October 2009


I written about insurance many times before, but it really is the low hanging fruit of ancillary revenue. Previous posts have covered where to sell in the booking flow and Air Caraibes success with insurance, but there really isn’t too much innovation left in that product category, especially when compared to a quasi insurance product such as price drop protection. I first wrote about this idea for airline direct channels months ago when Priceline announced their policy, and then today I see Travelocity upping the ante with a new improved pricedrop protection guarantee. The innovation in this area is clearly happening in the OTA space, so today’s talk of Best Western hotels opting out of Expedia in favour of direct distribution would be a very brave move indeed.

If someone can tell me of an airline offering genuine price drop protection insurance (without harsh conditions that make it too difficult to claim, or that only pay in vouchers) I will happily stand corrected,  but why on earth are airlines letting the OTA’s be the innovator in this space, when the benefits of an airline website offering such a policy are to me, as clear as day.

Such a policy (I would not recommend giving it away, as there is defininte value to the passenger) would accellerate the move of long haul traffic from travel agency to direct channel; even better, a smart airline could even incorporate the expected payout into yield management decisions. It is almost like the old standover tactic of paying the mob for protection; the “insurer” decides whether your shop burns down or not! Any opportunity to engage in a legal transaction that removes the adverse selection risk and moral harard from the buyer in an insurance sale has to be a clear winner for he who holds the cards – in the case of price drop protection, the royal flush is firmly held by the airline.

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The more I think about it, maybe wireless internet in aeroplanes could be a reasonable money spinner. In the past I was a little skeptical, but now I’m hovering somewhere in the middle between advocacy and denial. Even when sitting in business class, I really don’t see that many people on the plane opening a laptop computer, but now with phones having wifi and many people downloading email that way, it could well be something people will pay for. I was reading this article from Flight Global about SouthWest that got me thinking about it again. Here are a couple of quotes:

“email blows everything out of the water” and “Uptake rates have been between 5% and 20% depending on flight length.”

On a different topic, you may remember me treading cautiously when discussing American’s latest social media venture the other day. Following on from that story I got a smile this morning reading this line from travel blogger Jared Blank on the same topic.

I’m not Black, so it’s entirely possible I’m missing the point. But when AA launches JewishAtlas.com and offers sections on bagels & lox, how to save money, and where to find an Accountant in Rome, something will seem a bit off to me.

So much easier to get away with jokes when you are a member of the same group the joke is directed at.

I’m safely back in Madrid after a few days in Los Angeles, although I’m still waiting for my luggage to arrive – at least it got lost on the way home, rather than the way there, as happened to Len Lubbe coming from South Africa and who as a result had to be up on stage in presumably the same clothes he’d flown in.

I’ve already covered Day 1, and the truth is I only saw four of the presentations on the final day due to other commitments. Rather than focus on the presentations I saw from Kyle Moore of Sabre, Frank Socha of ATPCO or Paul Ackermann of Travelex, I’ll write about the one that was most relevant to me – Gianni Cataldo of Datalex. The title of his presentation was Back Office Technology: Making the back office efficient for ancillary products.  I saw Gianni at a previous conference, and I always find his stuff interesting. Partly because he is a competitor to Amadeus, but also partly because he has the courage to take on a difficult topic like presenting on back office technology. I presented on a similar topic at the recent Amadeus e-Commerce customer conference, and lost my position as most highly rated speaker as a result, so full marks to him for taking on what is hardly a sexy topic when most other presenters are focussing on the more obvious topics during the ancillary revenue conference stream.

The truth is that the topics he was covering such as integration and fulfillment of ancillary products are of vital importance for every airline, but the reason in my opinion most airlines have hardly scratched the surface of ancillary revenue is largely because they find the back office piece all to difficult. I’ve talked on many occasions before of how some small tweaks to the back office setup can have a massive impact on ancillary revenue, but that really is just tip of the iceberg stuff.

