IdeaWorks and CarTrawler have published their most recent Top 10 Airline Ancillary Revenue Rankings which includes a look at how much ancillary push is too much, and what methods are most effective in merchandising “add-ons,” particularly in digital platforms.
The report introduced us to a new word: Nebeneinnahmen. This German word literally means “perks or extras” so it is fitting that executives at Lufthansa Group have grown to love it, according to the authors. Lufthansa is cited as one airline which has made effective refinements to its ancillary merchandising bringing its ancillary revenue to over $2.6 billion in 2018—8% of the airline’s total revenue—which earned Lufthansa a firm place in the Top 10 Ancillary Revenue Rankings. The definition of Nebeneinnahmen also hints at a sweet-spot for boosting ancillary revenue: ensuring that these “extra” charges are perceived more as “perks” by airline customers.
There is a fine line between these two perceptions of charges as illustrated by Ryanair’s experimentation with baggage fees and baggage policy.
Airlines earn attractive revenue from baggage fees—$28.1 billion globally, according to the CarTrawler estimate published this April. But these fees are often perceived as a punitive charge by airline passengers.
Indeed, just handling baggage—whether or not they check it and have to pay for it—can be a point of friction and dissatisfaction for passengers: Will the bag get there when they arrive, if they do check it? Will there be space in the overhead bins, if they don’t? Where should they pack their personal items that can’t be checked? Will they be able to bring those onboard in a separate bag? Then, there is the friction of prolonged boarding times, and potential flight delays.
It’s difficult to turn baggage into a perk with any level of success, but Ryanair has tried.
Ryanair’s latest policy allows non-priority boarding passengers to bring a personal bag onboard, free of charge, and charges a relatively small fee around €8 ($9) to check a small suitcase up to 10 kg (22 pounds). Passengers who pay priority boarding can bring a personal bag and small suitcase onboard. This merchandising encourages sales of the Priority boarding ancillary product while also cutting back demand for overhead bin space and earning the airline a nice “tip” for carrying baggage in the hold. When we consider that, according to IATA’s recent reporting, the average per passenger profit that airlines will make this year is $6.12, that tip that Ryanair earns for baggage check is substantial. Ryanair uses dynamic pricing for its Priority boarding ancillary product, which further boosts revenue.
“This policy is a stroke of genius because it combines two things passengers adore: early boarding and the certainty of stowing a roll-on bag,” the report’s authors observe. “Ryanair obviously did the math and found its overhead bins comfortably fill up with the carry-on bags of the first 80 passengers. It’s an intuitive offer for consumers. Plus non-priority passengers spend many minutes at the gate observing the benefit of the Priority & 2 Cabin Bags option. Then these non-priority passengers board afterwards and are checked by gate agents for non-compliant carry-on bags. These passengers are pulled aside and their bag is checked for a €25 fee.”
The Priority boarding push has also benefited operations, eliminating passenger processing delays, which is critical for an airline that relies on quick flight turns.
“It’s better than the policies we had during 2018 in terms of delays. Generally the boarding process is smooth, though families can cause issues. This occurs when a parent buys priority boarding for some family members (likely the parents) and not for the kids. They are upset when the kids are not allowed to board with the parents. Often gate staff will allow kids to board with the parents,” Operational staff told the authors of the IdeaWorks and CarTrawler report. “Out of Dublin, we see shorter haul flights with about 10 to 15 bags in the hold, with the rest carried by passengers into the cabin. For longer haul flights, 60 checked bags is a good average quantity. The priority boarding is capped at 80 passengers.”
However, as IdeaWorks notes, Ryanair still has some refinement to accomplish in the digital merchandising platform.
“The carrier’s booking path is complex and uses every opportunity (and screen space) to sell baggage services and assigned seating. At times the distinction between early boarding, baggage, and seating becomes a blur of pop-up boxes and interruptions. It all has the feeling of being unstructured and experimental,” the author observes. “After selecting a flight, the consumer chooses from three branded fares: Standard, Plus, and Flexi Plus. Standard does not include a checked bag, while Plus includes a checked 20 kg bag, but the higher priced Flexi Plus does not. Seat assignment is promoted next courtesy of a pop-up display in the website booking path. Baggage choices are offered later on; the baggage retail presentation varies according to the fare purchased.”
