February 2009


Late on a Friday, still in the office, needing a change? I was doing an ancskyeurope-logo1illary revenue related search and came across this job. I assume it is still current, although it was posted in November 2008. And it involves living in Bratislava, Slovakia. Probably not the worst place in the world to live.

Ancillary Product Manager
Job description

We are looking for a person to assume responsibility for account management of SkyEurope Airlines’ ancillary product partners (who provide services such as hotels, car rentals, catering, insurance, airport lounches, inflight magazine, etc.). This person is a Team Leader of Product Team consisting of two people; the whole team belongs to Marketing department.

So if you are reading this blog, chances are you work in the industry and may even have ancillary revenue experience – somehow I doubt my content is so riveting that non airline direct sales people spend too much time here.

And finally, I repeat what I said in the opening: Late on a Friday, still in the office, needing a change? Well for me it’s not a new job but a holiday, so expect the frequency of blog posts to dry up significantly over the coming weeks – unless it is raining and I am stuck inside with a few minutes to kill and have seen or thought of something relevant to add here.

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Call centres, or contact centres as they are frequently referred to as, never get as much publicity in the airline direct sales channel world as the web sites. Obviously the innovation is less, but it is still there. Maybe part of the reason is that it is a but hard to take a screen shot and post it! Today I saw an article (or maybe it was just lifted from a press release) about Amercian Airlines about some new technology they have implemented from a recently acquired Microsoft company called Tellme. 

They can list up to three phone numbers from which they’ll call the airline. If the customer is booked on a flight that day, the system will offer gate and flight information without prompting, the airline said.

 Any technology that cuts down on non revenue producing calls to the calls centres has to be applauded. Some of the most efficienct airline call centres I’ve seen have been the ones that have worked hand in hand with their internet colleagues to move as much servicing as possible from call centre to website. But taking the American example above, I’d love to know how many people still call for gate numbers and flight times versus those that get it offline or have it pushed to their smart phone. I would guess that the frequent travellers who have registered up to three phone numbers with American are more likely to get this info via other means, and it is the once a year holiday makers who calls every day in the lead up to departure to confirm their booking and ask incessant inane questions.

Which brings me back to an earlier post regarding KLM and their online servicing pages. I was really impressed with the options to choose type of notification received and method of delivery, but unfortunately I never received anything after signing up. I was supposed to get an SMS announcing boarding had started, but sometimes SMS get lost when roaming, so I’ll give KLM the benefit of the doubt on that one. And the emails I signed up for were all delay related, and luckily my flight was on time so I didn’t get these either. The point is that as a frequent traveller, this is a service I really appreciate. And from talking to airlines, one thing I know is that the best way to move servicing out of the call centre and onto the web is to start charging for it – or otherwsie, I of know one airline that for some new functionality, only makes it available on the web, and if people call the call centre they are told that service is only available if they go to the Manage my Booking page online. Now that is a great way to push those “high cost to service” luddites online.

 Just under a month ago I wrote:

“this year we will start to see some airlines and their partners using ‘location‘ to get much higher conversion rates on ancillary revenue offers. There is so much happening in this area, that surely one of them has to stick. “

You can now add Google Latitude to the list of applications that airlines (and their ancillary revenue partners) should be keeping an eye on. The interesting part of this for airlines is not the social networking aspects, as other sites will do that faster and better, but the ability to target offers to consumers at the the right time, and more to the point, in the right place. The majority of people over 18 years of age will probably have no interest at all in having their friends and colleagues knowing where they are at all times, but for companies like Isango, Unaira, Viator etc that sell destination content, the potential that this type of application brings could be very interesting.

I’m fed up with people overstating the privacy concerns of the general populace, as it is just not matched by consumer behaviour. True, if you ask a man on the street he will tell you he hates the idea of someone else reading his email, but then he signs up for a Gmail account and lets Google read every email in order to serve him relevant advertising. The key difference is that people are happy to share a lot of personal data if they get something for it, and if they think it is a machine and not a person reading that data.

