January 2009


igoogle-bad-news-via-rssWas just scanning my iGoogle homepage containing all my RSS feeds and saw this from the Airline News feed I get from topix.com.  The six most recent news items listed are all bad news – really bad news. Yesterday Eye for Travel was taking a postive spin from the recent US results and did a story on ancillary revenue growth, but when I see six stories in a row that look this bad, it makes me think it is time to call it a week, head home, and forget about the airline industry until Monday comes around and it starts all over again.

News this week from New Media Age that Virgin Altantic are planning to launch some type of social networking site for travellers. Best analysis on this subject is coming from Alex Bainbridge who also compares this initiative with Metrotwin from British Airways. When it comes to BA and Metrotwin, the Times Newspaper wasn’t quite so kind. It is way to early to refer to 2009 predictions that are less than a month old, but I’m now wanting to up the probably I gave of only 20% that one airline will launch the Web 2.0 killer app this year. I talked earlier this week on the AF-KLM venture Bluenity, and I’ve previously mentioned the frequent flyer community that Qantas have started called Travel Insider.  

I came across this recent article talking about what Southwest, JetBlue, Delta and Virgin America are doing with social media, but the focus of that article is more on their involvement with Twitter, Youtube, Flikr and Facebook. My interest in this space is purely related to how an airline can use Web 2.0 to increase revenue in a profitable manner; mostly via the collection of extra ancillary revenue or additional direct sales of tickets, rather than indirectly attributable benefits like positive brand image. In order to do this, the airlines mentioned in the first paragraph are having a red hot go at owning this space, but there is still room for late entrants to win this game as none of them have got it 100% right just yet. I’m not even prepared to put money on a likely winner at this stage, but maybe in 6 months it will all become much clearer.

I’m convinced this is a space that eventually one large airline will own in Europe, one will own in Asia Pacific, and one will own in the Amercias. And it will most probably be a large airline. Whereas I am astounded on the rare occassions when a small airline tells me they are not sophisticated enough to chase ancillary revenue,  there is little doubt that the winner of the game to own the Travel 2.0 killer app/website will be a medium to large airline (if indeed it is an airline at all),  in their respective region. The size of the prize really is very large on this one.

Never before have I heard an airline CEO give ancillary revenue such prominance when it comes to explaining a good financial result. Read the quote below from Maurice Gallagher, Jr. President & CEO of  Allegiant Travel Company (ALGT), a US Carrier that regular readers of this blog will get used to hearing me refer to frequently. 

“Our 23% operating margin this quarter however puts us back on track towards our commitment of late 2006. How were we able to generate such a large increase in margin from 7% in the third quarter to this 23% level? Our focus on increasing revenues was evident in these results. In spite of a difficult economy we were able to not only hold overall revenue per passenger compared to the third quarter but increase it from just under $120 to $120.50.  Over the past year Ponder and his team have focused increasingly on our ancillary revenues and we have seen a 50% increase during this timeframe from a low $20 range to our current $32 plus. These ancillary revenues were a critical part of our December results.”

And then the following quote from Ponder Harrison – Managing Director Marketing & Sales.

“And as also expected, ancillary revenue was once again a predictable and positive contributor. Most impressive however was the year-over-year gain in total ancillary revenue of 76% for calendar year 2008 and 51% for the fourth quarter. Respectively ancillary revenue as a percent of base airfare revenue was 35% in 2008 and it also grew to 40% in the fourth quarter. Despite the decline in stage length and relatively flat yield environment, ancillary per passenger grew 35% in 4Q reaching a level of $32.85 versus just north of $24 in the fourth quarter of 2007. On a sequential basis ancillary once again posted positive gains for the quarter and for the full year ancillary climbed 37% finishing 2008 at $29.43 per passenger as compared to a $21.53 level per passenger in the prior period. “

Managers responible for ancillary revenue generation at every other airline must be looking at these numbers and hoping that their own boss hasn’t seen them. The potential in this area for every airline is massive, and it is simply unacceptable to use the argument that because your business model is different to Allegiant your airline can’t expect to generate significant ancillary revenue. The numbers will differ, the types of ancillary products will differ, the ways in which they are presented to the passenger will differ, but the goal of having your own CEO credit your contribution and the contribution of ancillary revenue when announcing impressive financial results should not differ.