Frictionless Digital Merchandising
While there is a benefit to reminding customers of ancillary options available, it is critical that these digital prompts do not get in the way of the standard booking flow. Rather, they should feel like a natural element of it. It is also important that consumers can easily understand what they are buying and why it is of added value. Having too many interruptions in the flow can create confusion, which might also be perceived by some as being “tricked” into buying something.
Ryanair is not the only airline identified in the report that is still trying to find the right digital merchandising flow.
American Airlines, the authors noted, teeters on the edge of discouraging bookings through too many pop-ups trying to push customers to the full Main Cabin fare, rather than the Basic Economy product by asking: “Are you sure?” These are not the best words to use when you’re trying to close a sale.
“Too much eagerness to build ancillary revenue can be a bad thing. If an airline feels compelled to make this effort to warn a customer against buying a product, then they should really reexamine what their brand means to the customer,” the authors state. “American Airlines is merely an example among many, and is not unique in this regard. All revolutions involve actions which are someday regretted, and the ancillary revenue revolution is not immune to this. Traditional airlines are copying LCCs in almost every regard, and LCCs can be accused of stretching too far to woo high flying business travelers.The question to ask is, ‘What is your brand and does it matter?’ Almost every airline is branded by behavior, and not through rigorous intention. Ancillary revenue is best when it aligns with and supports the brand of an airline.”
Selling in harmony with the spirit of the brand
One of the disadvantages of the American Airlines merchandising strategy illustrated here is that it creates and ‘all or nothing’ proposition. Passengers can either choose Basic Economy with nothing, or buy a Main Cabin bundled product. There is no “perk” in the presentation.
Now, compare that to KLM’s digital merchandising of bare fares, for example. KLM presents a schedule of economy fares which are unbundled from the onset and encourages customers to discover more about what is included by offering a “flight details” button, which will display more information if the passenger wants it. The more information display then explains the positive attributes of the basic product.
When a customer selects a basic fare from the schedule, they are taken to a window that shows the flight selected under a chart that compares alternatives and even offers a peek at Business class experience. Again, the emphasis is on positive attributes and a positive framing of limitations. There are no “X”s or color negative codes (red) to dissuade a purchase. There is a subtle intensity in blue as the options more from Light to Standard to Flex. This color not only reflects the KLM brand but is also attributed with trust and honesty, e.g., “true blue”.
The customer can choose to proceed with the lowest possible, unbundled, bare fare without interrupting their booking. They then progress to an “Enrich your trip” menu that allows the customer to select whatever features matter most to them. Note also that the booking flow progression is shown at the top of the screen, letting customers known that they are almost done with the transaction—no surprise screens.
If the customer does choose to explore an option—such as select a seat—the product is presented in a way that is easy to understand and highlights advantages.
If a customer opts for the bare fare without add-ons, they are allowed to complete the transaction without further interruption.
KLM does follow-up with customers offering ‘Nebeneinnahmen’ alternatives, via email campaign, in the days prior to their journey. These include other ancillary offers like hotel stays, transport, and a gentle push of the KLM travel app.
In the KLM travel app, it’s easy for customers to review the details of their trip again and add ancillary services at any time.
Avoiding sticker shock
This more subtle merchandising approach doesn’t discourage bookings, and it makes it easier for customers to appreciate the value of individual options. Importantly, this also divorces ancillary selection from the total cost of sale, avoiding ‘sticker shock’.
This expression comes from the presentation of the “sticker price” on automobile windows that detail all of the “extras” added to the base price of the car.
It’s an important principle to keep in mind in merchandising ancillaries: add-ons may be small but they add up at the register. It’s easier for consumers to justify smaller charges for ancillary offers made after the ticket is paid for and as they approach their day of journey.