There is a lot of buzz on ancillary services and every travel and hospitality entity today is trying to innovate and maximize the ancillary revenue to at least 30% of their total revenue. This reminds me of an interesting situation I faced during the implementation of a hotel booking engine for a leading hotel property in Vegas.
It was my first visit to Vegas. We landed on a Saturday and did not want to be inside the hotel room the whole day. We were in LAS VEGAS!!! We wanted to explore The Strip to the last bit, and we did do that. But as we were returning to our room, we heard a sudden screech of an old Toyota car coming to a halt near us and a woman in a black suit came out with a gun. She asked for my wallet, but in an instinctive reaction (and I have no idea where the courage came from!!!) I shoved her into the car and shouted to my colleague that we run for our lives. Fortunately, we ran out of danger and never ventured out of our hotel room after that, even the next day, which was a Sunday. Barring the above incident, every visit to Vegas has been memorable for me. It has nice places to visit, from The Strip to the Hoover Dam, and the majestic Grand Canyon. In the middle of the desert, just 40 miles from Vegas, there is one of the best ski resort destination in Mt. Charleston.
Going back to the hotel booking engine implementation, the Marketing Director of the property wanted to replace the existing online booking engine with a customized engine. His objective was to improve the revenue in ancillary services. He wanted to sell hotel rooms right along with other services of the hotel such as spa, golf and gift cards. To this requirement list, he added third party services such as flight, car and vacation packages. They were using Opera as their PMS solution and entering rates manually in their existing booking engine. Therefore, there was a duplication of effort. He wanted to improve the look to book ratio, improve revenue by adding ancillary services as well as reduce costs by connecting real time to the PMS solution.
We had a detailed requirement phase for the booking engine development. During the requirement phase, we interacted with stakeholders from various departments, which included the Finance Director. She opened up the discussion on fulfillment. The person in-charge of the project, the Marketing Director did not envision that fulfillment could be an obstacle in selling ancillary services. On the other hand, the Finance Director wanted an ROI study to be done on whether it is worthwhile to sell flight and car packages apart from the core business services of the hotel. Therefore, the selling of ancillary services was parked for the study to be completed. Many leading industry players have already started or are on the verge of selling additional services as up-sell or cross-sell to their core business services.
Selling ancillary services needs a careful evaluation of operations as well as of the technology. More and more entities are outsourcing these services to third party providers rather than handling it themselves. Airlines have broadened their range of services and products available for purchase from on-demand movies to wireless connectivity. Distribution and technology limitations slowed the pace of airline ancillary selling for full service carriers. However, low cost carriers (LCC) started investing in their own technology solutions and since they are not covered under standard distribution agreements, went ahead selling these services with various options. Passengers are given the choice to select the seats according to their convenience, and pay extra price for priority boarding and many other services. LCCs could unbundle the prices to the requirement of the market. Fulfillment is an issue for providing airline ancillary services and gets complicated when flights are cancelled. The success of selling these services depends on how effectively airlines can handle such ad hoc situations. Ancillary services can be divided into,
1. La carte Ancillary Services (charges for exit row seats, priority boarding, in-flight services, etc.)
2. Third Party Services (car hire, hotels, frequent flier programs, etc.)
Airline Ancillary Revenue – Percentage of Total Revenue
Ancillary Revenues Airline Conference 2009 forecasted that airline ancillary revenues are likely to account for 35% of total airline revenues in the future. Another data illustrates the percentage of ancillary revenue in LCCs against their total revenue as below:
The important considerations for an entity to start selling ancillary services are:
From Operations View
- Identification of cross-selling and up-selling services
- De-bundling of prices- Ã la carte pricing
- Department readiness, including call center to finance department
- Fulfillment possibilities and ROI
From Systems View
- Application impact
- Prioritization of requirements
- Evaluation of various options
All the GDSs have products catering to ancillary services. One of the interesting reads was the press release from one of the airline ancillary revenue champions – Ryanair (Source: Ryanair website)
Ryanair launched a Europe wide competition inviting passengers to suggest the airline’s next ancillary revenue idea through their website to be in with a chance of winning a €1,000 cash prize.
At the launch, Ryanair’s Stephen McNamara said;
“Ryanair is Europe’s largest low fare airline, and we plan to continue to reduce costs and fares by stimulating ancillary revenues. We have always provided passengers with a choice, if you don’t want to pay for food – don’t buy it, if you don’t want to pay checked in bag charges – don’t bring checked in bags, if you don’t want to pay handling charges – then just use Visa Electron entirely free of charge.
Since we confirmed that we are considering a toilet charge we have received a huge number of ancillary revenue suggestions from passengers, and we want more. We are asking passengers to submit their ideas with the most creative winning €1,000 cash. Some of the best suggests to date are:
- Charging for toilet paper – with O’Leary’s face on it,
- Charging €2.50 to read the safety cards,
- Charging €1 to use oxygen masks,
- Charging €25 to use the emergency exit,
- Charging €50 for bikini clad Cabin Crew.
Passengers can submit their ideas by email to email@example.com. To enter their idea before 30th March 2009.The winning idea will be chosen by Ryanair, and our decision will be final.”
Ancillary services are changing the travel and hospitality business landscape. Airlines have started to sell hotel and car services; hotels are selling flight and car services. So the question is – will there be only one business model?