In its 2018 Airline Digital Merchandising White Paper, Diggintravel explores the digital merchandising practices that work best for airlines to increase ancillary revenue.
The survey of 38 airlines around the world, split 66% to 34% between full service carriers (FSCs) and low cost carriers (LCCs) respectively, evaluates their level of digital merchandising maturity.
The survey looked at merchandising elements including the presentation of branded fares or fare families, the mechanics of upselling products and services, the a la carte ancillary product offering, and the methods used to persuade sales, against Diggintravel’s Airline Digital Merchandising Framework. The report states:
“Great ancillary products are not enough to grow your ancillary revenue; digital merchandising skills and customer centricity are needed as well. Similarly, great ancillary strategies cannot be realized without organizational agility, integration and agile IT platforms. Finally, framework is also a tool for self-assessment for airlines to realistically asses their digital merchandising competence. In a lot of cases there is an organizational belief that own digital and ancillary revenue competence is at a higher level than it actually is.”
The report then classifies airlines into three categories based on their comparative performance: laggards (17 of the airlines included in the study); followers (15 airlines); and leaders (six airlines).
Among LCCs, no airline was classified as a Laggard, seven airlines were classified as followers, and six airlines were classified as leaders. In other words, all of the leader airlines are LCCs.
Of the FSCs, 17 were classified as laggards, and eight as followers.
Ancillary revenue represents less than 5% of total revenue on average for airlines classified as laggards, compared to an overall average of 12%. Ancillary revenue rises to 14% of total revenue for followers, and 27% of revenue for leaders.
58% of airlines surveyed reported that increasing ancillary revenue was one of their top three priorities in 2018. That is a drop from 2017 when nearly 70% of airlines replied that it was among the top three priorities.
The digital merchandising audit reviewed the following elements of the airlines’ booking platforms:
- Search results page and usage of fare product bundles (branded fare, fare family, or a subscription model)
- Structure of the fare or product bundles (display, differentiation between options, bundle features, upsell benefits and triggers)
- A La Carte ancillary products offered during the booking process
- Innovative approaches used for ancillary products during the booking process
It also broke down each of the ancillary offerings by revenue generated, with bag fees at the lead (as reported by nearly all airlines), seat selection as the second highest contributor to revenue (as reported by over 70% of airlines) and branded fares or other upselling strategies accounting for a significantly lower third ranking (as reported by just over 30% of airlines).
Sale of non-punitive ancillaries—products or services that are unrelated to formerly bundled features—like sales of frequent flyer miles, airport services, and destination/day of travel ancillaries were the three lowest categories reported by airlines as contributing to revenue.
However, onboard services, like meals, duty free, IFE and Wi-Fi charges were ranked as contributing to revenue nearly as much as fare bundles—as reported by just under 30% of airlines.
The timing of the merchandising of these ancillaries can shape performance. Ancillaries such as bags charges, and seat selections perform better than other categories during and after booking, but especially better during the booking process.
However, airport services — like priority boarding and lounge access — or day of travel/destination offerings perform significantly better post-booking.
As the report states:
“Travel cross-sell products (hotels, cars, insurance, holiday packaging) are the third most important ancillary product category in the post-booking period at 32%. Understanding your customer decision journey (CDJ) and using your customer data to create relevant offers is a must for successful post-booking upselling and cross-selling. Creating relevant (if not personalized) offers in the post-booking period should be easier for airlines as the booking is already done and customer data is captured in a more structured way. Post-booking is also an area where you can be more flexible with your experimentation and testing.”
One key factor to support creative digital merchandising is the relative flexibility of booking platforms, and the report suggests that most airlines are not satisfied that their booking platforms allow for enough creative retailing.
- 40% of respondents said their booking platforms are not flexible.
- 55% said their platforms are somewhat flexible, but that adding ancillary products and services take a lot of time and effort.
The Diggintravel report states:
“During the digital audits of the surveyed airlines, we found an interesting pattern. At least 11 out of 38 airlines (almost 30%) had a very similar booking path experience. The digital merchandising process, meaning branded fare / fare family display, ancillary a la carte flow, a la carte selection and presentation UX, was conceptually the same. Design and styling was different, but digital merchandising mechanics were basically identical. Or, as they say, ‘if it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.’ Satisfaction with their booking platform was below average for these 11 airlines, and seven of them claimed their platform is not flexible. It probably isn’t a coincidence that all but two of them were classified as Laggards.”
Travelaer, which sponsored the Diggintravel report, offers a Travel Paas booking platform which aims to address this inflexibility by making it easier to integrate products and services across all channels and along the various points in the journey.
In their mobile platforms, airlines are taking baby steps towards progress. The majority of airlines surveyed (58%) said they have included responsive design for their bookings engine, optimized for mobile devices. Less than 10% of those surveyed said they had designed their bookings engine as mobile-first. Diggintravel states:
“It’s very challenging for airlines to navigate the mobile-first world. Regardless of the scenario (a mobile website, an app or a messaging platform), you need to plan and design special mobile experiences. This is the next step — the step from optimizing for mobile to building experiences specially for mobile.”
Despite possessing massive stores of data about their customers, airlines are also slow to adopt predictive analytics and machine learning to shape in their digital merchandising initiatives.
- 63% said they don’t use any or didn’t provide an answer
- 21% claimed they use predictive analytics 13% built recommendation engines
- 11% are using machine learning and artificial intelligence
The full paper is available to download here.