Thursday, June 12, 2008

Airline Ancillary Revenue and the Long Tail



This week I am London and I had the pleasure of presenting to and participating in the Datalex User Group meeting. Datalex who has been a Travel Tech client for many years, provides a distribution platform to airlines and travel agencies. The audience consisted of major carriers and travel distributors. One of the hottest topics we discussed is the concept of ancillary revenue. This can be defined in a number of ways. The traditional model was developed by low cost carrier RyanAir who essentially charges for all services (bags, refreshments, etc..) and in addition also sells merchandise on board. Due to the fuel crisis we've seen the legacy carriers follow suit with baggage charges and other fees. The airline term is ancillary revenue, but I believe the real opportunity is the Long Tail. At the conference, I had the pleasure of meeting Chase Cunningham most recently of the now defunct low cost carrier Skybus. Chase was in charge of ancillary revenue for SkyBus. Chase spoke about selling everything from in flight advertising to merchandise (a la RynanAir) . Due to his efforts Skybus even sold Ohio State football tickets on their Website.
I believe the coming wave in mobile and in-flight technology presents an interesting opportunity for airlines to expand the concept of ancillary revenue. By expanding the ancillary revenue definition beyond fees for formerly free services, to more of a Long Tail concept, airlines have a unique opportunity to help promote airport merchants, and destination services. The mobile platform in particular is an excellent way to provide more destination type of services. Rearden Commerce a major corporate booking tool supplier has released a Blackberry version of their product that allows ancillary services such as show tickets and restaurants reservations to be made on the smartphone. There is no reason airlines could not provide a similar service and profit from the referral. When onboard Internet arrives courtesy of suppliers such as AirCell, the airline can use the captive audience to sell a much more expanded version of SkyMall. Now a days when you go to the movies, all sorts of advertising is displayed while you wait for the previews to start. Airlines have an equally captive audience. Of course care needs to be taken to not overload the passenger with promotions as that could anger the traveler and hurt the brand. Providing the right balance of destination oriented content for the on board and mobile experience is in the near future and represents an important ancillary revenue opportunity for airlines.

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