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Article · 9 mins read
Software & Platforms for Ancillary Revenue Generation in IFE
Ancillary products present an attractive opportunity for airlines to enhance their revenue streams. There are several categories of ancillary products, and to date, most airlines have only been able to generate revenues from one or two of them.
Traditionally, ancillary products have been extras sold to passengers at the time of online ticket purchases as well as traditional sales onboard aircraft. New generation ancillary products sold through in-flight entertainment (IFE) systems onboard the aircraft have yet to be exploited by most airlines are on-board advertising and sponsorship.
This second category includes the new concept of destination-related products, with the potential to generate revenues for airlines via sales commissions. An equally important issue is the software and applications hosted on the IFE system hardware.
The first generation of ancillary products comprises the basic onboard sales of snacks, drinks, and duty-free items. These clearly require little dedicated technology, although credit card sales run the risk of fraud on aircraft not equipped with an external connectivity system. The second generation of ancillary revenues evolved about 10 years ago when airlines started offering additional products associated with on-line reservation and ticket purchases made by passengers. These can be divided into two categories: airline products and non-airline products.
Airline products include baggage check-in; priority or advanced boarding; reserving seats with additional legroom; and buying food and drinks on flights without in-flight catering as standard. Airline products generate direct revenues for airlines.
The second category comprises non-airline products, including travel insurance, hotel reservations, and car hire. This category generates sales commissions for airlines but requires the airline’s reservation system to have dynamic packaging. These pre-flight and reservation-related products are estimated to now account for $85 billion in revenues for all airlines. This contrasts with the annual airline industry profits of $35 billion.
There are also several categories of ancillary in-flight products. The first of these was when airlines started offering external connectivity to passengers, which made it possible to send text messages and emails and to browse the web. This is a service that has been paid for by passengers flying on US domestic flights. Some airlines use other connectivity systems and charge passengers directly. Typical daily rates in the US for domestic flights are $8-20 per flight. Similar rates are charged by European carriers.
External connectivity was also extended to some intercontinental flights by airlines that had used high bandwidth satellite communication (satcom) systems, such as Ku- and Ka-band. These high bandwidth satcom systems also made it possible to provide broadcast and internet protocol (I.P.) TV on aircraft.
In addition, an increasing number of airlines have opted to provide in-flight external connectivity on a complimentary basis, in response to passengers’ growing demands for it. Despite the higher bandwidth of later generation systems, the cost of providing external connectivity is still high. So airlines need to formulate business models that somehow cover this cost.
On low-cost carriers (LCCs) and inclusive-tour airlines, connectivity has traditionally been a paid service, just like many of the North American airlines. Onboard connectivity enables passengers to text message, send and read emails and surf the web. Airlines, on the other hand, use it to offer additional IFE services and a wider range of in-flight ancillary revenue products.
Live TV, advertisements and destination services
Following on from in-flight connectivity, a new generation of in-flight ancillary products is emerging. The first of these is live TV, for which passengers can be charged or not, depending on the airline’s business model. Another element of new generation in-flight products is passengers paying to access IFE content, in particular films and audio content hosted on the IFE server.
An in-flight ancillary product that has gained interest in recent years has been the use of in-flight advertising and sponsorship. This is a revenue stream that airlines can exploit without aircraft having external connectivity or any capability for in-flight and destination-related shopping. That is, advertising and sponsorship can already be used on the simplest and cheapest portable wireless systems.
Advertisers can subsidize the cost of operating a wireless IFE system that is used to provide free content or which markets a limited amount of paid-for content. At the other extreme, advertising and sponsorship revenue can be used to subsidize the cost of providing external connectivity for an IFE system. This allows passengers to stream content from ground sources and provides a wide range of in-flight shopping that includes destination-related products.
This targeted marketing can be done via an aircraft connectivity platform, but the system would have to be linked to the airline’s frequent-flyer and passenger loyalty programs. Other new-generation products include destination-related products and services. These will be the sale, through the IFE portal, of items, such as hotel and car hire reservations, restaurant bookings, and excursions and trips. All of these require access to the booking engine on the ground, so the aircraft needs to have external connectivity.
What is needed?
Few airlines currently offer new generation ancillary revenue products and so do not generate the potential additional revenues. While the industry is in its infancy now, the sale of in-flight and new-generation ancillary products is expected to grow over the next few years.
