eSIM – Ready for Take-off
Introduction
The relationship between airlines and ancillaries is a delicate balancing act. The necessity for optimising profit-per-booking must be achieved without inconveniencing passengers in the checkout or irritating them with pestering post-booking marketing. Each new ancillary therefore has to overcome a lot of cynicism and multiple hurdles before it reaches the point where it warrants a serious review.
Could it be that international connectivity has now reached that milestone?
The category has had its fair share of failures: from complicated international-calling-cards to click-and-collect SIM cards. The tantalising prospect of customers’ need to keep mobile devices connected during their stay has remained unmet due to cumbersome delivery methods and inconsistent solutions. However, with the long overdue digitisation of SIM and the resultant move from a physical SIM card to a digital eSIM that is all changing, and changing fast.
This could mean that a major new category in ancillaries, with the potential to match revenues in car hire is ready for take-off in 2023.
Ancillary revenue – recovery & growth
A recent report by Ideaworks and Cartrawler projects airline ancillary revenue will increase to $102.8 billion worldwide in 2022, compared to $65.8 billion in 2021 and the $109.5 billion record of 2019. Coming out of the pandemic, ancillaries’ recovery has outstripped the pace of total airline revenue, and the volume of passenger return. The value per passenger now sits at a touch under $30, up over $8 on its pre-pandemic level.
Airlines’ fundamental business will always be selling seats but customers now expect to have convenient, pertinent services made available in a one-stop-shop and increasingly airlines’ financial well-being depends on them providing those services in the most profitable way possible. With supply-side pressure on margin in existing ancillaries, it’s therefore essential that airlines have a long-term vision for ancillary management and a pipeline of new opportunities to feed into it.
International connectivity – the need & market size
Everyone will have their own experience of where international connectivity can go wrong. The road trip of a lifetime that turns into the journey from hell when your teenagers are separated from social media and YouTube; the all-important business trip that fails as the essential presentation doesn’t download in time on coffee-store WiFi; the panic as the booking details or health documents held in the cloud are suddenly inaccessible as your device drops off grid. But when international connectivity goes right, the enhancements to your trip are massive: sharing your experiences online in real-time, planning and booking dining and experiences as you need them, and an endless stream of entertainment literally at your fingertips.
The market that serves this is currently a mix of paid-for international roaming with your home carrier (sometimes packaged up in a day-rate but often on a rack-rate that can run up sizeable bills) and purchase of a local pre-paid SIM card on arrival. It is worth an estimated $20 billion each year and is set to grow rapidly over the next 3-5 years.
– Increased category penetration
Around half of international travellers choose to turn off data-roaming on their devices; relying on WiFi or managing without their phone for the duration of their stay.
- o Customer Need
- Penetration has been increasing each year in line with a need for always-on connectivity and dissatisfaction with WiFi security, log-in protocols and stability
- o Awareness
- More convenient access to connectivity plans through eSIM have seen penetration growth accelerate in the last 12 months and will see the rate of acceleration increase further over the next 1 to 2 years.
– An ever-upwards trend on data
The amount of data consumed by mobile users doubles every eighteen months as streaming and photo quality increases and 5G brings data-hungry rich content mainstream, creating a need for larger and larger packages.
The key players in the market currently are the mobile network operators/carriers who generate a profit on their customers’ roaming activity and the retailers like Sim Local who have positioned themselves in airports and travel hubs to serve passengers as they land in destination. As the digital revolution takes hold the most likely beneficiaries will be those who can provide the right product at the right moment in a customers’ journey and can be trusted to deliver.
What is eSIM and how prevalent is it?
An eSIM (embedded Subscriber Identity Module) is basically a SIM card that is built in to a mobile device’s chip-set that can connect you to any operator offering eSIM services. The eSIM works the same way as a traditional SIM card, but you don’t need to acquire and insert a physical product. The eSIM is pre-installed in the device, and you can activate it by installing an “eSIM profile” from any network. The move from a SIM card that needs to be sold in a bricks-and-mortar retail environment to a digital product that can be bought and delivered over the air is a market disruption that mirrors the switch from CDs and tapes to Spotify and Tidal.
SIM cards are still the most prevalent method for getting connected, but almost all smartphone releases from Apple, Samsung and Google for the last four years have had dual capability. The game-changer for the market came in September 2022 when Apple announced that in the US the iPhone 14 would be the first major device to remove the SIM card slot and become eSIM only. Experience says that where Apple lead others will follow, and so it is likely that most devices in most markets will be eSIM only from the next release cycle.
How will this fit in with an airline’s booking flow
As with all ancillaries the watch-words are ‘relevance’ and ‘simplicity’ when it comes to placing eSIM in front of passengers.
Possible Touch Points for Customers
Customer Choices
eSim allows travellers to save money and be in control of their spending.
What are the models and choices
Congratulations! You’ve decided eSIM is going to benefit your customers and your bottom line, but what now? You’ve got some choices on who to partner with, and some options on what level of integration you can stomach.
Working directly with Mobile Network Operators
Mobile Network Operators are territory-specific: they buy the spectrum from government, run the infrastructure and in theory should always provide the best value. However, there are almost 2,000 worldwide with no consistent tech interface and so if this is your route you’ll have to get ready for quite a mess of integrations and an industry for keeping on top of commercial negotiations and product amendments.
Working with Roaming Providers
A spate of new companies have sprung up on the back of eSIM technology, purchasing data wholesale and packaging it up into Roaming bundles for travellers. Roaming suppliers can provide a convenient one-stop shop with impressive country coverage but access to 4G and 5G quality connections is inconsistent, the pricing is typically high for customers (particularly at higher data allowances) and potential commissions are often low.
Working with a Marketplace
The well-trodden path through similar territory has led to aggregators or marketplace platforms providing a single point of integration for airlines and access to a full range of suppliers in car hire and stays. The model of CarTrawler and HostelWorld is also in place in eSIM, with the supply management bringing together roaming providers and Mobile Network Operators from across the world in one service with commissions benefiting from the scale of the organisation.
Summary
Airlines need new ancillaries and the revenue streams that go with them, but they need to exercise caution in selecting categories that satisfy a real customer need, represent a good long-term revenue stream, and can be implemented without impeding booking time or irritating customers. Connectivity has always ticked the first two boxes, but with the arrival of eSIM it’s just got over its final barrier and is ready for take-off.
Article by Sim Local
The world’s leading travel marketplace for eSIMs, Sim Local has been selling SIM cards to travelers for over 10 years, through its global airport retail, affiliate and vending network. Partnering with local telecom operators their technology provides travel companies with multiple partnership and integration options to bring eSIM connectivity to their customers as an ancillary.
