- February 17, 2015
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By Avik Dasgupta
Ancillary revenues are gaining importance as a growth driver for the airline industry…
Ancillary revenues are a key part of many airlines’ business models. In established markets such as North America and Europe, some carriers such as Spirit, Wizz Air and Allegiant are seeing ancillary revenues account for more than 30% of total revenues. The trend has spread to Asia Pacific, with Air Asia and Tiger Airways also seeing around one fifth of total revenues from ancillary services.
A recent study by IdeaWorksCompany and CarTrawler projected airline ancillary revenue to reach $49.9 billion worldwide in 2014. The estimate represents a massive increase of 121% from the 2010 figure of $22.6 billion.
According to the International Air Transport Association (IATA) the world’s airline industry earned an $18 billion after-tax profit for 2014. This came to $5.42 per passenger and a skimpy 2.4% profit margin. The importance of ancillary revenue is evident when the $49.9 billion projection is divided by IATA’s estimate of 3.32 billion passengers. This yields ancillary revenue of $15.02 per passenger. Clearly, without ancillaries, the industry would be making a loss from just its core seat and cargo products.
..With value generation, flexibility in distribution and analytics as key imperatives
Maximizing ancillary returns is not just about commissions, products or technology but also on strategy which should now be at the core of any airlines’ business. Following are the key imperatives for maximizing ancillary returns
- High flexibility in managing and distributing- Making ancillary capability channel-agnostic
- Better Analytics with easier access to data– Using analytics to
- Maximize ancillary opportunities
- Manage routes by yield and ancillary contribution
- Enable transparency & accountability of ancillary revenues
- Enhanced Customer Experience- Creating value propositions based on increasingly real-time information about customer preferences and needs and using that information for targeted services. Dynamically tailoring ancillary products to customer’s circumstances and/or a route-by-route basis.
.. Enabled by EMD – the global industry standard for enhancing Ancillary Services value chain
Paper miscellaneous documents issued by airlines to record and sell ancillary services required legacy paper processes and infrastructure – adding cost and complexity to the industry distribution systems. The documents could also only be collected at airline ticket offices, causing inconvenience for passengers. From the travel agents perspective, it is increasingly difficult to sell these services, restricting market access.
To facilitate sales and collection of ancillary services through all distribution channelsIATA introduced theElectronic Miscellaneous Document (EMD). EMD was basically an e-ticket for optional services that airlines offered and helped take the remaining paper out of the airline ticketing processes.
EMDs have replaced all miscellaneous transactions including traditional paper documents (MCOs, tour orders, prepaid ticket advices) in IATA BSP worldwide. As on December 2014, nearly 190 airlines were using EMD standard to support their direct and indirect sales. Even travel agents can only issue Electronic Miscellaneous Document (EMD) in the IATA BSP.
- For Airlines:
- IATA anticipates a revenue increase of more than $2 Billion through the use of EMD. The higher revenue would be achieved through selling more services through more channels: a mix of traditional channels (GDSs and travel agents) and new channels (web, mobile phone).
- Elimination of paper documents and better back-office productivity will enable airline to achieve cost savings between $450m-$900m according to IATA. Airlines will also be able to track and attribute revenues faster and more accurately.
- For Passengers:
- Enhanced flexibility: Allowing passengers to customize their journey, purchasing only the services they value.
- Easier access by providing multiple channels: Passengers will be able to purchase services on the web, at a kiosk, on mobile phones, at check-in desks or from travel agents
- Less hassle. Ancillary services can now be offered across multi-leg journeys, even those involving multiple airlines
- For Travel Agents:
- New opportunities to sell additional services
- Capability to issue and track EMDs via their own systems ensuring increased productivity, market intelligence, and more efficient corporate billing and control
- Offering greater flexibility, improved customer service and customizable for one’s local market needs
IGT EMD Services Value Proposition
Today, it has become imperative for airlines to become EMD capable not only to comply with the IATA mandate but also to effectively assist them in transitioning to a totally unbundled business model.As a preferred travel technology partner, IGT has been successfully managing huge EMD implementations for GDS, as well as Airlines. Along with regulatory compliance, IGT also ensures reduced implementation time by more than 20% through a preconfigured system architecture diagnostic kit and reduced total cost of ownership by 10% through effective change management and re-architecturing.
About the Author:
Avik Dasgupta leads the thought leadership marketing division at InterGlobe Technologies(IGT). With an engineering degree in Information technology from Mumbai University and a management degree in Marketing from the Institute of Management Technology, Nagpur, Avik has 7+ years of IT marketing experience. Having worked in leading firms like Polaris Financial Technology and Cognizant Technology Solutions prior to joining IGT, Avik has authored several blogs and articles on BFSI and Travel technology innovations . He can be reached at firstname.lastname@example.org