You might be surprised by the ancillary fee that's boosting airlines' bottom lines.
An old term has regenerated in the travel industry: 'Next Best Offers'. The Next Best Offer, or NBO, is the most relevant and appealing offer to a customer in the moment, based on the customer’s location, context and personal preferences. In the past, next best offers were made by travel agents to travelers looking for trusted advice, recommendations and immediate help adjusting plans while on a trip. Today, with more advanced technologies, large data repositories and big data analyses, travel providers can deliver a personalized service to their customers as well as optimize their own revenue stream by automatically sending NBOs that complement an existing or previously purchased service. However, when is the right moment to present a particular offer so it is most relevant and appealing? This is the challenge for many travel service providers. On the day-of-travel, a highly stressful and somewhat unpredictable day, there are key moments when certain offers are particularly appealing to travelers and FlightView knows when they are.
FlightView knows when a traveler’s flight touches down at its destination and when it arrives at the gate. Also, we know the exact moment when a traveler's flight is delayed and if there’s a new estimated time of departure. Finally, when a passenger’s fight is cancelled, FlightView can immediately tell you. At every one of these moments, there is an ideal NBO(s) to present to the traveler.
Austrian Air is offering an interesting way for its fliers to purchase business class upgrades via auction. By naming their price, Austrian’s customers are bidding on the chance to enjoy business class amenities for economy class prices. The catch is that fliers must submit their
bids when booking their flights – then 72 hours before takeoff, Austrian will accept or deny their offers. This is an innovative strategy, but the timing of the airline's upgrade offer doesn’t coincide with the natural buying behavior of fliers. In our business traveler survey, we found that airlines are missing a major opportunity to earn more ancillary revenue by pushing upgrade offers to fliers at the right time – on the day they fly, and in the right place – via their mobile phones.
Top day-of-travel ancillary purchases
The top ancillary fees business travelers we surveyed would pay for on the day-of-travel include:
Business traveler purchasing behavior
Business travelers are opportunistic purchasers – think about it, are you more likely to lay out even more cash when you’re booking tickets from the comfort of your home or office, or is the opportunity to buy access to business class lounges and fast-lane service more appealing during unforeseen delays when you’re stuck at the airport?
When fliers are more likely to pay ancillary fees
By pushing business-class upgrade opportunities to economy travelers a few hours before their flight, Austrian avoids the disappointment and possible resentment fliers will feel if their bids aren’t accepted. Although Austrian’s business-class amenities aren’t offered a-la-carte, the full-flat bed or guaranteed empty adjacent seat, priority boarding and fast-lane service hit right in the sweet spot of upgrades fliers are willing to pay the ancillary fee on their way to the airport or as they wait at the gate.
What’s your take – would you rather gamble in advance on the possibility of an upgrade at a price you think is fair, or buy a guaranteed one in real-time for a price the airline sets?
Airlines vary as to which amenities they include in the price of their plane tickets and which ones they sell separately – with the primary goal of optimizing revenue, and for some, wanting to position themselves as a premium vs. low cost carrier. But it is an interesting optimization problem to determine which amenities to include in the price of the ticket and which to offer as an add-on for an extra cost.
What amenties will travelers pay extra for?
If you’re like me, you avoid purchasing ancillary services like the plague when you book your airline ticket. After feeling as though I’ve finally succeeded at finding the lowest fare to my destination, at least for the moment, I have no interest in spending more money on in-flight Wi-Fi, extra bags, early boarding privileges, or a lounge day pass (I’m 5’ 1” so extra legroom is a bit unnecessary for me). In fact, with so many extra fees associated with booking airline tickets today, I feel great about getting away with 1 fee plus tax!
But how about the day I fly? I may have gotten up at 4am to make an outbound flight and now it is 7pm and I’m arriving at the airport to catch a 9:30pm flight home. I’m exhausted and that airline lounge sounds mighty appealing for the next 2 hours. Or I may have arrived at the gate only to find out the plane is completely full; meanwhile I know I need to bring my bag on the flight so I can quickly deplane and grab a cab to a business meeting. Paying for early boarding privileges is ideal.
Do you Wi-Fi when you fly? On a flight from D.C. to Boston last weekend with our antsy toddler, I seriously considered coughing up the cash for in-flight internet service even though we’d only be in the air a short time. But the weird thing is, it didn’t cross my mind to purchase Wi-Fi until the flight attendant made the announcement that it was available. It seems I was on the same page as many of our respondents in a recent FlightView traveler survey where 71% of travelers hadn’t purchased add-on services like Wi-Fi via an airline’s mobile website or app, but almost 60% would consider it if a notification was pushed to their device before boarding.
In-flight wi-fi options
When booking a flight there are a number of factors to consider – convenience, price, on-time statistics, loyalty programs, layovers, distance traveled, and total time traveling. Not only do all of these factors play a part in our decisions, but each one of us weighs each of these options differently and may even weigh them differently on a trip by trip basis. I know I have been guilty of deciding that a layover in Texas around lunchtime (BBQ!) is superior to a layover in Salt Lake City at 10am and lunch on the plane (protein bar or one of those pre-packaged lunch boxes) even if the former gets me home a bit later.
In the past few years as airlines have added amenities and unbundled their products, they have created a new class of factors for travelers to consider. Recently FlightView surveyed over 3,000 travelers about what amenities they would be will to pay a slightly higher price for a flight. The top choice – free in-flight WiFi. 53% of the respondents claimed that they would pay more for a flight if they knew the flight had free in-flight WiFi.
While senior IT executives at the top 200 airlines worldwide were “cautiously optimistic” about IT investment in a 2012 SITA survey, this much is clear: economic uncertainty and unpredictable jet fuel prices aren’t dampening enthusiasm for upgrading passenger mobile services. In fact, it tops the lists of investments for the second consecutive year, with 60% of airlines planning major investments in mobile passenger services over the next three years. Here’s a look at where those IT dollars will go.
According to SITA’s 2012 Passenger Self-Service survey, 74% of travelers interviewed booked their travel online, but only 3% purchased tickets via mobile devices or social media. Airlines are looking to change that – 70% said that after 2015, mobile will be the second most important sales channel behind the Web. 90% of airlines plan to sell tickets via mobile and 83% will sell ancillary services via mobile. Passengers should be able to purchase ticket modifications and upgrades, preferred boarding access, choice seating, airline lounge access, in-flight amenities and pay baggage fees all via a mobile device by 2015.