A multi-channel merchandising approach is nothing new for successful airlines. However, an omni-channel approach concentrates more on creating a seamless customer experience through all shopping channels. It enables customers to experience an airline's brand regardless of the channel rather than being just another channel within the brand.
Key to the success of any end-to-end merchandising strategy is a carrier's ability to position and sell its product and service offerings to the intended audience through the most effective channels. For years, airlines have utilized a variety of methods for advertising and selling airfares, including, but certainly not limited to, consumer media print advertisements, travel agencies and, more recently, individual airline websites and other Internet-based travel sites. The premise was simple: offer the consumer the lowest fare possible from point A to point B, as scheduled.
However, upward costs, downward revenues, and market and consumer pressures are bringing changes to the aviation industry. No longer is it simply enough to offer the lowest airfare. Airlines are acting as retailers, merchandising their products across a variety of venues and competing for the time and attention of targeted consumer groups.
The evolution of merchandising within the aviation industry is transforming the way airlines conduct business and connect with consumers. Whether brick and mortar or electronic, the storefronts (or channels) utilized by carriers to promote their offerings can either draw consumers in or drive them away. Today's travelers are tech-savvy and confident about what they want. Many carry mobile devices equipped with meta-search engine capabilities to provide them with an abundance of information in seconds. They expect the same level of accessibility from the businesses they frequent, including airlines, and they desire transparency and rich content rather than hidden costs and restrictions.
Build A Channel Strategy
A solid distribution-channel strategy is an integral component of an airline's overall merchandising strategy. It is built upon an airline's clear understanding of several elements including:
- Its product and service offerings (à la carte ancillaries, branded fares or a combination of both),
- Competitors' actions,
- Economic pressures,
- Market trends,
- The price at which customers will pay for what they value.
Given the range of merchandising opportunities, airlines may overextend themselves in an attempt to establish a presence in their desired channels. Some carriers experiment, bundling and unbundling any number of ancillary products and services, seeking a profitable combination. Others are simply content to follow the lead of competitors that, for example, are successfully selling premium seats for an additional US$25. No matter the tactics employed, carriers will find they must be agile enough to efficiently revise their offerings or adjust their channel mix to meet financial and operational goals.
The channel mix an airline pursues should be researched thoroughly, prioritized and supported by technology that is robust and agile — able to quickly evolve as airline merchandising techniques become increasingly sophisticated. By partnering with an experienced technology provider, such as Sabre Airline Solutions®, airlines have access to industry expertise and decision-support tools that support each step of the merchandising cycle, including channel strategies. The key then is for airlines to enter the ancillary market with optimal execution and to continue strong, drawing on their creativity and data analytics to better define their offerings and the most profitable channel mix.
Meta-Search Engine Capabilities
Many airline travelers carry mobile devices equipped with meta-search engine capabilities that provide a wealth of information in seconds. They require the same level of accessibility from the airlines they frequent, and they expect transparency and rich content as opposed to hidden costs and restrictions.
When it comes to distributing and selling ancillaries and branded fares, one size does not fit all. While many airlines have developed and implemented creative and successful initiatives to differentiate themselves, the retail aspect of such initiatives has been, until recently, primarily focused on carrier websites and/or airport kiosks.
However, it is now possible to extend service offerings directly to offline and online travel agents and corporate travel management companies, which ensures consistent traveler application across channels and maximizes revenue creation opportunities. Consider that some ancillaries may perform well in one channel and not another, while a different mix might find different results across channels. Evaluating the performance of ancillaries, while only looking at how they perform in a single channel, could yield results that are, in some cases, skewed and, in extreme cases, counter to the results that the airline might find if the performance was evaluated in all channels the airline utilizes.
To further strengthen the emerging retailing efforts, industry governance bodies, such as ATPCO and IATA, have been working for the past two years with carriers and solution providers worldwide, to establish a fee filing standard (Optional Services or "OC") and the electronic miscellaneous document (EMD) as the common standards to facilitate the creation, issue, fulfillment and accounting of ancillaries.
It is important to note, though, that the objective of the new OC filing is not to standardize the product and service offerings of airlines, but rather to provide a single efficient and flexible method for carriers to fulfill and track those offerings to travel agents, corporations and consumers. EMDs, like OC filings, provide the building blocks upon which airlines can differentiate their respective brands and promote a consistent image. However, EMDs or OC filings alone do not guarantee brand or product consistency across channels.