“Passengers today are mainly paying for connectivity and IFE content, but the biggest potential in the future is targeted and personalized advertising and shopping solutions. Them being connected with spare time at hand onboard an aircraft opens up opportunities for new revenue streams,” says Stephanie Schuster, senior director business development at Axinom.
There are several steps airlines will have to take before they can start opening these new revenue streams. This involves airlines making hardware and technological changes to their onboard systems. For example, high bandwidth external connectivity is only provided on a minority of commercial aircraft, although the portion is steadily increasing.
And then there's the cost associated with high bandwidth external connectivity - it's high. Solutions like real-time payment solutions, CRM, live TV as well as streaming content from providers such as Netflix require a constant connection. To make it commercially viable, new business models that either subsidize or fully cover the connection cost are needed. Luckily there are signs that as high-bandwidth connectivity solutions mature, their prices will drop and that helps in making everything mentioned above a reality.
A Seamless Holistic System
A major issue with providing ancillary products is the requirement of data and intelligence. Most IFE systems have been configured to be stand-alone devices for the sole reason to provide entertainment. They barely even cover the fixed cost of installation and operations owing to the cost of providing premium content. To capitalize on the new generation ancillary revenue opportunities, the IFE systems need to be integrated or interfaced with airlines’ CRM systems.
First, a complete range of all categories of ancillary products from pre-flight to post-flight needs to provide the passenger with a seamless experience.“Several factors are preventing airlines from moving faster ahead with generating more from these ancillary revenue streams. One issue is payment and personalization, and most airlines’ IFE systems do not have seamless integration. If they did, passengers would not have to re-enter their credit card and personal details each time they make a purchase,” says Schuster.
There is also the integration of an airline’s system. Systems such as frequent-flyer and customer relationship management (CRM) with the on-board system, as well as issues relating to aircraft hardware and external connectivity equipment. An integrated and holistic system means that the IFE system will recognize the passenger when they are in their seat, and link this to their personal data from the CRM system or the ticket purchase.
There are several possible ways to configure a system to provide a seamless service using connectivity. “One example is a hybrid solution for payment,” says Schuster.“This would show the passenger options like duty-free articles, food, and beverages, destination vouchers, entertainment, telecommunication services, flight upgrades, further transport services like Uber and baggage claim information.”
She continues, “There are also airport services, such as terminal hotel and meeting options for purchase. These services could make use of an integrated connected catalog, CRM and payment service. The usage of selected partner services, for example, ground transport or hotel services could be free, while other connectivity services for the internet, in general, could be charged.”
The new-generation ancillary products will also have to be offered at appropriate touchpoints. Examples of these can include ordering drinks and stating meal or movie content preferences during on-line check-in, travel to the airport, airport check-in, and the pre-departure period. Such promotion of these sorts of ancillary products can be conveyed through the airline’s app on the passenger’s PED.
Other appropriate products during these touchpoints may include destination-related products, or post-flight products, such as grocery items or taxi reservations to take the passenger home after a returning from a trip. Marketing via the app on a PED would be convenient at these pre-flight touchpoints and would make use of Wi-Fi connectivity available on the ground and mainly within the airport terminal.
At touchpoints in later stages, such as during the flight, it would then be appropriate to offer destination-related products, in-flight shopping, access to streamed IFE content from on-ground sources, and in-flight items such as drinks.
A large number of touchpoints at the off- and on-aircraft phases of the entire journey and passenger experience, and the appropriate products to offer, must be carefully identified and analyzed so that the passenger does not get annoyed by the over-promotion of an excessive number of products at too many touchpoints.
Not only does frequent-flyer data allow airlines to better target appropriate ancillary products to particular passengers, but so does the analysis of passengers’ buying behavior. This is like using data from global distribution systems (GDSs), and revenue management and revenue accounting systems to re-optimize available fares on each route at regular intervals.
Therefore, as well as creating holistic reservations, IFE, and an ancillary revenue-generating system, airlines would benefit from having the post-ancillary product purchasing analysis process in place at the start. This will allow them to refine touchpoints, and the appropriate products promoted to regular passengers at each one.
We at Axinom offer products all along the value chain of ancillary revenue creation. From managing content and services to getting them on-board vessels to displaying in wireless seatback devices and more.
Disclaimer: The article was originally published in the June/July 2018 issue of Aircraft Commerce and has been reproduced with modifications with permission.
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