This article was first published on the World Aviation Festival website on 29 June 2023. It follows other articles published here about the future of airline retailing, like the modernization of distribution.
From selling ancillaries to shaping travel experiences
What will airline ancillaries become in a world of modern airline retailing? How will AI shape the guest experience during the air travel journey?
Since the deregulation of air travel and the creation of the low-cost model, airlines have embarked in the “unbundling” of the services they used to sell. The former “attributes” of the customer experience, included in the airline fare, have become “a-la-carte” services, such as bags, meals, seats or changes. As airline processes and systems did not evolve at the same speed as the commercial practices, airlines added layers on top of their legacy processes and systems to deal with ancillaries and merchandizing.
Fast forward to today, as many airlines have embarked into the transition to digital retailing, where the guest experience is the priority, what may happen to the ancillaries? Are they still an after-thought post booking or are they becoming the heart of dynamic offers?
Five different kinds of “ancillaries”
Let’s review first the different kinds of ancillaries. The most common category is the services, mentioned above, coming from the unbundling of the airline fare. Customers only pay for what they need. The most frequent ancillaries are typically bags, seats, meals. Others include priority boarding, security fast track, lounge access, time to think or wifi on board. They are optional in the sense that customers are able to travel without using any of them.
The next category is the fees, associated to the booking and the payment, some of them are not even optional. For example, booking fees, change fees, or credit card fees, or cancellation fees. These fees represent significant revenue for airlines, besides the ticket fares, although customers may not recognize them as services as in the first category.
A similar category is any airline revenue unrelated to the customer experience. Indeed some airlines report as “ancillary” their cargo revenue or the sale of points to card schemes. The absence of official definition makes it possible for airlines to include any revenue coming from flight operations as “ancillary” revenue.
Airlines have become better at selling services from third-parties. For example, the two parties of the travel experience are the carrier and the traveler, and the third party is the insurance company. All those flight-related services, provided by a third-party, are a category of ancillaries. They include travel insurance, bag insurance, price guarantees, visa services, etc.
Finally, some airlines have outgrown the strict definition of “airline” to sell any travel services and more. The travel-related services, beyond the flight, include hotels, rail, car rental, cruise, tours, events or SIM cards and more. By entering this space, airlines become relevant to travelers, who generally have a broader travel need to fulfil, but also overlap with travel agencies.
All the categories of ancillaries, except cargo revenue, will be impacted by the shift to digital retailing. Customers will find it easier and even seamless to include them in the travel experience.
The challenge of personalizing the guest experience at scale
Indeed the “unbundling” of the travel experience and the creativity of travel providers has led to a certain level of complexity. On the bright side, different type of travelers, from business travelers to families or passengers with reduced mobility, can enjoy a tailored experience. On the dark side, booking all the options across multiple providers is a challenge, which becomes impossible in case of disruption.
Three ingredients make overcoming the challenge more realistic: customer data platform, AI and retailing.
Legacy airlines have managed data in silos, each system processing a set of data and integrating with other system. At the heart of airline commercial system, a transactional record called the PNR. Rethinking the commercial system around a “customer data platform” enables to better channel communications to customers and to better personalize offers to customers. Two benefits that resonate well with airlines’ customers.
Legacy airlines have relied on business rules and constraints to manage their revenue. They had to file a specific fare for each individual combination of options. In a world of AI, the commercial system can learn from the customer preferences and behaviors to recommend the most suitable offer. Digital retailers have pioneered these recommendation techniques for two decades. Airline customers will receive offers that are likely to match their needs.
Legacy airlines have delegated the creation of offers to intermediaries which were provided with schedules, fares and inventories. While it was convenient before internet existed, it did not evolve towards the digital retailing world. With the availability of offers and orders, airlines are now able to create the offers by themselves across all channels.
Combining customer data, AI and offers, airlines can personalize the guest experience at scale, without placing the burden on the customer to manually select every option.
Will dynamic offers handle all the recent innovative use cases?
Despite the restrictions mentioned above, airlines were able to innovate in the ancillary space in the last decade. Will the retailing model, including dynamic offers, support these innovations? Will the new systems, called Offer-Order Management Systems, handle the innovative use cases? Let’s explore a few use cases.
SWISS introduced the “green fare”. It is called “green” because it includes 20% of SAF and 80% of carbon offset. It comes with a lot of unrelated features: more miles collected, hold baggage, e-newspapers, snacks and beverage, and rebooking option. In a retailing world, “green” becomes a sustainability feature (SAF, offset) which can be combined to any other unrelated features.
Alaska Airlines introduced the “Flight Pass”, a subscription starting at $49 monthly giving access to heavy discounts on regional flights. The subscription gives access to the “right to fly” but not to the full experience, the differentiation is the number of flights and the booking window. We can imagine a world of dynamic offers influenced by the subscription levels.
Several airlines propose last minute upgrades, either at a flat rate or via an auction mechanism. While the gaming part of the experience is interesting, the class of travel decision can take place at booking, for budget or status reasons, or at time of travel, for personal reasons maybe. In a modern retailing environment, the upgrade option is available for any order, at a dynamic price.
Other airlines have fare alerts on certain routes or services, as selected by customers. These alerts, or simply notifications, will become recommendations that may enhance the guest experience. A customer may book a flight early on, to secure a seat, and customize the experience closer to departure based on recommendations and “alerts”.
Finally, there is no marketplace today for the secondary sale of tickets, despite obvious benefits for both airlines and travelers. Airlines could benefit from the resale of tickets and customers could avoid losing non-refundable tickets or find a seat on fully booked flights. In a world of offers and orders, the exchangeable “NFTicket” becomes an order with a lifecycle.
The business of memorable experiences
As the paradigm has shifted from fares to offers, will the paradigm of ancillaries evolve too? Should ancillary be limited to non-flight or non-airline products and services, e.g. cargo or miles? Should the focus be on the guest experience and their attributes or options, rather than ancillaries?
While the customer needs evolve, towards digital, sustainability and experiences, and while technology and capabilities evolve in the same direction, the paradigm shift will depend on the airline management’s mindset and vision. Are airlines in the business of transporting goods and people safely? Or are they also in the business of providing memorable experiences, like other service providers in the travel and hospitality industry?
 Gartner on Customer Data Platform: https://www.gartner.com/reviews/market/customer-data-platforms
 SWISS green fare: https://flightpass.alaskaair.com/asa/subscriptions
 Alaska Airlines: https://flightpass.alaskaair.com/asa/subscriptions