Once upon a time, when you booked an airline ticket, that was it. Your seat, your bag, your in-flight meal and entertainment – everything was included, whether you took advantage of the option or not. Not anymore.
Ancillary services – primarily, though by no means exclusively, charging for bags and seats – is big business for airlines these days. In the last financial year, ancillary revenues for the airlines came to a record total of US$47.2 billion, which accounts for just under one-tenth of total sales for the 73 airlines covered in the survey, and that figure is growing.
For now, it’s a far more significant source of revenue for the budget airlines – ancillary revenue represented nearly half of sales for Spirit, for example, and a quarter of sales for Ryanair (where half of customers now pay for assigned seating).
While charges for baggage and seat choice are by far the biggest two categories, ancillary revenue also includes wifi access or onboard food and drink sales, as well as revenue from frequent flyer programs (such as selling miles or points to partners) and commission from car rental sales via the airline website, for example.
It’s easy to see why airlines are fans of “unbundling”. It’s a competitive market, and offering a low air fare helps to attract the customer in the first place, at which point it’s easier to sell them the basics, then tempt them with upgrades. It’s already par for the course in retail travel, where consumers are well used to paying for their extras via simple, user-friendly websites.
So how can travel managers maintain visibility on what is being spent on ancillaries?
First, look at how you are currently tracking spending on ancillaries, if at all. For some travel managers this will be more urgent than others – short-haul flights in the US are heavily unbundled and, therefore, prone to “leakage”, whereas long-haul, business class flights to Europe and Asia still largely come with everything included.
Yet with the environment fragmenting rapidly, it pays to set up systems now to avoid confusion further down the line.
Changing the game
Matters will be complicated by the soon-to-be-implemented New Distribution Capability (NDC) technical standard put forward by IATA. The goal of NDC is to supersede the legacy technology behind the dominant GDS, in order to be able to offer more “content” in a more user-friendly manner – to make the corporate travel booking experience more like the retail one, in effect. This would allow airlines to offer a wide variety of products and services through APIs, products like early boarding, preferred seating, a day pass for an airline lounge and so forth.
Tracking these extra expenses is clearly proving a concern to travel managers. According to a recent survey by ACTE and American Express Global Business Travel, 89 per cent of travel managers fear that NDC, and the fragmentation arising from it, could threaten cost control and compliance with travel policies. Just under half of respondents highlighted the fact that travelers were already buying “out-of-policy ancillaries from airline websites”.
One buyer BBT spoke to echoed these concerns. “The biggest challenge as a corporate client is that this adds a lot more complexity, and complexity largely leads to higher costs and a greater chance of error.
“The other risk is that if people go through different channels – booking their flight via one channel but then booking their hotel independently – then we lose sight of them. That’s not just a problem in terms of the costs, but it’s also a problem for things like security and knowing quickly where our people are if we need to alert them to an issue.”
With NDC it will also become harder to compare offers, as certain deals will only be offered to certain customers via certain channels. For example, Lufthansa recently announced that its cheapest European fares (Economy Light) would only be made available through NDC or direct from the airline.
Coping With Change
So how long do travel managers have before NDC is the new standard? “Last year, it seemed like for the first time there was a lot of momentum and commitment, from airlines to GDSs to self-booking tool providers,” says Paul Tilstone, whose consultancy Festive Road works with IATA to ensure airlines take account of the views of both travel buyers and TMCs. “It’s broadly believed 2019 is the year that we’ll start to see the beginning of the industrialization of NDC,” he says.
To get a handle on ancillary expenses, travel managers should address these costs from within your travel program wherever possible. As ACTE points out: “Travel policy is the most powerful lever available to travel managers.” Keeping the policy up to date in line with changes in the distribution environment is vital – not just in terms of which carriers can be used, or which ancillary services can be reimbursed, but also looking at the range of channels that can be used for booking flights.
Second, buyers should talk to their expenses software and credit card providers about whether there are ways to pull out these expenses more easily. Your finance department may also be able to help track these costs more effectively.
Third, it’s important to make sure your partners are actively adapting to the changing environment, too. If you work with a TMC, says Tilstone, then ask how they are tackling “the immediate problem of content coming through APIs [application programming interfaces] and not GDSs. Are they creating a workaround?”
Ancillary expenses should be kept high on the travel manager’s agenda in 2019, no matter which distribution channel is used. Keeping these costs on the radar not only means a better grasp of ancillary spend, it also means comes better leverage when it comes to negotiating better bundled deals in the future with airlines.