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Insights

Digital: The great equalizer for aviation's ancillary revenue?

April 13, 2021
About the author Michael RaaschMichael Raasch
CEO, Omnevo

Today's consumer and tomorrow’s traveler thinks, breathes and lives digital for almost everything that can be consumed or experienced. COVID-19's impact has measurably accelerated this consumer preference for digital in nearly every aspect of daily life.

Here's a self-evident truth. COVID-19 has presented the airline industry with, arguably, its greatest ever opportunity. And it’s digital.

Right now, for airlines – whether full-service, low-cost or indeed, anything in between, all business models are struggling to generate profits purely from ticket sales alone. These have largely become commoditised. Ancillary revenue therefore becomes the lynchpin in the drive towards not just survival but longer-term profitability.

Airlines that successfully leverage the scale, reach and integrations afforded by digital platforms across all their touchpoints – whether passenger or operational and including non-flight related ones – will be the ones that remain relevant and thrive.

In my last blog, I had approached this issue from the inflight retail business model perspective. Today, I want to cover the four key assets, systems and touchpoints that underpin the digitalization of ancillary revenues for Full-Service Carriers (FSCs) and Low-Cost Carriers (LCCs) alike.

Technology systems

FSCs are well-known for their legacy technology and platforms. These barely integrate across business units outside ticket sales, passenger servicing or departure control systems. LCCs, by contrast are marginally better off, but this is only due to their relatively recent emergence in aviation.

Where both types of airlines struggle is their ability to connect with travelers seamlessly across all online channels during the customer journey. Disparate systems are made worse by multiple – usually outsourced - vendors, which succeeds in further undermining airlines’ retail opportunities across borders and touchpoints.

Take the simple example of the onboard retailing technology currently in use by most airlines today. It is typically operated in an offline mode, and this is due to the lack of and/or high price of inflight connectivity. These systems are not integrated with any other part of the traveler journey – whether pre- or post-flight, and so limit the retail window of opportunity in so many ways, especially in product range.

Just imagine, then, the potential impact of a digital platform that seamlessly enables pre-order and pre-select with a full integration all the way to inflight and includes post-flight home delivery (if so desired). Passengers can be made aware of F&B options and be encouraged to pre-select and pre-purchase. The net result? A genuine opportunity to increase sales as well as a significant reduction in waste (and weight) from unsold, unnecessary inventory on board the aircraft.

Passenger touchpoints

The airline customer journey is traditionally predictable in its flow. But as stated, existing disparate airline retail technology systems limit the ability to digitally connect with their passengers outside of the booking, email and check-in stages.

Unlike LCCs who thrive on unbundling of products and services and maximise every opportunity to up-sell and cross-sell, FSCs have largely refrained from developing digital platforms and best retail practices that drive customer acquisition or interest beyond the ticket purchasing stage.

It can be strongly argued that any airline that continues to operate in this way in the post-pandemic period will not have the ability to be digitally discovered by customers who may be searching for allied, trip-related products and services.

Imagine a scenario where a passenger is en route to the airport. They realise that they have forgotten to get that all-important birthday gift for their daughter at home. But then they remember that the airline had sent them an email with a link to their pre-order shop in the morning (knowing that they were on the flight today…). So they click on it and are able to browse and buy from a wide range of children's gifts, with gift-wrapping and delivery done to their seat on-board. They’ve aced it.

But so has the airline, which has not only regained the share of spend from the airport, but also remained relevant to their customer, a customer who is likely to remember the experience and repeat it in future.

Range of products and services

COVID-19 has seen airlines retailing everything other than tickets. In almost every situation, customers have flocked to engage and purchase everything on offer, particularly online. Contrast this with traditional FSC or LCC airline retailing practices, where they have simply failed to attract, engage and convert ticketholders into consumers of other travel-related products and services. When customers have access to thousands of options from existing online E-Commerce platforms, why would they ever consider buying anything from an airline?

The key, of course, is trust and relevance. Customers already have implied trust in the airlines they are travelling with. “Relevance” then becomes a function of creating awareness of the need, range and value offering in the customer’s mind at the key moments.

Instead of 100 products supplied via one inflight retailer, packed in limited quantities inside inflight carts, what if the airline now offered access to 30,000 products supplied by multitudes of brands and retailers, complete with multiple fulfilment options post-flight? Onboard sales can then be narrowed to cater to pre-orders as well as proven impulse purchased products and best sellers, so providing cost savings and business efficiencies across the board.

Omnevo’s omnichannel E-Commerce end-to-end and integrated solution suite provides powerful and practical opportunities to airlines immediately. Leveraging such a platform allows airlines to target specific passenger touchpoints (beyond just ticket purchase) and offers relevant products and services from multiple merchants with customized delivery options. This is likely to prompt passengers to ask one question: “What can’t I buy from my airline?”

Loyalty

The loyalty dividend is a well-documented one in its contribution to airlines’ bottom lines. At the heart of this and driving its value, is data. Both FSCs and LCCs are beginning to realise that data in itself is useless - unless it is understood and managed effectively.

Traditional loyalty systems (and data) often suffer from the same fate as airlines’ retail systems – they are not integrated into the overall airline passenger retail journey beyond ticket purchase, customer servicing and check-in or departure control systems. Yet it is important to remember that loyalty member data does provide a rich context around passenger engagement with the airline. It enables potential customization and even personalization of offers.

Unlocking the hidden retail value in loyalty program members is pivotal to supercharging an airline’s ancillary revenue game.

It’s worth repeating: the power of Omnevo’s integrated, end-to-end, multi-merchant digital retailing platform is its ability to target across all passenger touchpoints, offering thousands of products and services and also engaging with loyalty program members more than ever before, during and post flight. Every successful accrual or redemption activity represents a significant emotional bank deposit for loyalty members – one that will keep them invested and coming back for more – which is the whole point of loyalty.

Bringing it all together – 2 examples

The key common denominator across all of these aspects is the need for flexibility and control. Airlines need to be in control of the solution as opposed to being controlled by it – managing suppliers, merchants and partners at scale, flexibly on one platform – in order to deliver the required branded experiences seamlessly.

Lufthansa’s WorldShop and Singapore Airlines’ KrisShop are two brilliant examples of just such an integrated solution. As premium airlines, their digital retailing offer needs to not only be attractive, but also in sync with overarching values such as sustainability and social responsibility which advance the standing of the overall airline brand in the market. Most effectively, this is a comprehensive redefinition of “airline retail” – allowing both airlines to focus on story-telling and brand-building without being hampered by legacy systems and operations.

Digital to the rescue

According to a recent article by McKinsey, airlines spent approximately 5% of their revenue on technology pre-COVID. This is low when compared to retail at 6% and financial services at 10%. It's not rocket science. History has shown that digitalization works when it is architectured, designed and implemented well.

For the very first time, previously disconnected airline business units – from marketing to loyalty, to catering or duty free, for example – can be combined on one integrated platform to deliver a seamless, branded experience for travelers. The net result will be significantly greater ancillary revenues per passenger, smarter business efficiencies and cost savings, better waste management, a more wide-ranging and relevant consumer offer that can be presented at the most opportune moments in the passenger journey. And, most perhaps importantly, all done without the need for heavy capital expenditure that has characterised typical technology implementations in the past.