Those people responsible for airline ancillary revenue that missed Gianni’s presentation did themselves a disservice; as did those delegates responsible for loyalty that did not pick up and read the seat drop brochure from Colloquy. I read their magazine style brochure on the flight from London to Madrid, as after the flight from LA I needed a break from the somewhat heavier text I had just waded through. No need to recount all the articles here, but it really was an interesting read on many of the latest happenings across different industries insofar as they relate to customer loyalty and/or loyalty programs. The printout they also left for delegates wasn’t anywhere near as interesting for me, but maybe that is because of my aversion (in many, but not all cases) to survey data. I did enjoy reading on page 18 the line (that I’ve deliberately taken out of context): “The big news here is really the lack of news”

I’ve spent today alternating between the two streams at this conference in Los Angeles, sometimes sitting in the frequent flyer presentations, and other times listening to the ancillary revenue track. Here are some of my observations from Day 1.

Craig Landry from Aeroplan did a great presentation, and I’d love to get my hands on his slides as they were overloaded with good stuff – probably too much info for a presentation, as he was moving through them quite quickly. He confirmed something I have suspected for a while by saying that the perceived value of airline loyalty programs across the industry is in decline and that non air programs are really giving more and more value in the eyes of consumers. A real wakeup call for the industry not to let such an important part of the airline suffer from lack of focus. He also went through a very good list of nine trends that are are guiding future developments, and finally he made a great point in emphasising the importance of integrating data from various sources into the loyalty system.

That last point from Craig dovetailed nicely into the next presentation from Simon Hay of Dunnhumby. These guys are retail specialists, with only limited credentials in the airline space (eg. BA, Virgin Altantic, Expedia) but I had to agree with what a senior executive from one airline loyalty program was saying to me afterwards when he expressed what a great idea it was inviting Simon; airlines have a lot to learn from retailing best practice, especially in more intelligent use of data for better understanding and predicting customer behaviour.

Predicting customer behaviour and segmenting passengers was a topic taken up by Freek van Essen who is Head of Database Marketing at AF-KLM’s Flying Blue loyalty program. Statistic of the day had to be when he claimed that 60% of the highest value customers were not in the top frequent flyer tier! I find that very hard to believe, but he had done some serious stochastic modelling that was way to complicated to argue with, so I’ll just assume he is correct. Using their predictive models he is calculating NPVs on customer value segments and possibly even individual customers – sounds kind of like a business case for a new passenger. Very impressive to listen to, although no way one could get a really good grip on all of the complex ideas he was prsenting in such a short space of time.

Rick Seaney from Fare Compare did a good presentation on Twitter. What shocked me was the amount of people who put their hand up when he asked who used Twitter, as it was most of the room. I suspect if we dug into it a bit deeper we’d find most were only followers rather than generating any tweets; in which case I’m not sure I see a huge difference in just having a good old fashioned email account, especially if you have a smart phone where you get email instantly no matter where you are. Rick gave a big plug to the book Naked Conversations: How Blogs are Changing the Way Businesses Talk with Customers and now I’m curious to find a copy and read it sometime.

So after all that praise, now it is time to be a little less complimentary. On a previous occassion I made an obscure recommendation on how to improve a panel discussion, but the guys organizing this conference really don’t do panels well at all. They stick way too many people on stage, and the moderators either are not able to engage the panel members well enough, or more likely they just find it impossible to work with such an unwieldy format. Apologies for the horrible quality of the photo below taken with my phone, but I use it to illustrate the point.

 

Loyalty social media panel

 

The topic was a strange one to being with: Loyalty system showdown, what are programs demanding and how are systems handling customer centric integration and emerging social networking initiatives. From left to right in the picture are Marcin Kosciak from Comarch, Dave Avant from Amadeus, Patrick Grubbs from Oracle, Len Lubbe from Loyalty Plus, Rob Thorne from IBS and Hakan Unlu from Hitit. Great range of panelists, but way too many to do anything other than what always happens – the moderator asks a short question, and the microphone goes from one panelist to the next, to the next, etc. Virtually no interaction, so it contains no dynamism, and you end up getting close to six people each just doing a mini presentation.