I’ve been using the Air France / KLM social networking site Bluenity a bit over the past week, and it was better than what I was expecting. There does seem to be a curiosity factor in being able to see what type of people will be on the same plane journey as you, but the difficulty is not to make it feel like, in the words of my wife, “a site for people looking to pick-up.”

The comment above is interesting because sometimes the people covering social networking become such evangelists that they forget to factor in the views of those who haven’t yet jumped on the bandwagon, or were on it but have since jumped off.  But there is no doubt that knowing who is (or isn’t) sharing your journey can’t strike a chord with people. Just look at the bold PR stunt this week from Activities Abroad who claimed they could promise ‘chav free’ holidays as they supposedly searched there database and found no-one with the names Sharon, Chantelle, Britney, Bianca, Tiffany or Chardonnay. But they did find travellers called Sarah, James, Charles and Rachel which according to them implies a higher quality of holiday-maker! I say it touched a chord because they apparently received threatening calls as a result, but the company founder was unrepentant.

“We have had £300,000 worth of PR from this. We had a few nervous moments and knew it was a bold piece of PR but we’re getting great results.”

Using Bluenity, I don’t recall seeing any Chantelles or Britneys on my flight, but a site like this needs more than names of some of the fellow travellers to make it compelling. The share a taxi to/from the airport is interesting, although as an experiment I added a share taxi request and received no enquiries – I’m not sure if people could see it was me offering to share a taxi from the airport, of if there was a general lack of site usage, but eitherway no-one took me up on the offer. I suspect it was the latter, or at least I hope so! 

I don’t think getting travellers to review restaurants etc will ever take off in a closed community like this, but I question why it needs to remain closed. If AF/KLM opened it up so people on other flights could input their flight details, then they could make the site stronger. I’d never suggest doing it all overnight, as the progressive opening up of Facebook from Harvard to other Ivy League, to other universities, then to schools etc is a great case study in how to ensure the audience is widened in a sustainable way. But with Tripit launching an API this week, and other companies getting into the itinerary space, airlines who want this business face some innovative opposition. I honestly believe a clever airline can own this space; having all the direct channel PNRs and the frequent flyer database is an incredible head start in any race of this type. The real question going forward is will Bluenity be able to build on its existing functionality, or will another airline pick up a cheap yet catchy domain name and come out with a site that leverages all the assets they already possess and take a lead in this very interesting area of e-commerce.   

Overall verdict on Bluenity: Congratulations to Martijn Van der Zee (VP E-commerce, Air France/KLM) and his team for taking such a bold step. Potential is definintely there, but it is early days yet, and it needs to offer more compelling and unique content before it can really succeed as a community for travellers.

What better way to start this post than with this weeks news of Arthur David Proskin who was knocked by the trolley. Instead of being jolly and keeping quiet as a mouse, fired off a verbal volley and went straight to the big house!

I was on a KLM flight last night and there are always a few people that buy from the in flight shopping guide as the trolley comes down the aisle towards the end of the flight, but I’ve never seen more than a handful of people buy on any flight I’ve ever been on. It is clearly an area where there is potential for more ancillary revenue. Qantas had their critics fuming when they reintroduced on board tobacco sales last year after a long hiatus, but clearly this is a big selling item that people would have bought at the airport if they didn’t buy it in flight.

I was speaking to one airline executive a few months ago responsible in part for growing his airline’s in flight sales and he discussed the idea of better promoting the ability to pre-order duty free purchases during the servicing flow for direct channel customers; will be interesting to see how effective they are in this endeavour. I’ve never really spent much time looking at this specific area of airline ancillary revenue, so I was surprised to see there is a publication that deals exclusively with travel retail.  The focus seems to be more on shops in airports, but they also cover in flight sales. I also saw an accouncement today that GuestLogix has appointed Ralph Richardi, former Senior Vice President of Customer Services at American Airlines to the Company’s Board of Directors. I am seeing quite a few annoucements from this company, but at first I confused them with Farelogix, the GNE company. From what I can gather, there is no relationship between the two apart from a similar sounding name. I was very interested to see GuestLogix are able to sell assigned seating tickets to Broadway shows on flights into New York – this overcomes the watches / sunglasses problem of wanting to touch it, play with it, try it on etc before you buy it. This currently loss making company looks to be growing very fast if the following quote is any indication

At the end of fiscal 2008 GuestLogix had signed cumulative customer agreements representing 703 million annualized passenger trips and deployed more than half of this amount.

