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Creating new digital ancillary revenue routes for LCCs.

November 29, 2021
Michael RaaschMichael RaaschCEO, Omnevo

How any LCC can drive ancillary revenue through digitalization: A three-part series of blogs showing how LCCs of any size have a proven, low-cost entry option to seize the digital initiative in driving their ancillary revenue recovery.

Why digitalization of ancillary revenue is now a viable, low-entry-cost strategy for LCCs of any size in their recovery strategy.

In this three-part series, I want to detail how LCCs of any scale and budget can exploit the power of digitalization to grow, control, and protect their ancillary revenue streams. From SIA’s global fleet of over 140 aircraft to SKY Express with just 19 planes, Omnevo’s digital solutions are powering transformations in passenger experience, operational efficiency, and ancillary revenue levels. Ancillary revenue digitalization has been democratized and recovery brought a digital step nearer.

The industry’s focus has long been on premium FSCs as digital revenue pioneers but, at Omnevo, we have developed  cost-effective technical solutions (including adaptable pricing models) that make digitalization the optimal route to revenue recovery for airlines of absolutely any size. In targeting recovery, LCCs can fully maintain their strategic market focus while expanding their ability to grow ancillary revenue through digital solutions for F&B and Retail.

In such a uniquely challenged and volatile market, why should your LCC digitalize right now? There are three key reasons why I believe that every airline needs to look towards digitalization in its ancillary revenue recovery strategy:

  • Industry pressures: The sustained global collapse in traffic has inflicted huge pressures on airlines - from collapsed revenue to the ongoing disruption to operations and personnel. Competitive pressures will rise even higher in recovery and regulatory measures (especially regarding sustainability) will continue to grow – so the need for greater operational efficiency, higher ancillary revenue, and stronger sustainability strategies is intensified.
  • Customer behavior: The customer’s behavior and the passenger journey have been transformed – there is simply no ‘going back to normal’. The COVID crisis inspired a startling global surge towards online retail where digital behavior evolved by a decade in a matter of months (Q3 2020 saw global growth of 63% and, currently, growth in Q3 2021 hit double-figures. Source: Salesforce).  From home working and schooling to medical appointments and meal delivery, digital experiences are now simply the norm. When they return to the skies, the customer will bring with them a radically changed mindset - and an expectation that the seamless, 24/7 convenience of their domestic digital experiences will be available throughout their journey. If there is a ‘new normal’, its terms will be dictated by the digital needs of the customer.
  • The declining model: The traditional ancillary revenue model – already fragile – is simply not sustainable in this radically changed, fast-evolving climate. The old model results in an end user experience that can be improved tremendously, especially in addressing its lack of choice, the absence of most major brands, and its limited service options (such as pre-order, delivery/collection etc.) – all of which are integral to the customer’s current daily experiences. In addition, the model has numerous in-built back-end inefficiencies that impose severe operational challenges, ranging from severe restrictions on the airline’s ability to evolve its offer to provide more choice and personalization.

New crisis, new thinking

Recognizing these challenges and the transformed market, Omnevo was created in the midst of the crisis to support the changed needs of airlines. The company name is a portmanteau of ‘omnichannel’ and ‘evolution’, reflecting both the power of digitalization and the evolution of the market.

While Omnevo has developed an expanded portfolio of new solutions for airlines, these are built on the foundation of a solid, trusted platform, including previous adoption and proven performance by leading airlines and airports such as Singapore Airlines’ (SIA) KrisShop, Virgin Atlantic, and Auckland, Frankfurt and Heathrow airports. Tailored to each operator’s needs and target customers, these sophisticated, multi-channel ancillary revenue platforms emphasize luxury and exclusivity – but the core technology is equally effective whether tailored to target a customer with a luxury Swiss watch or with a panini, creating new revenue opportunities for airlines of any size to target their key passenger profiles.

While legacy carriers will likely retain their luxury retail emphasis as their traffic returns, Omnevo’s solutions enable LCCs to be similarly effective in exploit digitalization by tailoring their offer to the needs and budgets of their  passengers. Whether FSC or LCC, the airlines that innovate and shadow the returning customer’s digital needs can seize the initiative as traffic recovers.

