Shearwater Blog

The other day Eye for Travel interviewed Sabre Vice President and General Manager – Asia Pacific, Hans Belle. Somep parts of it read a bit too much like it was written by the PR department or lifted from a brochure, but there are also some interesting comments.

Hans Belle: “A company like Sabre, which has a consulting practice in this space, acknowledges that it is critical to understand “how do we help the traveller assess the marketplace and find the right travel product for themselves when shopping”

Is that a Sabre consulting practice helping airlines maximize ancillary revenue. Seeing as I’ve got people doing the same thing with a number of airlines but only charging for the IT component and not for the consulting, it makes me wonder if I am giving something away that should be charged for. An interesting thought to ponder.

Sabre launched an industry first with Sabre Pay-For-Seats capability, which allows travellers to select premium seating for an additional fee. Sabre launched this capability with Midwest Airlines and is currently working with United Airlines on a similar capability.

I’ve got to give credit to Sabre here, as I know one airline that was close to a related Sabre product who despite complaining about all GDS companies on various occassions seemed quite happy with Sabre on this point.

Eye For Travel: With airline websites garnering millions of unique visits on a monthly basis and sizable opt-in e-mail subscribers, in your opinion to what extent airlines are ready to expand their product basket as suppliers try extracting the “overall value” of the guest?

Hans Belle: Far too often, airlines have difficulty in assessing the overall value of the guest. Without that, it is really just window-dressing. In fact, a core attribute of SabreSonic Customer Sales and Service (CSS) is meant to address this very issue. Taking a customer-centric view of a sales opportunity, combining that with insight into the airline’s revenue, then determining what offers are appropriate to that customer given supply/demand issues, as well as that customer’s personal needs is the harbinger of why we’re seeing success with SabreSonic CSS.

I’m not sure he is really answering the question on this one, as I doubt any airline customer of theirs has so far implemented customer value in the CSS (probably related to price paid on a single flight or frequent flier tier and used for reaccommodation purposes) to sync with customer value in a loyalty system, airline communities, proprietary social networks, an opt in email database or any of the newer ways of pushing information to passengers such as widgets, gadgets, Twitter or RSS. That said, I doubt any airline has, but I’d love to be proven wrong if there is an airline that has an integrated approach to true customer value, and is using it to sell in a more targetted way. The question from Eye For Travel is a very good one, but the answer is straight from the brochure. And what are the supply/demand issues referred to – does that simply mean you can’t  sell more exit row seats at a premium if the prior demand for that product has exceeded the supply? No doubt about it though, airlines love this talk from suppliers, as I’ve heard about one recent Datalex pitch to an airline for their internet booking engine where they really pumped up the ancillary revenue credentials of their product, and it’s ability to link with other databases and to help sell other products/services the airline was offering to passengers. Last I heard they didn’t end up winning that deal, but it certainly shook things up.  And no doubt this talk from SabreSonic has resulted in some good successes recently with wins on JetBlue and WestJet.

Eye for Travel: What do you recommend when it comes to signing partnership deals?

Hans Belle: Working relationship, track record, depth of content, quality of content (e.g., do they offer competitive prices), strength of service – to both the airline and the end-consumer are all important. Still, the thing which most often breaks partnership is discontinuity among the partners on what defines success. Accordingly, often, the most important aspect is goal alignment between the partners.

I once engaged in an email exchange with a supplier of airline white label hotel websites who was lamenting the fact that the deals signed with airlines were not very profitable as all. Their view was that all the airlines cared about was playing off one supplier against the next to sign a contract with the highest rate of commission, and that once the contract was signed the airlines always wanted more development on the platform but weren’t prepared to pay for it. I’ve got one customer who definintely takes an approach closer to what Hans is describing, but when it comes to ancillary revenue partnerships, I’d say it was the exception rather than the rule.

Good to see that airlines aren’t the only ones having trouble getting the basics of email marketing correct. A study looking at 41 UK retailers put Marks & Spencer and H Samuel at the top of the list, but Somerfield and H&M were left sharing the wooden spoon. Some valid criticism was made of many of the companies in their study, for example:

• Failing to use a personal greeting on emails, despite getting recipients’ names when they signed up
• No clear call to action, or not placed in a prominenet position above the fold
• Complex unsubscribe process, or no middle ground with unsubscibe requests (all or nothing approach)

I heard of one job currently open: working for Oprah as her email marketing analyst based in Los Angeles; looks like she is one person who recognizes the importance of getting this right. The applicant needs to possess  ”Strong quantitative skills and analytical abilities” which is my way of leading into a great quote I read last weekend whilst perusing the McKinsey Quarterly. It comes from Hal Varian, Chief Economist at Google

“I keep saying the sexy job in the next ten years will be statisticians. People think I’m joking, but who would’ve guessed that computer engineers would’ve been the sexy job of the 1990s?”

