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Airlines fight to create brand stickiness among customers

Vistara, Jet Airways, SpiceJet, AirAsia look to maximise revenue per passenger and create brand stickiness through a slew of ancillary services

By Aneesh Phadnis | Business Standard | 3 October 2017
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Even as airlines continue to use deep discounts and price as a bait to hook fliers, many are looking at ways in which they can induce some stickiness to the brand by offering a slew of conveniences and add-on experiences. And, of course, also thereby increase earnings per passenger.

Two weeks ago Jet Airways announced that customers can pre-order duty free items from its website and collect them on board. Earlier this week AirAsia India partnered with Zoomcar giving discounts to passengers who hire selfdrive cars from latter’s website. Vistara recently launched priority check-in, boarding and baggage handling service for its economy class passengers for a fee.

The trend is sure to pick up steam because, as domestic airlines say, expanding their ancillary offerings enhances customer convenience and boosts revenue.

Ancillary income refers to non-ticket revenue and includes fees and charges for meals, excess baggage, cancellations and date changes, sale of holiday packages or insurance, advertising income among others.

While this is still a miniscule portion of the revenue stream for all airlines, given the increased commoditisation of the sector, it presents airlines with an opportunity to differentiate themselves, create greater affinity with customers and of course, push up revenues.

The long term objective is to get the customer to consider an airline for the value of its brand and not just discounted fares.

Domestic air traffic is rising, it went up 17 per cent this year, but much of it has been on the back of low fares. Thus airlines are looking to push up ancillary income as yields (revenue per passenger) remains under pressure. Jet’s initiative to sell duty free items online is one such move as it opens up a new distribution channel and allows for increased sales.

Quite often on-board purchases depend upon impulse or mood while pre-order option enables passengers to browse and select products at their convenience.

Traditionally, the ancillary income options for Indian airlines consisted of excess baggage and cancellation fees. But now the list of ancillary services is growing.

Jet Airways is the first Indian airline to offer pre-order duty-free products, but peers like Lufthansa have been at forefront when it comes to such innovations. Lufthansa partners with Frankfurt airport and allows passengers to purchase merchandise from airport duty-free stores on board and collect it on arrival at Frankfurt.

“Overall, airlines are getting savvier in order to maximise revenue per passenger instead of just selling a seat,” remarked Raymond Kollau, founder of Amsterdam-based research agency AirlineTrends.

A survey by US-based consultancy IdeaWorksCompany reveals that top ten airlines earned over $28 billion in ancillary revenue in 2016. According to the survey, US-based lowcost airline Spirit earned about 46.4 per cent of all its revenue from ancillary sources, followed by Frontier Airlines and Allegiant Air (both from US) which earned 42.4 per cent and 40 per cent, respectively, of their revenue from ancillary sources.

The contribution of ancillary income to overall revenue of domestic airlines is still low but is growing fast. Earlier in the year SpiceJet chairman Ajay Singh said share of ancillary revenue has increased significantly since 2014. Singh is targeting it to rise to 19 per cent. SpiceJet has rolled out several measures including sale of holiday packages and loyalty programmes to grow its business.

“Ancillary on an average contributes more than 10 per cent to our total business,” an AirAsia India spokesperson said. Growth has been led by increase in network and passenger volume and also as a result of new initiatives undertaken by the airline.

AirAsia said it is constantly improving its products and services and examples include revamp in inflight meals, multi-channel sales approach and inflight-branding opportunities. “We have an innovative approach when it comes to our ancillary offerings. Be it the ice creams we sell on board, the cold soups and salad that we introduced for the summer or the partnership with Amazon to offer the Kindle onboard as a free pre-book service, we’ve broken the routine,” the spokesperson added.

AirAsia India earned ~361 per passenger in ancillary income between April-June, the airline’s Malaysian parent said in a stock exchange notification. The earning per passenger was however 13 per cent lower compared to same period last year.

Vistara said it will launch attractive baggage allowance scheme and travel insurance products. It has been working towards offering a larger set of offerings to keep fliers hooked for a few years now. “We have a range of ancillary products at nominal fees for customers who wish to enhance their journey with us. These products are proving to be very popular with our customers and have a good take-up rate,” says Sanjiv Kapoor, chief strategy & commercial officer, Vistara.

While service remains the true test of airline brands the world over, these measures are being seen as ways in which to enhance flier experience and add to airline revenue at the same time.