“Á la carte, commission-based, or frequent flyer related: how would you like your ancillary service today, Sir?” No one’s asked me this question, but knowing what I do about Big Data, there’s a good chance there’s an Online Travel Agency, or OTA, database that already knows my buying habits when it comes to air travel, and my probable purchases are already factored into several airlines’ forecasts for the next 12 months.
Ancillary fees in the airline sector are nothing new. Europeans are the first Ryanair Generation: we’re used to buying a cheap ticket online, and then adding some essentials to the cost, plus maybe a discretionary item or two.
But beyond baggage fees, early boarding, onboard food and duty free, many airlines are following the example of Low Cost Carriers (LCCs) and now have very respectable revenues from the ancillary area. In fact, when Etihad Airways, the second largest UEA carrier allows travellers to bid online for up to three ‘neighbour-free’ seats, you realise higher operating costs and the quest for new revenues have got together with traveltech to make all manner of ancillary fees ‘a thing.’
Here in Dublin’s DCU Ryan Academy, we've enlisted industry heavyweights Boeing, Datalex and Irish Aviation Authority to join us in the Propeller Shannon Startup Accelerator, and help nurture future stars in the Aviation and Traveltech sectors, some of whom are targeting either facilitating, or diving directly into, the ancillary fees market. Why would they do this? According to research published last year by IdeaWorksCompany and Irish company CarTrawler, taking the top ten airlines by ancillary revenues between 2007 and 2016 showed an increase from $2.1bn to more than $28bn. Tops in ancillary fees in 2016 was United, with $6.2bn, and the total revenues in ancillaries coming in at $67.4bn: about 9.1 per cent of airline revenue. So that’s a good why.
With data analytics capable of precise customer profiling, and crafty algorithms allowing airlines to price and offer fares dynamically, Expected Marginal Seat Revenue (EMSR) is a staple for the financial forecasters in airlines. In 2016, global travel technology company Sabre Corporation surveyed travellers from 20 countries, with responses showing that that 80 percent of travellers spent an average of $62 on ancillaries on their most recent trip. Furthermore, respondents said they’d pay up to $99 if doing so improved their travel experience.
Propeller Shannon’s startups get to hear first-hand how and where airlines identify and pursue revenues outside seat sales. And when industry figureheads like Blair Koch, CTO of Datalex, and Ultan O’Brien of Viasat, come in and talk to the startups on our programme, entrepreneurs sit up and listen.
Naturally, the companies we help want to know how far they can go in a market that welcomes startups that understand the aviation sector, and learn how to slip a neat piece of software, an app, or a natural extension to an existing OTA platform, into the market and let it solve carriers’ and passengers’ needs.
One area that’s attracting attention at the moment is In-flight. In-Flight Entertainment (IFE) platforms, wireless IFE, Internet connectivity, and the large numbers of passengers and crew that carry digital devices, are all lining up to offer a significant increase in in-flight ancillary revenues. ViaSat, the high-speed satellite broadband services and secure networking systems company that acquired Irish aviation software compant Arconics in 2016, is predicting a move by airlines away from in-seat systems, and to platforms and services available on passengers’ own devices. On smartphones and tablets, travellers will be able to plan their trip from their seat: booking restaurants, hotels, AirBnB options, and exploring sights and heritage destinations. In-flight wireless portals and related mobile apps are set to become a permanent part of the aviation ecosystem, opening up opportunities for tech companies.
And short-haul, low cost operators aren’t leaving opportunities to the long-haul sector. Last year, EasyJet announced that it will launch a wireless in-flight entertainment service that will give passengers on European flights the facility to use their own electronic devices in the air to browse the Web, or to access pre-loaded onboard content.
Norwegian Air Shuttle and Germany’s Eurowings are two more early IFE adopters in the LCC space.
How will the IFE tech revolution change the way travellers plan and book their trips, accommodation and transport? Will it encourage more last-minute shopping around for people who are flexible enough to wait until the latest possible moment to decide whose unsold inventory looks the most appealing, as it makes its way on to digital marketplaces and platforms for travellers who are mid-air, and at mid-air (as opposed to sky high) prices?
And what will the technology and its reach mean to in-flight entertainment? How will the video-on-demand market respond to the means to distribute content to smaller, personal devices. No doubt Alphabet (owners of Google), Amazon and Apple have already worked this out, and are just waiting for airlines to invest in the onboard satellite systems required. And we fully expect nimble tech startups to zip in there like clever pilot fish to snap up opportunities created by the big players.
As someone who uses time spent on a plane to catch up with reading business news and aviation tech magazines, I’m going to miss being able to reply – late – to emails, saying ‘Sorry for the dela in responding, but as you know there’s no Wi-Fi at 35,000 feet. And I don’t think I’ll be the only business traveller who’ll miss the luxury of reading, or just tuning out, for a couple of hours. I’m hoping some bright spark comes up with an app for this.
Meanwhile, with existing ancilliary revenue paths looking like they’ve peaked, we expect very soon we’ll be working with startups who can solve this problem – and grow a great business on the back of doing so. We’ll help them figure out their business model, the best way to market – and throw in some world-class mentors while we’re at it.