Focused on the specific needs of LCCs

As digital innovators, Omnevo shares the mindset and agile working approach that is characteristic of LCCs in the fast-moving budget airline sector. Our team, including myself,  hold in-depth, direct experience across airline and catering operations and we saw a crisis-driven opportunity to develop new entryways into ancillary services and products (especially in F&B operations) for LCCs, with the flexibility to start small and focus on key priorities but always with the full freedom of future options to expand at will.

In early 2021 Omnevo integrated the operations of  catering management and supply chain experts Shifteo, bringing sector-leading capabilities in ERP and ePOS to our expanded product suite and greatly expanding the menu of digital capabilities for any airline. This ready-to-deploy, integrated and vendor-agnostic platform reaches end-to-end, including flight scheduling, seat upgrades and inflight meals to pre-order, boutique shopping, buy-on-board and crew meals.

These platform options are customized precisely to each airline’s priorities, timing and budget, especially in enabling direct sales inflight to customers and the creation of a powerful range of new operational efficiencies - raising performance in everything from sustainability to crew time.

Creating the LCC digital platform

For most LCCs and smaller airlines, we find that their opening focus is primarily on the development of the inflight offer of Onboard Retail & Catering, especially re F&B (complimentary service or sold) and F&B pre-order, which enables major impacts in operational costs and waste/loss reduction. 

Complementing those platform options, the new Omnevo ePOS system creates a series of onboard performance gains - including enhancements to passenger service, time-saving functions for crew, and the power to drive stronger ancillary revenue streams. The airlines we work with know that they retain the option to later expand into e-commerce, fully controlling the scale and timing of their digital development.

As the industry’s only seamless, end-to-end solution, the platform generates real-time analytics throughout the entire supply-chain, including precise identification of what is consumed, purchased, wasted and lost - creating significant cost-savings and customer service improvements as well as potentially huge sustainability savings in weight and waste, especially if a pre-order function is utilized.

Adopting the technology

Working with LCCs, we find that they almost invariably have relatively modern systems, enabling a more modern technical setup and clearer integrations, minimizing any migration challenges in the existing programs.

Typically, the LCC operational mindset often also includes shorter communication channels, avoiding the often siloed structures apparent at many legacy airlines that place a challenging block on optimizing the effectiveness of digitalization programs. We also often find them to be more flexible and versatile in their capacity for crew to adapt to new processes.

Cost-effective entry model

Many airlines love the idea of digitalization of ancillary revenue but instantly dismiss it on cost grounds. LCCs inevitably face huge financial pressures right now so we’ve also developed easier routes to entry, including MVP options and a move from license-based to a revenue share based model, removing the burden of CapEx requirements.  By sharing the risk and reward with the customer, we create a much reduced risk for the airline compared to traditional models.

Performance gains

From our partnerships with a number of LCCs and smaller airlines, we have seen significant performance gains, ranging from system-wide incremental gains to truly transformative improvements in some areas, accumulating new efficiencies across the airline’s whole operations system:

  • New efficiencies all along the chain - no unlinked silos
  • New inflight revenue opportunities, including expanded choice and upselling
  • Puts the airline in complete control
  • Stronger, seamless passenger experiences
  • Better service, greater passenger satisfaction
  • Reduced waste, lower costs, stronger sustainability
  • Smarter use of crew time, including more time to serve (a recent LCC project showed a saving of 30 minutes in crew on-board time per flight) 
  • Motivating crew – expanded skills, extra opportunities to incentivize performance

Digitalization will drive the recovery

In the second blog in this series, Omnevo’s Project Manager Johannes Moll will share a case study detailing how a relatively small but forward-thinking LCC, SKY express, partnered with Omnevo to seize the digital initiative to strengthen its attack on the opportunities of the recovery and beyond. For any LCC considering a digitalization strategy, this case study demonstrates how any carrier can achieve new levels of operational efficiency, stronger passenger engagement and powerful new revenue streams. 
The post-COVID recovery will undoubtedly be a huge challenge for LCCs and will demand new thinking, new methods, and new performance standards; the digitalization of ancillary revenue delivers those needs, placing the digital adopters in pole position for recovery.