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Growing beyond the Ticket: why 2022 will see a surge towards the digitalization of ancillary revenue

December 22, 2021
Author Kian T. GouldKian T. Gould
CEO & Founder AOE, Chairman Omnevo

After 20-months of Zoom sessions it was amazing to be out in the real world again this month, flying the globe and actually meeting industry colleagues in person!

Following the World Aviation Festival (WAF) in London I moved on to Future Travel Experience (FTE) in Las Vegas and it was so encouraging to find that these two major industry events, 8,000 km apart, echoed the industry’s increasing buzz around the digitalization of ancillary revenue.

Sadly, I’ve now been brought back to earth by the latest twist in the crisis as Omicron looks to inflict yet another challenging phase. However, after two years of disruption the aviation industry knows it has to adapt to each new challenge and strengthen its ability to respond just as long as governments finally realize that locking down borders is a very short-sighted approach (unless you are an island state) and haven’t stopped any of the previous 4 COVID waves in any meaningful way. If the last two years have taught us anything, it is that airlines, like governments, will need to think a lot more globally than locally. 

More positively, calls for ‘growing beyond the ticket’ featured in almost every session at WAF and also resonated around FTE. After years of sharing the digitalization message, I’m excited that we may well have reached a tipping point where many more airlines (and some airports) will finally seize the digital initiative.  Let’s be crystal clear from the start; digitalization is the only way for the aviation industry to drive a strong enough ancillary revenue recovery. 

So, what has tipped the balance?

It’s the crisis, right?

The global crisis is the key influence, of course. Digital adoption has surged across every demographic to the point where we’re all now totally familiar with working from home, grocery deliveries, Zoom calls, online shopping, online consultations etc. Digitalization has expanded deeply into daily life, dominating the customer’s interaction with brands and service providers. 

While they’ve been away from airports and the airlines, consumers have changed radically. They’ve become accustomed to seamless, trusted experiences that give hugely expanded choice, tailored options, personalized offers, expanded services, versatile delivery options, etc. You want to choose a meal delivery for tonight? JustEat has 30,000 menus. You need some milk for your cake? It can be delivered to your home within 15 minutes. 

The past eighteen months has seen a global surge to digital interaction in everything from shopping and F&B to working from home and vaccination status. This behavior is now embedded, it will not revert when the crisis finally abates in 2-3 years, and it means that customers will bring new expectations to the airline seat table. Simply, aviation customer experiences will be judged against this new standard.

Pre-planned v. Impulse

Drilling deeper into this new behavior from the aviation perspective, it’s vital to see that consumers have switched dramatically to planned consumption and away from impulse - 78% of consumers research online prior to purchase, just 22% of purchases are made on impulse - and those figures are even wider apart among the key highest-spending Asian shopper target profiles. Of course, consumer behavior - and how businesses respond to those needs - has always been in a process of change, but the pace of change over the past two years is unprecedented. Consumers and businesses have undergone a dramatic evolution that covers buying behavior, workforce models, channel mixes, and business models, particularly in developing ever-stronger customer experiences.

As store-based retailing continues to decline (again, the crisis greatly accelerated an existing trend), we’re seeing the rapid growth of platform ecosystems and omnichannel as the key commercial battleground as brands/retailers adapt their competition strategies and business models. At its core, this trend has seen a shift in the balance of power as Retail moves from being a ‘push’ (i.e.B2C) to a ‘pull’ (C2B) model. What does this mean for airlines and airports? Basically, it means that the customer is increasingly calls the shots – and this has major implications for airlines and airports that want to grow their ancillary revenue.

The ancillary marketplace approach

At both WAF and FTE it was encouraging to hear numerous calls to look and learn from how other sectors are advancing their customers’ digital experiences. At AOE (Omnevo’s parent company, where I’m Founder and CEO), for example, I see every day how clients such as Play Station Network in gaming and T-Mobile telecommunications are continually innovating, constantly developing the customer experience. They know that no matter how good the experience they develop, they can never stand still. The common foundation for the success of these operators and of the leading online brand experiences is that they all developed and controlled their own digital marketplaces. Airlines and airports can adopt a similar strategy.