Maybe combine that with my post from yesterday about there being a great future in airlines for good revenue management people who can model and implement variable pricing for a la carte airline services and it all leads to the tenth bullet point in PhoCusWright’s top 10 travel technology trends for 2009 released yesterday: Business intelligence and analytics move to the forefront. Enough said.

It’s not often that I hear the phrases Ancillary Revenue and Revenue Management used in the same conversation, so it was interesting at first to see the term ancillary revenue used in the short announcement yesterday on JetBlue Airways appointing the former Amercian Airlines and more recently United Airlines executive Dennis Corrigan to serve as vice president of revenue management. But reading a little further the reference to ancillary revenue is more related to the former head of revenue management, Richard Zeni, moving to manage JetBlue’s migration from Navitaire to SabreSonic, in part to ”expand ancillary revenue opportunities and enable other selling opportunities largely not allowed through Navitaire.” That last phrase could warrant a blog post in itself, but my focus today is really on whether people working in Airline Revenue Management should be conscious of ancillary revenue, or whether their job is just to maximize ticket revenue? Take a look at below at two opposing points of view: 

Firstly, US Airways President, Scott Kirby from a Q4 2008 earnings call held on January 29, 2009. Text is from Seeking Alpha. 

William Green – Morgan Stanley

How do you think about then the tradeoff between load and ancillary? Is there a metric that you try to watch or, obviously you don’t want to give away too much fare to get people on to pay ancillary, but to some extent if ancillary were stickier than maybe there is something to that?

Scott Kirby
We don’t think about it as a tradeoff. We try to maximize passenger revenue and ancillary revenue comes in as it comes in, but we’re defiantly trying to just maximize passenger revenue. In this environment right now with the pricing as is, that means we’re running higher load factors which we do get some benefit on the ancillary side. But left to our own devices, we would have a firmer pricing environment and slightly lower load factors and higher yields.

And secondly, Ponder Harrison – Managing Director Marketing & Sales at Allegiant in October 2008:

This is our second consecutive quarter of 90% or better load factor production. When compared against all US domestic reporting carriers, Allegiant has been number one in load factor for all three quarters in 2008. When each passenger is worth over $30 in ancillary we’re obviously heavily incented to fill the aircraft.

And more from Allegiant.

Jim Parker – Raymond James

And you’re suggesting that the ancillary, that there’s no softness there.

Ponder Harrison

You know to date we’ve not seen it. I guess we’ve had a sequential increase every quarter. Certainly this quarter on a sequential basis was perhaps not as high on an absolute level as we’ve seen on a per passenger basis going back historically but we did increase convenience charges on January 1st. We have also begun to probably more aggressively revenue manage both our web and our airport bag activities. We continue to make very good gains with the assigned seat program, what we call our premium-seating program.

I am convinced that with ancillary revenue becoming more and more important for airlines, that revenue management departments ignoring this will do so at their own peril. Not only does an airline need to look at the seat revenue when looking at ideal load factors; in future, the raft of a la carte fees should not be considered fixed, but should be revenue managed in a similar way that airline seats are today. On one hand this is good news for people working in Revenue Management as it means their importance to the airline could be even greater in future, but on the other hand, it could indicate a changing of the guard if existing people in this role are too slow to understand the new airline pricing environment.

Take a look at this quote from the Chairman of China Eastern Airlines, Liu Shaoyong.

“If we can’t get creative with information technology, we will always be at the mercy of domestic e-travel websites”

Recently in my post titled “The Future of Airline PR” I hypothesized about the payoff for an airline from having a reputation for innovation in their direct sales channel, but I don’t have any hard proof to back up this assertion. 

