The ancillary effect: an evolution in the online travel supplier chain

The evolution of OTAs

The dynamic between airlines and OTAs is changing: OTAs were traditionally considered a low yield channel for airlines, as they were focused on price, and specialised in providing the cheapest ticket options. Yet OTAs have been evolving to provide enriched content on top of the basic fare. Bundling solutions such as fare families as well as the ancillary catalogue enable the differentiation of airline products, and an increase in yield. And this should be good news for all of us.

The primary driver is probably quite pragmatic for both parties. OTAs compete with other travel sites for customer attention between the end of the booking process and the day of departure; offering the possibility to book seats, bags and meals should definitely increase the stickiness of their brand. At the same time, airlines have now realised that they should be able to generate significant additional revenue by enabling travel agencies to sell their ancillary services; even if the adoption is lower than directly on their websites, the ROI should offset any potential loss of customer traffic to the direct channel.

This adoption will get an additional boost with the delivery of Airline Fare Family upsell features later in the year. This module allows the seller to match the customer’s fare to an existing fare family, or bundle, and thus offer an upsell to the next level, which often includes higher comfort and services at a price lower than the customer would expect. This new booking flow allows OTAs to upsell higher fares in the booking path, which, in addition to the existing standalone ancillary services offer, provides further flexibility and benefits for both sides.

OTAs are now able to sell bundled fares without the need to process and manage individual documents (EMD) for the standalone services which can be an issue for mid and back office operations, resulting in cost savings and higher yield opportunities. From an airline perspective, this new flow promotes the sale of higher yield products which is only possible at booking time; whilst still leaving the opportunity for additional cross sell in the post booking phase with the net effect of further increasing revenue opportunities.

A report we commissioned recently,Thinking like a retailer: Airline merchandising by Frost & Sullivan, gives some insight into the benefits of investing in fare families, as it reveals that basket size can increase by €19 or more with this solution. With respect to the customer, bundling can add value in terms of price, transparency and flexibility, resulting in an improvement of the travel experience.

If this is good news in the short term, this may also have a more fundamental impact on the relationship between airlines and OTAs. It is only fair to say that the past few years have not been smooth sailing: OTAs are very focused on price comparison and are therefore perceived by airlines as a low yield channel, mostly a necessary route to get additional reach and capture demand. Fare families (and the ancillary catalogue) will start enabling differentiation of airline products on the OTA website, but more importantly they will increase the yield of this channel for the provider who should naturally see the benefits of incentivising resellers that play the upsell game.

I do believe that this will be a major evolution in the online travel supplier chain and create a new dynamic between airlines, GDSs and OTAs. I would even venture to say that it may be one of the triggers that have aroused LCCs’ interest in the GDS channel once more...