NB: This is a guest article by Mark Lenahan, vice president of product strategy at OpenJaw Technologies.
Fifteen years ago, when I worked in a large TMC, one of the sales agents rushed to claim his prize for outselling every other agent in the UK: return flights, first class, London to Sydney.
The thing is, the agent was earning mostly commission and couldn't really afford a holiday. Taking three days off work, he flew to Sydney, spent long enough in the airport to buy souvenirs and some coffee, and flew straight home again.
Airlines sometimes act as if that guy were representative of their customers as a whole!
When it comes to selling anything beyond the flight ticket, airlines fall broadly into two camps - the white label versus the travel retailer.
Battle lines drawn
In the white label camp are those airlines that are unwilling to take what they see as a business risk of understanding and managing any products other than flights.
They don't know hotels or car rental, and they let someone else sell them. They are essentially selling advertising space or renting out part of their shop front or brand. The white label travel providers step in, happy to take the bulk of the sales margin, own the customer engagement, and have the revenue up front.
The airline industry is never dull, and management has to focus on fuel prices, route network, mergers, labour negotiations, and so on.
Part of the attraction of the white label model is the belief that there's nothing to do except embed some contextual links in the selling flow or the confirmation page and the commission cheques start to arrive.
The other camp, those airlines who try to be travel retailers, see it differently. They see the real value of their website in terms of complete customer engagement and the potential for the airline to take a bigger share of the travel spend.
They will use aggregators to give them access to a broad range of products - hundreds of car suppliers, tens of thousands of hotels – but will also manage some products themselves.
- They will marshal or create content for key destinations.
- They will directly contract some suppliers.
- They will talk to some hotel properties directly.
- They will decide which non-air products are complementary to their brand - what they want to sell.
- They will try to own the entire customer booking process, giving them true merchandising capabilities – a travel shopping cart, in-line cross sell, and the opportunity to personalise, creating a differentiated user experience.
- Commercially, they will try to become the merchant for some or all of the non-air products.
- They may try to grow this business in-house, or they may have a holiday subsidiary already.
If you aren’t in the travel retailer camp already and you don’t have a holiday subsidiary, it can seem like a daunting task. It is not just an IT project, to realise any significant benefit there will be changes to the business.
The good news for you as an airline is that there is a middle ground between handing the customer away or trying to do it all yourself.
Using the right technology, it is possible for your airline.com website to transition from white label to retailer, stopping at any point where the risk / reward balance is right for you, and the customer experience is right for your passengers.
Rather than taking an all or nothing approach to selling the high revenue ancillary products, consider some of the activities that could be done in a more gradual way, or even partially outsourced.
Hotel contracting is something you can grow into, so here are two steps to think about:
- Start with one content feed and one API to a hotel aggregator and you can get up and running with hundreds of thousands of properties – initially no different from the white label camp. Gradually you could start to contract hotels in your key destinations, or home market for in-bound. You can go from having the same 100,000 hotels as everyone else, but also 1 or 2 hotels at rates that no one else has. You can do this in-house (one FTE can contract 30+ properties per season) or outsource the contracting piece, as long as you ensure rates can be loaded that are unique to your channel.
- Consider being the merchant for the entire shopping cart and earning all of the revenue up front. You may want to act as merchant in some countries but not others or you may want to act as merchant for some products but not others. You have to consider bonding and duty of care and how it varies from market to market. Find partners that will allow you to operate different models in different markets but pick a business partner and technology platform that leaves you in control of the product, the experience, the consumer data and the payment model.
Finally when it comes to paying the suppliers, reconciliation is also something that can also be outsourced. Avoid the "special" airline back office system built in 1978, or having your retailing strategy derailed by a three-year ERP project.
What you need is effective accounts payable and financial reporting, and that is something you can buy.
Travel retail technology and business process outsourcing providers now exist to allow airlines to retail the full travel experience without the need to build or buy a large scale tour operator business.
If it still feels daunting, consider what the first step would be: If there was one thing you could change about your white label solution to provide a better product offer to your passengers or a better commercial model to yourself, what would it be?
NB: This is a guest article by Mark Lenahan, vice president of product strategy at OpenJaw Technologies.
NB2:Airline and suitcase image via Shutterstock.