Here is what should have happened. Firstly, get someone from an airline loyalty program (maybe Craig Landry from Aeroplan, or Phil Gunter from Virgin Blue’s Velocity program and who is here in LA) to be the moderator. Secondly, restrict the panel to two loyalty vendors, or three at the absolute maximum. Thirdly, put the moderator in a chair rather than standing up; then the format becomes more like a chat show. Fourthly, choose a more narrow topic and really drill into the details. Fifthly, give each person their own microphone as passing the mic kills any spontaneous interaction. Finally, and this should happen naturally if the first five are done, make sure the moderator doesn’t just ask questions but actually pushes back on the answers given by the panellists to ensure follow-up questions are asked and topics raised are properly explored.

Two of the panellists in the photo above really could have been given their own slot on social networking; and with my suggested format above, participated in what I’m sure would have been an excellent panel. Rob Thorne hit the nail on the head when he bought everyone back down to earth with his reminder not to overlook email, and Patrick Grubbs really answered the question on measuring social media well, albeit by pushing a product from Oracle. Get these two guys on a social media panel with a good moderator, and it might just be the highlight of the conference.

Welcome to the United States of America, a country for which I have more respect than many people, but still a country where some aspects are clearly dragging behind most civilized nations. Before I get onto travel, is there any other first world country with such weak product labelling laws that a can of beer can be sold with no mention anywhere of the alcoholic content. And fortunately there are not too many other places I’ve been to where a VAT or GST is not included in the advertised price. So the natural extention of such weak labelling laws and weak consumer protection agencies, is that such ridiculous practices continue to expand, limited only by the imagination of unscrupulous sellers.

And this leads straight into the topic that has got me hot under the collar today: Hotel Resort Fees.  

I recalled that I’d seen something from Tim Hughes on the topic before where he wrote “Outrageous that a compulsory charge would not form part of the room rate.” But then I saw this great piece from Christopher Elliot which contains a quote that surely must receive the putting the nail in your own coffin award:

“If we included this in the price of our room, it could put us at a competitive disadvantage,” said Brian Young, vice president for resort operations at Rosewood Hotels and Resorts

Only the other day I was sounding hopeful that the airline industry was beginning to realize that the future of ancillary revenue lay not in further alienation of customers, but in working harder to get a slice of the revenue that their passengers were already spending elsewhere. But after spending a week in the United States, I can only say that whilst airlines might be waking up to this fact, certain hotels chains are still well off the pace.   

I was in Tucson earlier this week; prior to arriving I was halfway through booking the Westin La Paloma when I saw the fine print on their website telling me that the quoted price did not include a compulsory resort fee of $15 per room per day. One sale lost for The Westin, and I ended up staying elsewhere. But that is hardly enough to justify a post, so hopefully this is. This morning I checked into the Hyatt Regency at Huntington Beach, just south of Los Angeles. I’m actually here for what is being billed as the Mega Event – it is a combined Frequent Flyer and Ancillary Revenue conference. And here is where the irony really starts, as I’m sure the Hyatt think a compulsory resort fee is a clever form of ancillary revenue, but even the masters of ancillary revenue, Ryanair, know how to push the limits without stepping over them – well most of the time anyway. 

Hyatt e-Concierge emailI was actually planning to write a post praising the Hyatt today, as their strategy with pre-arrival email marketing is very close to the approach I have been pushing for close to a year. This is true ancillary revenue innovation put into practice, and I would have been so much happier today going into detail about these two images. Firstly the email I received about a week before arriving, and secondly the webpage I clicked through to from the email… but alas, it obviously wasn’t meant to be.

Hyatt e-Concierge webNow contrast those two images which really represent something very well done by Hyatt, with the text below I took today from the booking process on their website. Forget the fact that the $177 they are quoting me to arrive at the hotel today via their own direct channel is cheaper that what I paid when booking at the rate the conference organizers had negotiated for delegates, and instead focus on the following:

177.00 USD per Night per Room

354.00 USD Total Per Room

Additional Charges:
11.000 Percent occupancy tax
Ca Asmt:.25 Per Room/Night/16united States Dollars Resort Fee USD Other Charges

 

Looking at that last line reminds me of the user unfriendly fare notes most readers would be familiar with if you’ve been around airlines long enough; hardly the sort of text I’d expect to see on a consumer focussed website. But the entire booking flow is misleading, as on the fare page you’ll see “Total Price Per Room:” but then on the subsequent payment page the additional resort fee is mentioned (if you really look hard enough). In their defence they do actually show a total that includes the resort fee on the side of the payment page, but unless you are searching for it, you’ll probably miss it; especially given that the previous page told you the rate was the “Total Price”

I’m in two minds as to whether I should just swallow this dubious resort fee, or whether I should make a stand on principle and refuse to pay it when I check out. If any other conference delegates reading this have a strong opinion on the matter, I would be very interested to hear from you.

