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Why ancillary sales grew by almost 100% in 2015

Pedro Espin

Associate Director of Merchandising & Personalisation, Amadeus IT Group

Our quarterly results were just released, and for me there’s one number that speaks volumes: last year Amadeus observed a 95% year-on-year growth in the amount of ancillary services being sold by travel agencies—both on and offline.

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This represents a big shift in the way airlines and online travel agencies are selling flights to travellers. How did this happen and what does it mean? Here are three things you need to know about why ancillary sales grew by almost 100% in 2015.

A new shopping normal: the shift from price to value

Once upon a time, travellers looking for flights compared prices looking for the cheapest fare. Today, shopping habits have changed. Savvy travellers don’t just want the affordable flight: they want the best connection, the shortest trip, early boarding privileges, a vegetarian meal option, the ability to select more legroom, a window seat, or an extra bag. For many travellers, the best fare isn’t necessarily the cheapest, it’s the one that offers the best value.

Ancillary services and fare families are helping travel providers personalise their offers and they are essential for online travel agencies and airlines that want to attract and keep travellers’ interests. This is just the beginning of an industry shift that will continue to evolve in the years to come.

Online Travel Agencies are leading the way

Online travel agencies are well placed to understand evolving consumer behaviour and they led the way in the adoption of merchandising. During 2015, the number of   merchandising integrations with online players increased four-fold, and allowed Amadeus to work very closely with players like Expedia Inc., Fareportal and eDreams ODIGEO.

“We need to have transparency for our customers, we need to make sure they understand what they are buying, we need them to understand what they can expect at the airport. What we are trying to do also in our shopping is to move from a commodity to an added-value product,”says James Marshall, Expedia’s Vice President of Transport for APAC . According to Marshall, the transition to online merchandising sales can’t happen fast enough.

“We need to make sure that we roll out as many airlines as possible in the shortest amount of time so that our customers can really see a whole range of airlines available for fare families as soon as possible.”

Merchandising makes money, and airlines have noticed

There are now 107 airlines signed up for Amadeus Airline Ancillary Services, with 71 having already implemented the solution, compared to only 51 airlines offering ancillaries at the end of 2014. This means that more than half of all airline bookings through Amadeus can be booked with an ancillary service like extra bags or seat selection.

In addition, 23 airlines are now offering Airline Fare Families through Amadeus, with another 12 airlines signed up for the service and in the process of implementing the solution in the next few months.

We don’t expect this trend to slow down in 2016: a report from CarTrawler projects projected that airline ancillary revenue reached $59.2 billion worldwide in 2015—an 18.8% increase compared to 2014.

This aligns with the trend observed in our whitepaper on the Evolution of Merchandising which found that the merchandising sales could create an additional $130 billion for airlines in revenues by 2020.

It is clear that merchandising makes money, and airlines that want to catch up will need to catch on.


Tags

Merchandizing