A consistent brand image is developed over time, evaluated regularly and supported by an airline's merchandising strategy. Inconsistency allows competitors to draw consumers away.
Know Your Customer
The "right" channel mix for any given airline is the one that reaches its most profitable passengers, without ignoring larger less-profitable segments that keep its brand relevant in the marketplace and its flights full. In general, the 80/20 principle applies. Eighty percent of an airline's passengers usually generate 20 percent of its revenues, while the remaining 20 percent of passengers contribute 80 percent to the bottom line.
In addition, the right mix provides opportunities for airlines to up-sell and cross-sell at any customer touchpoint. Today's consumer travels at different times for different reasons. During the week, for example, it may be for business, but on the weekend, it may be purely for pleasure or visiting relatives. These "channel-jumping" travelers often employ different methods to book different types of trips, or they may book a flight via one channel and trip-related ancillaries through another channel at a later date.
While a multi-channel distribution approach has been effective in reaching a wide range of customer segments in recent years, an omni-channel approach helps ensure a seamless customer experience for channel jumpers as well. It lets consumers experience the brand, not a channel within the brand.
Industry data shows a clear correlation between consumer purchasing behavior in association with various trip types and distribution channels. Premium seats and services tend to sell better in the travel agency channel, while the lowest-fare seekers often shop online, through either an airline's own website or an Internet travel site. Each customer segment has a different set of attributes it values and for which it is willing to pay, or not pay. Therefore, it is imperative for airlines to understand who is traveling when and for what reason.
Evaluate The Options
Determining the appropriate target audience and objectives for the different channels and developing an effective, holistic channel mix is a complex process. Although the merchandising strategy a carrier develops may potentially meet its marketing objectives, support brand consistency and differentiate its offerings from the competition, it will not generate incremental revenue unless consumers are first attracted to the storefront, or channel, and then enticed to enter, shop and actually buy.
It is a fact of human nature: the look, feel and ease of use of a channel greatly influences how consumers receive and respond to an airline's offerings. Certainly, there are factors beyond a carrier's control, but in many cases, both direct and indirect channel providers are searching for ways to coordinate with airlines to create a positive and seamless customer experience.
The rise of individual carrier websites, or electronic storefronts, is in large part a response to the new breed of tech-savvy consumers who desire greater control over their travel experience coupled with airlines' need to reduce overall costs of direct distribution. As an increasing number of consumers utilize this direct channel to book, it is essential for carriers to maintain state-of-the-art websites that are content rich as well as easy to use.
With this in mind, airlines, working with technology solutions providers, such as Sabre Airline Solutions, are incorporating ATPCO OC filings, EMD standards and advanced merchandising capabilities into their individual sites. Some carriers are even hiring former retail executives to develop and lead their e-commerce initiatives and channel strategies. No matter how a carrier chooses to proceed, executive- and upper-level management support is crucial.
A user-configurable Web-booking engine enables airlines to dynamically adjust service offerings; create bundled and unbundled offerings to targeted passengers; and easily add photos, graphics and tags, providing an eye-catching retail experience for potential customers.
By year-end, customers will not only be able to book and purchase ancillaries on airline websites, but also exchange tickets with associated ancillaries and/or adjust or add ancillaries to current bookings, further extending a passenger's control of his or her travel experience. These capabilities have existed for some time, but not using industry standards. They provide the scalability and flexibility an airline needs to grow its ancillary offerings without the need for customized programming every time a new product offering is launched.
GDSs And Indirect Channels
Global distribution systems and reservations platform providers, such as Sabre Travel Network® and Sabre Airline Solutions, respectively, are currently investing millions of dollars to incorporate ATPCO OC and IATA EMD standards, as well as advanced and agile merchandising capabilities, into their solutions. The increased capabilities and flexibility are no doubt advantageous to airlines, extending their product offerings to a wider group of travelers and even into regions where brand recognition and penetration are not high.
However, airlines are not the only beneficiaries. Corporate travel departments, travel agents, online travel agencies and other travel retailers, which are powered by GDSs, are now able to offer and book the same ancillary services and branded fares to travelers that were once offered only through airline websites, kiosks or call centers.