For a full summary of how airlines and airports can adopt a Marketplace strategy, please read the recent blog from my colleague, Omnevo CEO Michael Raasch.

Despite consumers now being accustomed to huge choice and amazing service in pre-selecting and pre-ordering their purchases, especially in Retail and F&B, many airlines and airports are still operating traditional models, reliant on impulse purchases, with limited choice, weak service options, no delivery options, inconveniently long cut-off windows etc. The dangerous gap between these experiences and the customer’s daily experiences online is widening rapidly – but it can be bridged.

Taking digital control

Ancillary revenue digitalization creates the ability to deliver a smarter response to customer needs, creating stronger customer experiences that power much stronger performance and revenue.

The power of digitalization is that it can be configured to work exactly how, where and when you want it, making it feasible for airlines and airports to deliver the new experience that the customer demands. These marketplace platforms enable a metamorphosis from an airline/airport into a lifestyle brand, thereby transforming the customer experience, developing significant operational efficiencies, and dramatically strengthening revenue streams.

Singapore Airlines’ KrisShop, for example, showed how to become an e-commerce destination and a lifestyle brand across their region using brand stores within the store and their own proprietary products and self-branded concept stores. They’ve recently further expanded by integrating the online shopping service into the KrisWorld inflight entertainment system and also launched the Kris+ App with incredible growth rates, enabling the customer to utilize their loyalty points not only for the Retail offer but also across a greatly expanded eco-system, such as restaurants, leisure, etc. The app gained over a million users within just six months – reflecting how, even mid-crisis, digitalization enables the airline to continually adapt to the behavior and needs of its customers, and continue to drive revenue even with limited traffic.

I’ve detailed KrisShop and other pioneering airlines and airports in earlier blogs on the Omnevo website so won’t go into further detail here, but essentially these operators are in a much stronger position to combat the impact of the global crisis and protect their revenue, both in the coming recovery phase and beyond. The power of digitalization is expressed by the remarkable fact that they protected – or even expanded - their revenue streams at the peak of the global slowdown, with planes grounded.

Current pressures have prompted more airlines into investigating how to engage with the customer even when they’re not flying, a strategy that has previously been almost entirely channeled through loyalty programs rather than as a core aspect of customer engagement. This shows again how important it is for airlines to stop behaving simply as traditional airlines.

Passenger v. Customer

Using the synergy of customer data blended with the loyalty program, they can sell far more than travel-related ancillaries by focusing on ‘the customer’ rather than ‘the passenger’. This means that the actual flight element may well be only be a relatively narrow aspect of the customer experience and their interaction with the airline. Instead, the ‘airline-passenger’ relationship expands hugely into a ‘lifestyle brand-customer’ relationship, opening-up an unprecedented range of revenue opportunities for the airline - exactly as the world’s leading lifestyle brands do.

Airlines can look at the best of the digital experiences offered by those top brands and can adopt similar strategies through the cross-industry commonality of platforms. I’m not suggesting that every airline (or airport) needs to match the customer experience of Chanel or Tesla; my key point is that digitalization is versatile enough to deliver precisely the customer experience and operational functions required, regardless of the scale of the airline or airport. An airport or FSC can exploit a digital platform to transform itself into a lifestyle brand with a full premium omnichannel operation - but the beauty of our core platform technology is that it can also be adapted to the specific needs of even the smallest LCCs that simply wants to develop a foundational F&B offer, for example (as Omnevo did for SKY express - a carrier with just 19 planes becoming a digital leader).The WAF and FTE events showed that the industry is increasingly awake to the digital opportunity for 2022, especially among the airlines, both FSCs and LCCs. The latter can target a wider range of digital ancillary options, especially through expanding their F&B operations and adopting a pre-order model. That same core technology is convincing FSCs to really see ancillaries as much more important way to compensate for the continuing threat to their premium ticket revenue. Regardless of airline size and structure, each can tailor the solution precisely to the needs of their customer and, like the world’s most successful brands and retailers, join their customer in the digital world. The customer wouldn’t have it any other way.

This impulse can be found and commented as Kian Gould Linkedin Pulse.