I recently accepted an invitation to do an opening keynote presentation at the upcoming Airline Sales Channel and A-La-Carte Pricing conference in Miami in May. I’ve got 30 minutes on the following topic: “Optimizing product selection, offer delivery and timing in order to maximize ancillary revenue.” This is a topic that parallels very nicely with my current role, as I am now working with a small number of airlines on significantly growing their ancillary revenues. And not just using Amadeus content, but boosting their sales with whichever third party suppliers they have existing contracts with. So the Miami conference presentation will be building on the themes I spoke about in Budapest last November supplemented with extra data from customers that have made changes since then and are happy to have this data publicised. My objective is to leave the airlines in attendance with some thought provoking takeaways that can be implemented by both small and large carriers to increase revenue.
Some people draw a clearer line between a la carte pricing and ancillary revenue – as I understand it, the former being directly related to the flown segment, the latter being non segment associated. But take the example of AirTran from last week when talking about PRASM vs RASM and the need to pay more attention to the RASM number going forward due to the growth in ancillary revenue from various sources.
you have to look at the total RASM because again our ancillary revenues are growing significantly. I think you could see that in the quarter. They were up more than 20% and capacity down approximately 8%. So we’re going to get a nice boost on the – from the ancillary of several points.
But clearly, Kevin Healy – AirTran SVP, Marketing & Planning sees a large part fo their ancillary revenue growth coming from new checked lugggage fees.
“Bag charges is the biggest certainly. “We started the second bag fee last summer and introduced first bag fee for travel affecting in December. You didn’t really see the full number there, but that will be the biggest driver in 2009.”
He then went on to talk about the difficulty forecasting revenue from checked baggage fees as the limited data in the public domain varies widely between airlines. This is another area where I am hoping to give some clarity during the Miami conference, but it can be difficult to obtain reliable numbers on this as different airlines account for this charge in different ways.
There is no doubt that comparing cross border airline performance in ancillary revenue generation is difficult. Accounting standards vary by jurisdiction, and one point of confusion comes from what ancillary revenue goes into PRASM/PRASK (M or K, depending on whether you talk in miles or kilometres) and what doesn’t; even what is referred to as ancillary in the notes to the accounts, which can be even more confusing than the RASK – PRASK divide. Hotel commissions clearly are in, but then what about advertising revenue received from a hotel chain for prominent placeement. And if yes, what about other advertising revenue such as painting the entire plane - at this point it getting very hard to justify this as ancillary revenue, at least in the way those working in this field use the term. My understanding is that normally chargeable excess leg room and checked baggage will go into PRASK, but hotel and rental car commissions will not. But they are all ancillary revenue. Even more importantly to me personally, they can all be improved with better targetting of the customer at the point at which they are most likely to buy, and in a manner designed to maximize sales of each and every ancillary service. Forget the accounting definintions, at the end of the day we are all interested in getting for airlines whatever extra revenue we can find.
If you are coming to the Airline Sales Channel conference in May and are a regular reader of this blog, please let me know ahead of time so we can plan a time to meet (please use the contact form). The organizers mentioned to me last week some of the registered airlines so far which sounded very promising, and if it is anything like the one they did in Budapest, a good mix of airlines and vendors should be expected. Finally, Miami must be a popular place for airline conferences, as I see SabreSonic are also doing something there soon, but my chances of getting invited to that one would have to be zero at best!