More than 50 percent of tickets booked worldwide are done so by travel agents, online travel agencies and corporate travel departments. IdeaWorks, a company that analyzes airline loyalty programs and ancillary product strategies, estimates carriers could triple ancillary revenues to US$100 billion by the end of 2012 if these indirect channels were considered an integral part of the airline distribution process. To achieve this revenue goal, travel agents and other online and offline travel retailers must receive further information and training regarding airline fares and ancillaries.
Further, airlines can, as part of their merchandising strategy, utilize their service offerings and promotions in the indirect channel to influence travel agents to recommend and ticket travelers on their carriers as opposed to others.
Not surprisingly, a recent IATA survey found that 96 percent of airlines utilizing the OC and EMD standards plan to do so in all distribution channels, including brick-and-mortar and online travel agencies and other travel retailers. Standards are the key. And an omni-channel approach is the key to revenue optimization.
Mobile Applications A Must
As part of their effective merchandising strategy, airlines should extend and redesign the capabilities and offerings currently available through other indirect and direct channels to mobile applications with graphical interfaces. This gives them a unique opportunity to reduce costs by expanding their use of customers' portable infrastructures.
It is impossible (as well as unprofitable) for any business, especially one that focuses on mobility, to ignore the rapid proliferation of mobile devices, including smart phones, tablets and notebooks, now utilized in the marketplace. At the end of the first-quarter 2012, global mobile penetration had reached 87 percent, with mobile subscriptions around 6.2 billion and actual subscribers reaching 4.2 billion (many people have more than one subscription).
The task ahead for airlines is to extend and redesign the capabilities and offerings currently available through other indirect and direct channels to mobile applications with graphical interfaces. This offers a unique opportunity for carriers to drive down costs by expanding their use of customers' portable infrastructures. However, much more importantly, it puts the airline where the consumer wants them to be — available in the palm of their hand. Just as the Internet transformed how much the traveling community shopped for and purchased their travel, mobile is transforming how consumers travel.
Merchandising, though, is still met with some amount of skepticism in the mobile channel, due in large part to users' fear surrounding privacy issues. A recent industry survey noted that most passengers prefer airlines utilize the mobile channel to deliver time-critical operational information impacting their flights, before earning the right to offer special promotions and ancillary services.
On the other hand, with consumers now conditioned to receive personal and timely communication from businesses, service providers and those in their social networks, individually targeted merchandising offers and customer care may soon be widely accepted, especially as "context-aware" applications that take into account location, user profiles and time become commonplace.
During the next few years, carriers may utilize distribution channels to merchandise not only branded fares and ancillary services, but also offerings once considered outside of the traditional passenger lifecycle. Passengers may be given the option to complete a follow-up survey regarding their experiences, for example, or choose to receive a gift basket upon arrival at their destination.
In addition, third-party airline ancillary revenues — a potentially profitable resource for carriers — from hotels, rental cars, tours, credit cards and other non-airline business ventures will continue to grow in popularity as travelers take advantage of one-stop shopping and booking capabilities through these channels. Forrester Consulting predicts third-party ancillary revenues will rise 30 percent over the next five years. And a passenger survey by GuestLogix found more than half would take advantage of destination-related offers onboard a flight, particularly services that could be utilized immediately such as entertainment and attraction tickets, ground transportation and tours.
As carriers continue to form partnerships and alliances to maximize their investments and further their brand influence, interline merchandising strategies, including synchronized pricing and revenue management, complementary ancillary offerings and bundled packages, will advance further. Coordinating and prioritizing a common omni-channel approach across members may prove complex, but a recent IATA survey found that 87 percent of airlines utilizing industry standards to conduct ancillary business also plan to use them to process interline activities.
Finally, as the use of social media expands, airlines will continue to devise innovative ways to converse with individual travelers in an effort to determine and evaluate preferences and tailor ancillary offerings in response.
Positive Customer Experience
As airline merchandising strategies become more sophisticated and technology providers race to incorporate new capabilities across all channels and points of sale, the main focus for airlines should still be a positive customer experience. Retailing is a complex business that requires a delicate balance. Providing too many options and too much information to consumers can be overwhelming and confusing. Airlines must determine if a passenger feels "nickel and dimed" by a string of questions directed toward him/her at each touchpoint. Is the search process so complicated that it inhibits an actual sale? If so, consumers may take their business elsewhere.
Merchandising can be and should be profitable for both travelers and airlines alike. The optimal channel mix delivers the right product to the right customer at the right time.