Ancillary Services - a game changer that is here to stay
Airlines are increasingly selling unbundled fares, leaving it to the travel buyer to customise their trip. Challenging for travel buyer and travel agency alike – it’s not always clear what’s included in a fare, or how to sell it. This poses a burning question to the actors in the distribution channel: how do you adapt to the changing merchandising models of the airlines in order to stay competitive and relevant for your customers?
Low cost carriers and full service carriers – blurred lines
The emergence of low cost carriers and their pricing models have changed the airline industry profoundly in the last few years. Not too long ago, the concept ancillary services was unknown to most people. Today, paying extra for amenities such as luggage, meal or a specific seat when booking your flight is a reality most of us have come to accept.
– The traditional carriers and the low cost carriers are becoming more similar, and they are both moving away from competing only on price. More and more airlines in the traditional segment are trying to figure out how they can create more revenues with different kinds of ancillary services, and how to better tailor their products to different customer segments. Globally, more than half of the air travellers are paying extra for their luggage; 40% for their food and drinks; and many are ready to pay approximately 20€ to avoid the middle seat, says Simon Ball, Segment Marketing Manager, Amadeus IT Group.
Ancillary services on the Scandinavian air market
This trend becomes evident when we look at the Scandinavian top ten airlines: several of them are non-traditional airlines (i.e. Norwegian, Wideroe and Air Berlin), and nearly half of the traditional full service carriers are now selling some form of ancillary service.
To give you an idea of the magnitude of this change: in 2012, these ten airlines represented more than 70 % of the bookings made by Scandinavian travel agencies.
The importance of offering ancillary services
So, ancillary services have changed how we see air fares, what we expect to get when booking a flight ticket, and indeed; the whole travel landscape.
The long term impact this will have for the distribution channel is still hard to predict, but one thing is clear: to stay competitive, travel agencies need to continue delivering the differentiating one-stop-service that travellers have come to expect. And in order to do so, booking ancillary services needs to be part of this service.
In the past it has been difficult for the travel consultants to sell ancillary services in an efficient way, since they have only been bookable through the airline’s websites. By making the airlines’ ancillary services available through one system and one booking flow Amadeus has made it simpler to offer these services, allowing travel agencies to strengthen their customer’s loyalty and remain competitive vis-à-vis the airlines’ direct channel.
Which ancillary services are bookable via Amadeus?
Just in the last month, we have implemented four new airlines’ ancillary services: SAS, Lufthansa, Austrian and Air Mauritius, and we expect to implement yet another airline before the end of the year – Iceland Air.
In Scandinavia today, SAS, Lufthansa and Austrian offer seats that can be booked via Amadeus; KLM, Finnair and Air France seats and luggage; and AirBerlin has an even wider offer of ancillaries. These airlines stand for more than half of the bookings made by the Scandinavian travel agencies in 2012.
Here you can see all airlines that have ancillary services available in our systems on the Scandinavian market.
It’s easy to forget that ancillary services are not a pure “air thing” – it’s a new way of offering travel content. Today, we offer rail ancillary services (e.g. wifi and meals) for SJ via the corporate self-booking tool Amadeus e-Travel Management, and a solution that will allow travel agencies to sell rail ancillary services to leisure travellers is being developed.
Ancillary services in the distribution channel: looking ahead
One thing is clear: ancillary services are here to stay, and the phenomenon only keeps on growing – according to IdeaWorksCompany, the global revenue made by airlines from ancillary services in 2012 surged to $27.1 billion in 2012; a 19,6 % increase in one year. But the lack of standards leaves the travel agencies and the travel buyers with a big challenge: how to effectively sell, and transparently and conveniently buy ancillary services.
Looking ahead, it’s in the interest of the whole travel industry to be able to sell and distribute these services as effectively as possible.
At Amadeus, we will continue to closely follow the evolution in the diverse ancillary services landscape, so that we can support the business needs of the travel industry players by implementing systems that support the distribution of ancillary services.
You can read more in the Amadeus paper "Ancillary Services and the travel agent: the opportunities ahead".