The most promising part of Latitude and similar services is not sharing your location with your friends, but sharing your location with companies that use computers (not humans) to offer you some perceived benefit. Destination content like events, concerts, day tours, restaurant discounts and the like at a location away from your usual home may be one very compelling use for this technology. And who knows when you are travelling away from home – the airline.

Occasionally working in a large geographically dispersed company, and combined with the speed at which information travels these days, one finds out internal news from outside sources first. Today’s story from Eye for Travel is one such case. Andy Owen-Jones has been appointed the new CEO of TravelTainment.   

This is really interesting business, that from what I’ve seen has some great technology for dynamic packaging allowing searches over a much wider period using less defined search criteria –  from what I’m told, the key is excellent caching of data resulting in less cost from host system hits. Dynamic packaging was real flavour of the month stuff a year or more ago with airlines, but these days that status seems to go to ancillary revenue. The larger airlines with their own packaged holidays division were the most interested in dynamic packaging, whilst many other airlines seemed to prefer a white label solution from the likes of Expedia, Lastminute, Hotelclub etc – there are so many brands in this space I lose track of who owns which ones! Interestingly the .com domain for TravelTainment is being used by someone else, but when you are not a B2C business, that is much less of an issue.

So congratulations to Andy on the new role. I probably haven’t spoken to him for over a year, and likewise the TravelTainment business has no doubt evolved significantly since I last looked into it, but in the past when I’ve put Andy in front of an airline customer to talk about dynamic packaging it always went down very well as there is no doubt he has an excellent understanding of this market. I look forward to seeing TravelTainment continue its growth under his leadership.

There was a well researched comment from an accountant on yesterday’s post regarding accounting rules around what can and cannot be called ancillary revenue, but the situation is still not totally clear. In the scheme of things, the problem is not a large one, but one of those annoying little things that one questions why it has to exist at all. Maybe some passengers would say the same thing about checked bag fees! Ryanair just released their latest results and in the accompanying press release CEO Michael O’Leary says:

“Ancillary revenues grew by 19% to €132m, and now account for 22% of revenues (19% last year)”He then goes on to say:

“in-flight communication will be a strong source of ancillary revenue growth in future years”

There is no doubt that investors are loving the ancillary revenue story at the moment, as I hear analysts on conference calls asking questions on this topic to airline execs all the time. And who doesn’t want their stock options to be in the money. Related to the Ryanair results I was looking at the accompanying investor presentation where it uses the term “average fares (incl. bag)” dropping by 9% . I even saw the highly respected Centre for Asia Pacific Aviation felt the need to clarify this with the words “presumably baggage charges” 

I think I’ll leave this topic for now and move onto something else – at least until the next CEO goes on about amazingly great ancillary revenue growth without being totally clear on exactly which sources of revenue fall into that category.

Yesterday I made the point about where airline ancillary revenue ends, and instead just gets referrered to as ‘other revenue.” Today I see reference to a story originating from the Detroit News and mentioned on Cranky Flyer about Spirit Airlines wanting to sell advertising space on the aprons of flight attendants. Obviously pitching for a cut of this revenue for themselves, the union was quoted as follows:

“Turning flight attendants into walking billboards is unacceptable,” Deborah Crowley, president of Spirit’s flight attendants union chapter, said in a statement.

It reminds me of the people I see walking the streets wearing a sandwich board – selling gold via this methods always seems popular, and I remember people walking Pitt Street Mall in Sydney advertising “material cut to measure” via walking billboards; which then took me to thinking maybe this photo is close to what was inside the mind of the union rep making the above statement.

Back to a more serious tone, if there are any accountants reading this who have seen any accounting guidelines for defining exactly what can be called ancillary revenue and what is outside of the category, I would love to see it.  I never read a set of financial statements using that as a line item in the profit and loss, but every almost every chief executive refers to it these days in commentary when releasing results; yet it doesn’t seem as if one can be totally sure which buckets of revenue they are including when making reference to this term. If Spirit are counting advertising on aprons as part of ancillary revenue, then the the whole process of comparison gets a lot muddier.

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!