I’ve been slightly concerned for a while now about how many people both inside and outside the industry look at the term ancillary revenue as an all or nothing option, rather than understanding that within ancillary revenue there a two main sub categories. Firslty there are a la carte fees – ie. those traditionally part of the ticket price, like checked baggage and paid-for exit row seating. Secondly there are the items that most passengers would spend money on anyway, but the real question is whether or not the airline gets a commission cut – things like hotels, rental cars and destination content.

So much of the debate this year has focussed on the first category, whilst I am much more interested in the second, especially because it is not seen as gouging and it can actually be positioned by the airline as helping the passenger with a purchase they were already planning on making.

I’m hoping speakers at this week’s FFP ARAC conference in Los Angeles will also be clear to make the distinction. I’m looking forward to this conference for the main reason that it is the first one I am attending in over a year where I am not on the agenda as a speaker. Should be much more relaxing, and a great chance to interact with clients and prospects in a low key fashion rather than having to perform on stage.

So where did I see the “sanity” that I referred to in the title?  Firstly from Southwest:

“There are substantial ancillary revenue opportunities besides bag fees that we are continuing to pursue,” Southwest CEO Gary Kelly is quoted as saying by AP. AP writes Kelly “said the most noteworthy new revenue would come through changes to Southwest’s ‘Rapid Rewards’ frequent-flier program. He offered no details. But he drew a distinction between baggage fees, which he said are not really voluntary, versus a frequent-flier program, people volunteer to sign up for.” Says Kelly: “We would much prefer to explore opportunities to provide more service to customers and give them the choice to spend more money with Southwest Airlines. Our frequent-flier program and Southwest.com both position us well to pursue that strategy.”

And secondly from easyJet:

Mr Simmons said ancillary charges were now an “important source of revenue” for the LCC and he expected this stream of revenue to expand, particularly in leisure areas, like cars and hotels.

Great to see some in the industry implying that a la carte is not an endless source of risk free revenue, and suggesting that the future of ancillary revenue might actually involve paying more attention to areas that can ad rather than diminsh from the airline’s brand. Did I just hear someone mention best practice cross selling of hotels?

A while ago I posted a video interview with Paula Berg, Manager of Emerging Media at Southwest that proved very popular on this blog. Yesterday I saw a good write up of a recent presentation she gave about “how Southwest has learned to leverage social media tools with its award-winning blog, as well as tools including Twitter, YouTube, LinkedIn, and Facebook.” It is well worth a read, even if only for the funny anecdotes about the scantily dressed or the too pretty to travel episodes. I really liked the part in her quote below about joining the conversation.

“Make it personal, act fast, don’t rely on numbers alone, don’t be afraid to join the conversation, make it personal, educate employees, live and breath social media, and have fun – it’s not a burden, it’s a gift!”

The reason why I relate to her quote about joining the conversation is because I heard someone talking about social media recently and he was saying that everyone needs to become a blogger if a company is to embrace Web 2.0. I totally disagree, as “joining the conversation” is equally valid through comments online, as I mentioned once before when praising Qantas. There is no use having everyone writing content if no-one is reading it or if staff feel they are being forced to do something they don’t enjoy, but dipping your toe into the social media pool through non-anonymous online comments is a great way to show that companies are empowering their employees to engage with a wider audience. Commenting is just one option, as is blogging, but there are plently more, so to just mention blogs is a massive oversimplification of what social media really is all about.

If you are interestered in corporate blogging, then here is another great article to read. It is titled 3 Lessons Learned From Successful Corporate Blogging and even though it is aimed at B2B blogging, it is quite a comprehensive piece and contains some lessons for any type of company looking at engaging with customers through social media.

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