I spent some time on the phone this morning with Marcos Issac who is Director, Travel Services Business Group at Amadeus. He was promoting a new report that has been commissioned from Forrester called Cross-Sell You Way to Profit: How travel suppliers are using third party ancillary services to drive new revenues and enhance their travelers’ experiences. I used to sit near Marcos when I first worked in Madrid, and we ocassionally had lunch together, so I’ll try to be as objective as possible given we both work for the same company and know each other reasonably well.
In the press release, Marcos is quoted as saying
Today the industry is focused on the opportunity à la carte’ ancillary services offer, but this study spotlights the growing and significant contribution of third-party sales.
That is interesting, as when I started this blog the focus was intended to be all about third party ancillary revenue for airlines, but over the course of 2009 and 2010 the industry focus really moved much more towards an interest in a la carte services, AKA unbundling. Maybe Marcos is right that now is the time to move the balance back a bit the other way. When we spoke Marcos was keen to point out his key takeaway being the prediction in the report of a 30% growth in third party revenues over the next five years. Personally I’m even more bullish than that on the growth potential of this category.
Readers of this blog may recall an old topic that I illustrated once using the ME Barelona Hotel as an example:
Today we always think of air as the initial point at which the commitment is first made and the payment is first taken, but is it too wild a thought to imagine this model being flipped on its head? If the airline websites do not adapt from their current transactional focus, then for a reasonable percentage of the leisure market, could air actually be the ancillary product sold in future? It happens today with cruise, so maybe this idea is not so crazy after all.
I was surprised to see on page 14 of the report that maybe this was a leap too far for most hotels and other non air travel content suppliers. I remember in the early days of airlines selling hotels and cars some people dismissing the idea and claiming that people would only ever want to buy air segments from an airline. It may not be easy, but the prize is huge if some suppliers traditionally thought of as “ancillary” can somehow turn the model on its head and become the “prime” or the “core” purchase and relegate air (or rail) to being the ancillary component.
Mentioning rail beings me to one interesting topic Marcos brought up. High speed rail is growing at a rapid rate in many parts of the word, and the example was used of SNCF.com being able to sell not only rail, but also add ferry content as ancillary revenue. Apparently high speed rail is moving fast into the ancillary revenue game, but when I asked if airlines could learn anything from the best rail companies in this regard, it appears that rail is more looking to air and their longer history with ancillary revenue generation to learn what products and services make the most sense for rail travelers.
I was amazed to see that 11 out of 12 airlines websites in the survey had implemented insurance as my question was “who is the 12th?” To me insurance is a no brainer for any airline website as the margins are great and there is no inventory or availability issues to worry about. Marcos made the good point that whilst insurance is very easy to plug into a website, it is locally regulated and sometime this can cause delays in getting it sold online.
One of the predictions coming out of the report is that in future “Airlines becomes digitial marketing and media firms.” This is the so called media model – OTAs have gone down this path, and some airlines are starting to think in this direction but will the airline website of the future be plastered with third party ads? I had an enjoyable lunch today with Brad Bailor and Patrick Fisher from Sojern and the topic of airlines and the media model was a large part of the conversation. I learnt that Sojern have raised additional funds from investors and are using this to move well beyond their original business of printing ads on airline boarding passes. The business now is something much more interesting to me, as they appear to be investing in helping airlines generate a revenue stream from moving to a media model, including unlocking the value of customer intent data. Does anyone deny that making profitable use of travel data is crucially important? Everyone may agree when asked, but so few are really doing it well.
The Forrester report comes up with a number of predictions for what the ancillary revenue sources of the future might be, but what is more interesting to me is the whole process of how revolutionary ideas are generated. I’ve written on XPlane before, so I was interested to have Stephen Bartlett Bragg tell me recently that not only is he hosting the Headshift / Dachis Group Social Business Summit again this year, not only are Virgin Blue and XPlane on the bill (at least the Sydney event), but that once again it looks like I will unfortunately miss being able to attend!
The Summit is also being held in Austin, London and Singapore, so if you work for an airline and are interested in this topic, definitely try and get yourself invited. The video below is a lecture by Dave Gray of XPlane on his theme of Gamestorming being the new brainstorming – he’s even written a book on Gamestorming. He makes some really valid points in the lecture below, so if you can’t make it to the Social Business Summit, at least look at the reference to brain cell regeneration just after the four minute mark – are we all really just lab rats working in an office cubicle?
I’m taking a few days off work, so the next post should be written from the Eye for Travel: Customer Centric Strategies for Travel conference in Atlanta next week. Come to think of it, it looks like part of my vacation will be brushing up my presentation for the second day of that conference!