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A one-click trip?

Hotels, insurance and car hire are key ancillary revenue earners for airlines and, as Keith Mwanalushi finds, a combination of macroeconomics and culture can be important triggers in the quest for extra income

Ancillaries in the airline industry allow air carriers to earn more revenue per passenger, offering more products and a wider array of more relevant services in the most efficient way possible – well, at least that is how it seems.


Network airlines are joining their low-cost counterparts in eagerly seeking the profits provided by ancillary revenues. IdeaWorksCompany, a specialist firm in this rapidly growing field, says retail-oriented airlines are trying new concepts and testing the outcome in the marketplace – quickly tossing any ideas that don’t produce results.


“Hotels, insurance and car hire represent the ‘big three’ for commission-based ancillary revenues,” declares Jay Sorensen, president at IdeaWorksCompany. However, he suggests many airlines struggle with them, especially when it comes to hotel bookings.


“The take-rate for trip insurance is influenced by the ‘insurance culture’ that exists among consumers in a carrier’s markets. It’s strong in the UK and Europe, but in other regions, such as the US, take-rates are lower,” Sorensen observes. He further suggests that it’s best to introduce the concept with small premiums and basic policy coverage. “Airlines that have a tradition for waiving penalties due to so-called ‘family emergencies’ will sell less insurance.”


Sorensen believes hotel bookings can add an unwanted level of complexity to the booking process. “It can actually stop the completion of a booking as a traveller considers hotel location, property type, bedding arrangements and onsite amenities. Car rental is far easier to place in the booking path, because the product is viewed as generic and the issue of location is not a factor.”


All three are excellent candidates for post-booking promotions via email, Sorensen notes. “If the airline wants to become a booking destination for its customers, these are good services to consider. If the airline thinks these represent easy ancillary revenue opportunities – that require little effort – well, the revenue results will disappoint,” he warns.


CarTrawler is a B2B car rental aggregator that powers over 70 international airlines to provide their car rentals as an ancillary revenue stream. Bobby Healy, chief technology officer, tells Low Cost & Regional Airlines Business that the overall market for airport transfers is broadly similar to the size of the market for leisure – $16 to $20 billion, depending on which way you look at it.


“At CarTrawler we have been growing at close to 40% CAGR [compound annual growth rate] for the last nine years and there is no end in sight to that,” says Healy. The market is shifting from direct and single supplier offerings to aggregated multi-supplier, multi-product approach. “We now make offers to 600 million passengers a year.”


Healy highlights specific destinations, such as New York, Tokyo, London and Paris, where he sees the demand for rented cars being lower, “but they all want airport transfers in some shape or form so there is a transition, not from the point of view of the consumer but rather from the retailer – the airline – to get a greater share of the travel wallet from their flying passengers”.


Amadeus also has an offering. Amadeus Cars provides online rental booking solutions to all kinds of airlines through the global distribution channel. “We currently have 46 car rental companies available on Amadeus, having signed 13 new leisure car rental companies towards the end of last year,” says Peter Altmann, head of Amadeus Cars and Transfers.


Amadeus see demand from travellers who book both airport transfers and ground transportation when booking their flight ticket, while airlines are concurrently looking for new revenue streams from ground-based ancillary services. “We responded to this in December by launching our Amadeus Taxi and Transfer solution, which is a global transfer system available for our airline partners. It’s integrated into their websites as part of the booking process,” states Altmann.


Scandinavian Airlines and Cabforce – a taxi booking solutions provider – were the launch partners for the Amadeus product, “and just this year we have signed Blacklane as well, another excellent service provider. We are excited about the future as we continue to add new airlines and taxi-transfer partners. Just as in car rental, our aim is to become the leading provider for taxi and transfer solutions,” Altmann adds.


Amadeus currently offers airlines the chance to integrate over 110,000 hotel properties, as well as the 46 car rental and car brokers, into their flight offer – each generating up to 20% commission. They also offer travel insurance from some 25 global companies. According to Amadeus, the revenue generation possibilities from these additional services are significant, with average commissions of 5% from taxi and transfer sales and up to 50% for sales of insurance.


Partnerships with airlines for car rental and taxi-transfer solutions have been common for a while now, but how they are being delivered is changing. “Two models prevail in the marketplace, the first is a single supplier – the best example of this is Ryanair and its relationship with Hertz,” says Sorensen. “I think this may work well for Ryanair because many of its airports are non-standard destinations and presumably Hertz is set up to offer cars in these locations.”


Sorensen believes most airlines are better served by the multi-supplier model. “This allows the consumer a buffet of car selections from different rental companies. Consumers equate more selection with competitive rates. But if an airline believes it’s simply a matter of placing a booking icon on the home page, the returns will be paltry.”


The best practice example, Sorensen suggests, is Allegiant Airlines. “It has called itself a vacation package company, which just happens to own an airline. This airline is built to deliver holiday packages, rather like does in Europe. The corporate cultures in these companies are dedicated to leisure, and that’s an objective that will elude most airlines. We as an industry don’t do a good job of selling the entire travel experience.”


Healy concurs, saying the argument over single or multi-suppliers has already been won. “There is absolutely no question, in the statistics that we have, you triple the conversion rate when you offer more than five suppliers, instead of just one. There are a couple of large airlines that still only use one supplier but they are the anomaly now rather than the norm. Every one of the 75 airlines we have contracts with has multiple suppliers,” Healy explains.


Back in December 2012, CarTrawler announced a car rental solution for Russian carrier UTair, which opened up the marketplace in the country. “It’s what we would call an emerging market.” Healy continues: “Car rental domestically is not a great product because it’s just not something that has fully evolved there yet, but the international component of our Russian market is one of the fastest growing. When Russians travel internationally they travel in style, renting large cars for large amounts of time.”


The current economic conditions in Russia have put a dampener on the business though, according to Healy. The devaluation of the ruble and the general slump in the overall economy, coupled with the sanctions currently in place, have made it a tough market for airlines, with Healy reporting that outbound travel has decreased considerably. >>

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