Opponents would claim that they’ve never seen Ryanair win any prizes for a good website UI, but people still flock there – I suppose this isn’t too different to the Chinese $2 stores where you have to walk over boxes just to get down the aisle, or where stock is piled up the roof based upon the discount retailers mantra of “stack ‘em high and watch ‘em buy” - what they lack in best practice merchandising, they more than make up for with a reputation for extremely cheap prices, and the customers do indeed buy, buy, buy. But for the rest of us, I prefer the opposing shopkeepers mantra of “retail is detail.” This is a much more appropriate basis upon which to run anything other than the lowest of low cost airline websites.

But the question remains, has anyone seen a study or know of any numbers to back up my view that the positive spinoff for establishing a reputation for online innovation and best practice user experience is much greater than could be shown in a standard business case. I was speaking to the head of e-commerce for a small airline around 8 – 10 weeks ago and he was telling me how his competitors on most routes were two large airlines. In his opinion, the biggest weakness he faced was that they both had website budgets he couldn’t match and consumers in that market had been “educated” or become used to, a level of website sophitication that he was never going to be able to compete with. The inference was that consumers on most of his routes associated a cutting edge website with a better quality airline, and that if he couldn’t match the online functionality of his two competitors then consumers were less likely to even look at the fares on his website. This is very anecdotal evidence and I’d never infer a general trend based upon a sample size of one, but it is an interesting thought nonetheless.

If anyone has seen research or has personally studied the positive spinoff from a reputation for innovation into an increased likehood to search and buy online, especially if it is from an airline environment, I would very much love to see it.

Yesterday I uploaded part 1 of this two part post. If you are coming to this page directly from a search engine, please read part 1 first, especially as it contains links to the stories on other websites that prompted me to write on this topic.

Today most airlines have a strong preference for refunding money spent on a buying a ticket in the form of a voucher rathar than cash. But any electronic form of voucher must surely be much more efficient than a paper based process. Yesterday I linked to a story on a 10 page paper voucher mailed to a passenger. Today I’m outlining an alternate electronic process. Note that whilst I am referring to refunds below, a similar logic applies to electronic gift vouchers which have been available from Qantas since Q3 2008.

In the not too distant future many airlines will be using electronic miscellaneous document servers fully integrated into the revenue accounting process to eliminate a lot of paper in the back office; but some airlines aren’t waiting for this and have already implemented creative ways of achieving a similar level of efficiency. For example, by using Airline Robotics (disclosure: my product) to automatically process the refund, deduct the original cancellation fee, enter a fake segment, extend the life of the PNR beyond 330 days and then cancel it after 365 days you get an e-Voucher containing the residual stored value that is much more efficient than the old paper based way of doing this.   

By using a fake segment, the airline can then get an SSR frequent traveller linked to this segment and Amadeus is able to retrieve all PNRs for a given frequent flier so the website can then display an exhaustive list of all upcoming flights AND unused vouchers for that particular traveller. This is shown on the Manage My Booking page in the servicing flow of the website. Naturally as the PNR contains the passenger name, the voucher cannot be transferred to another person.

There are a few other advantages of this approach, apart from the obvious benefit that it is already in production today. Firstly, it can be based originally on a domestic one way combinable fare, but then redeemed on a international journey using an itinerary filed fare. This is harder than it sounds, as some other electronic refund or ticket exchanging products are currently unable to do this. Secondly, it is fully integrated into the accounting processes as it is based on the PNR – this is one thing that many companies trying to sell ancillary revenue generating products to airlines underestimate the importance of; if your product requires a change to accounting systems and processes within an airline it will rarely get past first base. Thirdly, and not really an amazing thing for Amadeus but definintely a benefit to the airline - the credit shell can be reused multiple times without having to pay a new PNR creation fee!  

As you can see, innovation is not just about what is easily visisble to any shopper on an airline website. Some of the really interesting innovation is happening in automating back office processes in the airline direct sales channel. Despite the significant cost savings to be had, I’m not holding my breath waiting for trophies like my fortunate colleagues running both the internet booking engine and the custom user interface layer for the websites seem to win all to often. But life could be a lot worse.

Back in January when making my predictions for 2009 I wrote about excess costs within an airline back office, and at the time said:

“There are very few airlines today really going after these costs aggressively, but in coming months I hope to write about a few of those that are.”

In recent days I’ve seen two different stories that have given me reason to want to discuss efficiency at Qantas (QF); even more so after seeing an unnamed  ”analyst” use the following quote about Qantas in the Financial Times recently.

“Qantas still has legacy issues from the period when it was a government owned airline, including layers of management and work practices,”

No-one is perfect, but I meet with a lot of airlines, and Qantas are certainly much closer to the top of the list than the bottom when it comes to well managed and efficient airlines. But that quote above is too general to justify a post, so what were the two articles I am referring to? Firstly, I saw an article in the Dallas Morning News advising passengers that because fares to Europe had dropped so much it could be worthwhile to cancel their original booking, accept the cancellation fees, get a refund voucher, buy exactly the same itinerary at a now cheaper price, and then pocket the difference (albeit in a voucher rather than cash).  But the really compelling story on vouchers can be found on Brett Snyder’s blog called Cranky Flier. That post is a must read, if only for the way he has gone and taken a photo of every sheet in the 10 page booklet he was mailed, half of which was printed on expensive card stock; and all for the paltry voucher sum on United of $32.40.

As it is Easter and most people are winding down for a break, I’ll split this post into two halves. Please take some time to read the other articles that I’ve linked to above, and then my next post will be about what I consider to be current best practice in the generation and redemption of airline stored credit vouchers.

Part 2

Today is my 50th post on this blog, so it was gratifying yesterday to see a few new things.

1. Two linkbacks to my post on seat-back advertising (here and here)
2. Record day for number of visitors to the site (growing almost every day for the past two weeks)
3. New subscribers joining via RSS and email
4. Being contacted by someone from  Zócalo Group.

Well the last point I’ll call more intriguing than gratifying, but it gave me first hand experience at cutting edge public relations. Just last week I sent an article on the future of PR titled “Matt Cutts Is Representative Of Next Generation PR” to the woman responsible for PR at Amadeus, as it really got me thinking about how technology companies get their message out in the most credible way. If you work for an IT company, especially in PR, and don’t know who Matt Cutts is, then you’ve been living under a rock for the past few years.

I’d never heard of Zócalo Group before yesterday, but then I received an email via the contact form on this blog. Here is an excerpt:

“Hi Martin,

I work on the Orbitz team–I know you focus on airline direct sales, but I still wanted to update you on some recent news, based on your previous posts regarding OTA’s. Orbitz has just eliminated booking fees in addition to their Price Assurance offerings.”

This is impressive for a number of reasons:

1. Looks like they have actually been monitoring the blog content, and more to the point, they understood it
2. An email address and name of the sender (I assume a real person) was supplied to me
3. There is no attemp to hide it as a comment on the site pretending to be an ordinary consumer  

It looks like a labour intensive business, but it is an interesting way to try and generate some buzz, especially when most of the thunder on this topic had already been taken by Expedia, Travelocity and Priceline. What does this say for airlines trying to generate buzz for their own website to attract customers away from the OTA’s (I’ve bitten the bullet and fallen in with everyone else, as until recently I was using the term OLTA’s)? I see PhoCusWright are planning to do a study on passenger disloyalty and influencing the undecided, but apart from making the frequent flyer program more attractive, the two good ways I can think of to generate buzz for the airline website are cheap fare promotions, and good functionality. Cheap fare promotions cost a lot to run, especially if they become a regular event, but establishing some buzz around functionality with things like innovative features and ease of use should be a goal for every marketer of an airline website. I find it fascinating when I talk to be people outside of the industry and they tell me their views on different airline’s websites, and so much of what I am told is factually incorrect. But that is the problem with perception (especially of a complex or multi stage process), it is frequently based on one or more incorrect assumptions. Like the person who told me they didn’t like the Iberia.com website because it wasn’t available in English. Absolute garbage, but the person telling me didn’t think so. 

Many years ago (maybe 1998) I was sitting behind the one way glass watching a focus group give their opinions on the 10 cans of beer on the table in front of them. One of the brands I was engaged by was represented in the 10. One man said he didn’t like it because it is a low alcohol beer, and then everyone else around the table starts agreeing with him. I’m sitting behind the glass wanting to jump out of my seat, walk into the room and correct them all as it was a full strength beer, but that is a good example of how perceptions based upon an incorrect assumption are spread.

I’ve mentioned the Delta blog before and the way they have used this to get the message out about innovation on the website. Southwest have used their blog to get out news about the website, and I’ve previously discussed Iberia promoting their new booking flow. But I’ve got a feeling airlines have a lot to learn from the Orbitz’s of the world. Even if the labour intensive social media PR I saw yesterday is expensive to conduct, it is probably cheaper that having to run continually cheaper and cheaper airfare sales in order to generate buzz for the website. It won’t exist in isolation, but a social media marketing and PR strategy is at least something that an airline needs to have considered before just falling back on the old ways of getting the message out to the general public.   

