshop is a complimentary event for airline representatives seeking to grow their airline's revenue and make customers happy with Dynamic Offers. To sign up for Turbo-Charge Your Revenue - Dynamic Offers Workshop click here or on the button below: