Northstar

FEATURE www.travelweeklyweb.com Despite all the seeming benefi ts of ancillary services and its popularity in the US and Europe, the majority of airlines surveyed do not yet have a concrete plan to implement and maximise revenue from the sale of ancillary services in Asia, as Abacus fi ndings have revealed. Even with a long implementation period that ancillary services will necessitate, it seems that most airlines are adopting a "wait-and-see" approach, which can be attributed to the challenges they are currently facing. Two of the key challenges highlighted are changing consumers' perception of ancillary services as "hidden costs" as well as managing their level of acceptance towards paying for such extra services. This may be due to consumers being used to bundled services – paying for a single ticket price that had almost everything included. Airlines also fear the potential erosion of their brand stature with the introduction of ancillaries, for example, allowing all consumers to access services (with a fee) that are currently restricted to only elite customers. Qantas Airways and Cathay Pacifi c Airways hold the view that charging hastily for ancillaries might jeopardise their brands. They would rather carefully assess the situation before jumping onto the bandwagon (Orient Aviation, March 2010). Many airlines operating in Asia have also identified technological complications, together with distribution difficulties and high costs, as some of their concerns when it comes to implementing and selling ancillary services. Airlines from some markets have indicated the lack of knowledge and experience regarding ancillary services, as well as corporate policies and government limitations as some of the potential challenges. Understanding Asian Agencies' Perspectives on Ancillaries In making ancillary services successful in Asia, travel agents have a big part to play. 85 per cent of the agencies shave indicated that they are currently selling some ancillary services. Despite this high level of participation, 64 per cent have mentioned that the ancillary revenue accounted for only fi ve per cent or less of their total revenue (see chart below). Yet, there is a positive outlook from agencies on the future of ancill ar y ser v ice s wi t h more than 85 per cent shar- ing the view that ancillaries will gain popularity and accep- tance by consumers in Asia. Airlines should strive to simplify their ancillary services offerings and pricing structure in order to drive high- er adoption and interest amongst the agencies. Airlines should also consider a higher commission structure and an effi cient claim process to encourage more agents to sell ancillary items to their customers. This will result in more consumer exposure to ancillary services, and hence, increase consum- ers' awareness and acceptance towards paying for such services. Driving the Future of Ancillaries in Asia While the trend is clearly a strong rationale for airlines to tap ancillary revenue sources, it is uncertain that airlines currently on bundled services model will jump onto the bandwagon. Even amongst the LCCs, airlines differentiate themselves by adopting different models. A great example is Southwest adopting a 'Bags Fly Free' philosophy. There is no consistent in- dustry consensus, with airlines watching their competitors while simultane- ously experimenting on what works best. The full service carriers also have to be careful not to dilute their premium products by selling to all travellers or charging too many "hidden charges" which were assumed to be bundled free previously. The battle between bundled fees and unbundled fee models will continue into the foreseeable future. Airlines in the US and Europe defi nitely reap a lot of revenue from charg- The ancillary items sold are limited to a few common services such as paying for second checked bag and premium/advanced seat assignments. The complexity of ancillary product offering and pricing from airlines may have contributed to the limited variety of ancillary items on offer. Zero commis- sion and the diffi culty in claiming commission for ancillary sales, on top of competing with airlines' websites selling the same products and services at same or cheaper rate, only serve to further discourage agents from pushing ancillaries. This might explain the low revenue contribution from ancillary sales to the overall agency revenue. www.travelweeklyweb.com ing ancillary services. The qualms that airlines operating in Asia are having with this business model may be due to the challenges that they are facing – Asian travellers' buying behavior, potential erosion of brand reputation and technological complications. That said, rising oil price, economic instability and especially fi erce competitive rivalry from LCCs would likely drive them to relook into this profitable possibility in this region. IATA's mandate of achieving 100 per cent Electronic Miscellaneous Documents (EMD) industry capability by end 2012 and 100 per cent usage in IATA BSPs by end 2013, would certainly help airlines operating in Asia to ease the transition. The other signifi cant observation is that currently, most of the ancillary services transactions are done B2C and airlines have generally not developed sufficiently robust partnership to tap ancillary revenue through the B2B channel. This is a material opportunity which airlines, working with the right distribution partner would enable them to reach out to the agency network as a new sales channel for ancillary services. Abacus has introduced a range of solutions that will help the Asian air- lines to tap ancillary services to grow revenue and yet protect their core brand promise of service and exclusiveness. 16 AUGUST 2011 | TRAVELWEEKLY ASIA ■ | 5

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