Finally, in recognition of Orbitz being the first to expose me to some new PR (second cab off the rank is likely to be ignored), and as a contrast to Tim Hughes who was writing recently about Qantas’ investment of AUD$10 million in their customer service centre, take a look at what they call the “Orbitz Traveler Wellness Center.” It even deals with a topic I’ve posted on before which I titled “Pricedrop Protection and are any Airlines Planning this?”   

What is the world coming to? Travel industry PR passing themselves off as genuine opinion, journalists regurgitating press releases and passing them off as news. But with the increased pressure for rapid filing of shorter stories, I understand why the latter is happening more often. So in that fine tradition, here is a quote lifted directly from a recent press release from a company called Jetera:

JETERA is proud to announce the effective completion of the production software for its industry-leading targeted advertising engine. This engine performs the core functionality for the in-flight entertainment (IFE) targeted advertising solution. It provides digital, multimedia ads personalized to each individual passenger at their interactive seatback screen. In particular, the core engine includes an ad delivery system, an ad targeting system, associated logic with a software configurable, business rules system and robust logging routines for metrics and analysis. As a result, JETERA will deliver ads that are timely, relevant and actionable to each passenger, based on when, where and how they are traveling.

It got me thinking of  a question I was asked on the weekend, and then again yesterday; and that was, given my interest in new technology did that mean I was using Twitter. I’m not using Twitter, and for a totally different reason I also question whether it is a great idea to serve up individual advertisements on screens in a plane. Sophisticated ad serving on the internet is great as you are generally surfing the web in private, but do I really want the person sitting next to me on the plane trying to infer as much personal information about me as possible by the types of ads I am served versus what they are seeing on their screen. Readers of this blog will know that I am a privacy pragmatist, so revealing personal data is not such a concern, but what is a concern is when other people can see this, or at least infer this. I don’t see a great future for using the seat-back screen as a source of targetted one-to-one advertising.    

On a lighter note, and only remotely related to the theme of this blog (it does mention airline technology), take a look at this TV ad for Alaska Airlines. The amount of times I have had exactly the same experience as the poor man in this video whilst I’ve been waiting at the high-tech Terminal 4 in Madrid meant this advertisement really hit the mark.

Back in 2007 when the airline ticket unbundling trend was getting underway and the term ancillary revenue was starting to be taken more seriously in the industry, this short video was produced as a very tongue in cheek look at what the future might hold. Most of the jokes have been done to death in more recent times, but the manner of the flight attendant explaining all of the new fees is quite amusing; especially her attitude to passengers who may have some concerns with the changes.

Thanks to SimpliFlying for originally mentioning the above video.

 I only came across Dennis Schaal’s blog recently, but it is currently sitting near the top of my RSS feeds. In a recent post he references a New York Times article titled Some Elite Customers May Start to Feel Ordinary. I’ve lifted a couple of interesting quotes from the article.

“But the question a lot of business travelers now have is whether there will be value in maintaining a low level of elite status if the airlines are selling off elite amenities like that aisle exit-row seat – especially as the system shrinks and choices narrow for everyone.”

and

“Assume you’re an elite-status flier who is willing to pay that extra $15 for the choice seat. Will you get first crack at it in the future? Or, given the slice-and-dice technology being developed on booking sites, will an auction of sorts ensue, with the choice seat going to someone willing to pay, say, $22.50? Do I hear $25?”

The first quote makes a good point about not losing sight of the bigger picture when unbundling fares. The second quote touches on something I have been pondering for quite some time, because online auction sites seems to have an addictive quality as people return to see if they have been outbid. Airlines looking at building a social network should take this as a big hint.

Finally, I saw a press release from Janet Titterton on airlines increasing ancillary revenue. Janet has a tough job coming up, as she is going head to head with a good client of mine on day two of an upcoming industry conference. My client is currrently billed as “Mystery Airline” given that I am working with them on implementing an a la carte pricing strategy, but for the time being the name of this man and his airline remain under wraps.

The global airline industry has the potential to generate additional ancillary revenue activity, a study has shown. Insight by Collinson Latitude… has revealed that airlines can make at least an extra $6 per passenger by offering services above and beyond ticket sales.