 

With so many areas in which an airline can go chasing ancillary revenue, it is no wonder that the industry conferences on this topic are proving so popular with both airlines and vendors.

A couple of days ago I promised to continue detailing my experience of booking a hotel via the web for an upcoming business trip to Amsterdam. Where I left off then was departing the KLM hotels website in search of somewhere else to make the booking. I decided to have a look at Kayak,  kayak-shot-of-nh-and-easytobookand the hotel I was searching for showed up for only €67 via a site called easytobook. After clicking on the link to be redirected, I found that upon arrival at easytobook they were planning to add 5% to the price quoted on Kayak and would charge my card immediately. The second part wasn’t such a problem, although I’d normally prefer to be charged when I leave the hotel; but the 5% extra leaves a bad taste in your mouth as it means the price on Kayak was incorrect. It reminds me of the bad old days when many airlines were quoting prices exclusive of taxes and charges which meant absolutely nothing to a consumer trying to compare.

Next I went to look at Opodo, an Amadeus owned OLTA. opodo-spain-and-uk-compared1 This was interesting as the Spanish site was quoting me €70.32 but there were no photos for the property I was interested in. The UK site prices in Sterling but with a Euro approximation, and most interesting of all, contained around 10 photos of the NH City Centre Hotel in Amsterdam. It is much easier for me to work in English than in Spanish, so I’d prefer to book on an Englisg language website where possible; but I prefer to be charged in Euros, so I didn’t want to book on the UK site. The Spanish version of Opodo does not give English as an option, and as I was doing the searching with this blog post in mind, I didn’t mind spending a few more minutes checking out one more site. Seeing as my work focus is on airline direct channels, it seemed strange not to have a look at the hotel direct website.

The NH’s own website has some of the most painfully slow to load pages from a major company I have experienced in quite some time. But I’d killed enough time on my search so far using other sites that it was going to take more than a slow loading page at this stage in the process to stop me buying. I suspect for other consumers, the slow loading pages would have been an instant turn off, as normally it would have been for me.

I found the hotel I wanted and the page said minimum price of €79.00. When I clicked on the purchase button and moved to the next page I was offered a price of €70.32, exactly the same price Opodo in Spain was quoting – at least it wasn’t higher than the previous page, but I doubt NH intended it to be this way!

NH call back feature

NH call back feature

  The other interesting part of the site was the button on the purchase page (circled in red in the image) allowing me to leave my telephone number and have an NH staff member return the call to close the sale or answer any questions. It reminded me a little of the Norwegian airline Wideroe who have a chat feature on their homepage, although what I liked about NH was that as it is on the page with hotel location and price quoted, it should make any calls to customers much quicker to close. This assumes the information from this screen is passed to the call centre agent – it sounds obvious, but from the many of the call centres I’ve visited or called, I’ve learnt to never assume that things always work in the way common sense assumes they should. 

Maybe I should have added my phone number to see how it worked, but by this stage I was ready to just enter the credit card digits, pay my €70.32, and secure a room in Amsterdam. And that part of it worked effortlessly.

Just received an email from Spanair that takes an interesting approach to marketing, but unfortunately it is only done in a half hearted manner rather than really putting the boots in. If you are going to attack Ryanair, then you have to do it with a bit of flair, as matching brashness with timidity rarely (if ever) yields positive results.

Spanair marketing email

Spanair marketing email

Spanair is in a very tough competitive position in the Spanish market given the flag carrier Iberia dominates business travel and the profitable Latin American routes, LCCs Click Air and Vueling have just been given the OK to merge, and LCCs like Ryanair and EasyJet dominate a lot of the leisure routes to and from Spain.

So Spanair have decided to emphasise that they are a “full service” carrier. The email bullet points roughly translated are:

  1. Low price guarantee
  2. No optional extras pre-selected
  3. N/A (special govt discount for remote communities)
  4. No charge for seat selection
  5. No charge to pay by credit card
  6. No charge to board the plane
  7. No extra charge for checked-in baggage

I think this type of marketing approach properly executed for an airline could work, as some of the charges Ryanair have invented are amazing. For example, last time I looked there was a charge to check-in at the airport, but internet check-in was only available to adults travelling with no check-in luggage. But full credit to them if customers wear it, and all indications so far are that they will. If Spanair really want to differentiate themselves from the LCCs, maybe they’ll have to try some marketing tactics that will get them a bit more notice.

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