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Asian airlines should take cue from US carriers on ancillary revenue strategies

eTN Staff Writer  Sep 23, 2009

Airlines in the Asia Pacific region can adopt strategies around ancillary services and onboard sales to strengthen their position and leverage opportunities as the Asian economy starts to turn around, said John Devins, regional director for Asia Pacific at GuestLogix Inc.

This becomes more urgent as the airline industry currently faces growing losses as a result of external factors including rising oil prices and weaker yields. The International Air Transport Association (IATA) recently released a revised global financial forecast predicting that global airline losses will total US$11 billion in 2009, with Asia-Pacific carriers expected to post losses of US$3.6 billion. Industry revenues for the year are also expected to fall by 15 percent year on year.

GuestLogix believes what is important is that airlines need to choose whether to perform short-sighted triage on current expenses, or to take a cue from US airlines and consider onboard retail solutions that translate to improved long-term business performance.

Said Devins: “The natural instinct would be to continue exercising caution where costs are concerned, but we believe the economy will soon bottom out and airlines need to prepare themselves for recovery amidst industry challenges. By strengthening existing revenues and opening up new streams in the long term, airlines can make the most of the upswing while protecting themselves against massive losses in times of difficulty.”

“GuestLogix estimates that given the right strategy, revenues could increase from US$3.8 billion in 2008 to nearly US$17 billion by 2011 from global onboard duty free sales and estimated food and beverage sales based on an approximate conversion rate of 1 percent of passengers. This is a huge figure by any airline’s standards. Airlines will need to address onboard sales in order to get the most out of their ancillary revenue strategies,” said Devins.

“A bulk of this massive opportunity lies in selling onboard, and this is where airlines need to consider whether the services or products that they are selling are relevant enough for passengers to not just want to spend onboard but need to,” he added.

GuestLogix recently conducted a global omnibus study in collaboration with Ipsos S.A., a global survey-based market research company headquartered in France. This included feedback from 1,201 Hong Kong respondents. The study found that most passengers would find an onboard service that sells destination-related items, particularly event tickets, entertainment and transportation offers, beneficial in terms of convenience.

“Many airlines in the region focus largely on the sale of duty-free or Food & Beverage (F&B) items onboard. But onboard sales can comprise many more innovative products not limited to the in-flight experience,” said Devins. “For example, what if you could sell tickets to Disneyland onboard a Hong Kong-bound flight, or a train ticket to the middle of the city? This would not only open up a whole new sales channel to airlines and attractions, but also improve the customer’s travel experience.”

Asian airlines should take cue from US carriers on ancillary revenue strategies
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