Growing ancillary revenue streams

According to the LSE’s influential Sky High Economics report, the notion of fully incorporating digital into not just the cabin, but also the airline’s business model, could be worth an estimated $30 billion a year by 2035 (plus another $100bn to wider suppliers). These new ancillary revenue streams might come from a variety of sources (such as broadband access, e-commerce, advertising, and premium content); fundamentally, though, the idea is to tap into the changing patterns of consumer behaviour the internet revolution has brought about. In other words, to create a personalised, more satisfying, environment for the passenger while, at the same time, profiling their choices (every click counts) and monetising the resulting data (by, for example, sharing it with partners for targeted advertising, or using knowledge of, say, their eating preferences to improve efficiency).

It’s clear that technology has been, and continues to be, the barrier to growth in this area. Yet what has also been undeniable is a conservative, risk-averse attitude on the part of big airlines when it comes to experimenting and investing.

Looking at some of the figures, one might understand why.

The long-established way in which FSCs build loyalty is via frequent flyer-type clubs, which issue air miles in direct relation to the number of flights undertaken. Research indicates that the number of engaged frequent flyers is quite a small percentage of the total (13%) but they can generate around half of an airline’s revenue, resulting in a contribution from this group that is almost 7 times greater than a non-engaged passenger.

Delta Airlines are a case in point, targeting Millennials with their ‘under 35s Emerging High Value Customers’. They forecast that this particular cohort will account for over half of company revenues by 2020.

All things considered, what better way to talk to passengers directly than via an app? In a world where 97 percent of travellers carry a mobile device, with 81 percent of those devices being smartphones, potential clearly exists for a cost-effective alternative to the IFEC systems that FSCs tend to favour.

The LCC Advantage

This is where LCCs stand to gain. If the challenge for FSCs is to build greater connectivity into their business model (with a focus on loyalty programmes), Low Cost Carriers might find the process easier. While they tend not to have loyalty programmes themselves, it is clear that enhanced connectivity can be used to inspire loyalty. Moreover, newer/start-up LCCs would find it much easier than established FSCs to assume the e-commerce digital retail-type business model as fundamental: the plane flies passengers from A to B while, just as importantly, the passengers and airline curate a unique experience before, during and after the flight, offering entertainment and e-commerce, as well as services such as hotel booking and car hire.

FrontM has built a platform upon which such experiences can be offered: we offer a suite of AI chatbot-style apps that can be used as the basis for all of the above and more besides. Moreover, our technology can be used without interruption – if connectivity is lost, in other words – and is up to 70% more efficient in its use of data and network bandwidth.