The Nuts and Bolts of Airline Retailing
Welcome to Part 2 of The Airline Retail Revolution in which we examine the challenges and the opportunities of retailing and discover best practice from best-in-class airline retailers.
To review Part 1 of this series please follow this link: The Airline Retail Revolution – Part 1
Airlines can think in terms of four categories of retailing opportunities:
1. Products and Services that are part of the airlines suite of offerings
This includes onboard sales of food and beverages, baggage, assigned seats or seat upgrades (including extra legroom seats on exit rows), amenities, priority check-in, sporting equipment, early boarding privileges, in-flight entertainment, onboard entertainment or Wi-Fi. These are often called ‘a la Carte’ products, as they can be selected like a menu by the customer to add to their air travel experience.
2. Product and Services that are external to the airline, but directly related to the travel needs of the customers
Hotel and resort accommodations, car rentals, ground transfers, travel insurance and destination activities: the airline earns a commission based on the sale of these products.
3. Fare Packaging or Bundling
Bundling the fare with one of the ancillary revenue products or services, such as baggage, priority boarding or extra leg room.
4. Dynamic Packaging
The combination of the airline’s flight inventory with hotel accommodation which can then be combined with ground transfers, car hire and destination activities creating one packaged price. These packages are created ‘on the fly’ depending on the origin, destination and dates searched.
The Challenge of Retailing in an Airline
Becoming a ‘retailer with wings’ means that airlines need to become not just seat sellers, but real merchandisers – good at the art and science of merchandising ancillary products. However, aspiring to be a retailer creates new and complex challenges for all types of airlines. At OpenJaw, we have found from experience that there are four major challenges getting in the way of airlines becoming great retailers:
1. Customer Expectations
The first challenge facing airlines to become a better retailer is that customer expectations are formed outside of the world of airlines. Great brands outside of travel are setting the agenda. Airline customers expect immediacy from airlines because the conventions of retailing are formed outside of the world of travel. Airlines need to embed the conventions of retail shopping and booking to be closer to the incredible experiences of brands such as Starbucks, Amazon, ASOS, eBay, Alibaba, JD.com, Netflix, Facebook, WhatsApp and and WeChat.
2. The Retailing Mindset
It is a challenge for airlines to think about merchandising the way a retailer would. In other words, understanding who the airlines’ customers are and deliver highly-personalised product and content to them. Each customer has a unique set of expectations for their interactions with an airline. Customers want better airline retailing experiences that can inspire them as they shop and book their trips – but most of all, they desire to be recognised as people, not Passenger Name Records (PNR). And it is this level of personalisation that is at the heart of the challenge of retailing.
3. Technology Platforms
The third challenge confronting airlines is that access to ancillary products is made difficult due to different technology platforms operated by various providers. Hotel and resort room inventory are on property management systems, and, many different systems, to boot. Golf courses have their own booking systems. The critical challenge for any airline is this: how to integrate retail ancillary products across all channels, so that their customers can book and pay based on real-live confirmed inventory – whether this is hotel rooms, car hire, meals or golf tee times. The ideal, of course, would be a single integrated platform approach that provides a seamless user experience for customers across their entire online journey.
4. Data Silos
Traditionally airlines have held customer data across multiple siloed databases and systems. This creates a real headache using all the transaction data already collected to recommend products or services for future trips. In a retailer, the people responsible for bringing in revenue, such as buyers, have access to a supply of real-time sales data. All the Stock Keeping Units (SKU), have unique codes assigned to each item of merchandise and are tracked to an incredible level of detail. Digital retailers such as Amazon and Netflix have been renowned for their successful recommendation algorithms. These sorts of tools are very rarely available to airlines.
Insights from Best-In-Class Retailing
Thinking like a retailer opens up extensive new revenue opportunities for high margin ancillary product selling for airlines, as it enables consumers to discover and book a diverse range of products, sourced from a multitude of suppliers including hotels, car hire companies, insurance, destination activities, events, transfers etc all under the airline brand.
Airlines should be studying the playbooks of both legacy and pure play retailers to see what they can learn and what talents and technology will be needed to transform business operations. Successful retailing is based on fundamental principles and technology has enabled these to be implemented more effectively and efficiently for maximum advantage.
Here are five key insights that OpenJaw has seen while working with some of the world’s best airline retailers:
1. Product Mix
Product retailing is an industry where the choice of product and the broader product mix is a strategic choice, defined by what the retail brands stands for, and how the retailer wishes to differentiate their online store. The merchandise is placed to promote cross-selling, and the amount of display space is carefully allocated. Regardless of whether a retailer sells bolts or belts, nothing in a store is placed in a particular location by accident.
From window display to website, retailers show the breadth of their inventory and explain the value to customers. Retailers make deliberate merchandise and design choices that balances creative elements with commercial considerations, for instance, placing higher margin products at the top of a web page or on aisle ends in-store, all guided by factors such as merchandise mix, sales trends, consumer research and more. They have poured over the analytics on price sensitivity and promotional activity and know how to craft ‘call to action’ messages that will trigger an action on the purchase path.
3. Customer Insight
Great retailers know who their customers are – and also who they are not. A flat pack self-assembly furniture retailer will not waste time courting customers who can afford to buy ready-built furniture. Similarly, an airline who embraces retailing acquires, converts and engages with its customer segments and then aims to develop a stronger relationship with its customers. Integrating data from all sources enables a retailer to develop greater customer insight and personalise customer recommendations.
4. Cross-Sell and Upsell
Retailing can be both complex and paradoxical. Many airlines report that they have to make their merchandising capabilities work hard to capture ancillary sales during the initial seat booking phase. However, as the customer mindset changes when they get closer to their trip, products such as meals, seat upgrades and destination activities may then be viewed as a valid affordable choice. When a customer is booking a flight, the emphasis is on getting the best fare. Ancillaries not related to the fare can be ignored. But, using a comprehensive customer journey touchpoint strategy before, during and after the booking has been made, the same ancillary products are viewed differently, and the cross-sell and upsell can be much easier.
5. Good Retailing is an Art
Henry Harteveldt of Atmosphere Research Group, a consultancy focused on the global travel industry, points out: ‘The concept of retail merchandising balances creative elements with commercial considerations. A good retailer will sell a customer just about anything in its store. As travel sellers intensify their emphasis on selling ancillary products, they are realising that much of what they sell can be considered to be an ancillary product’.
In Part 3, we explore the seven steps to transform your airline business model. So stay tuned yet again…