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Revenue Growth seen as Greatest Challenge by APAC Airlines

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Airlines in Asia Pacific see revenue growth as one of the greatest challenges as they grapple with implementing innovative merchandising strategies that can help increase revenues.

A survey of airlines across the globe, released Tuesday by Sabre Airline Solutions Consulting, shows that despite widespread marketplace discussion regarding the importance of generating ancillary revenues, the majority of carriers have made little progress toward innovative merchandising strategies like bundling and unbundling airfares to help increase airline revenues.

According to the survey, airlines cite a number of reasons for the lack of progress, including the perception that merchandising is too difficult to put into operations, as well as concerns about consumer rejection or brand impact of the various merchandising options.

“Airlines are focused on the obstacles of change, but it’s imperative to concentrate on the value merchandising offers them and their customers,” said Greg Webb, chief marketing officer for Sabre Travel Group. “Despite the struggles airlines are facing, there is a real opportunity for them to provide choice and value to passengers while at the same time generating incremental revenue.”

Sabre consumer research has found that consumers value maximum choice when choosing which airline products and services to purchase, with one-third preferring a hybrid of bundled and unbundled pricing options. If airlines match their offerings with traveller wants, they can increase consumer loyalty. 

The global survey of decision makers at nearly 90 airlines, which represented a strong mix of business models and carriers of various sizes, indicated that 36% agree that, other than fuel costs, revenue growth via pricing action will be their greatest business challenge over the next two years.

With revenue growth a top priority and challenge for airlines, they find themselves in unchartered territory.

“This likely means that airlines find themselves in a hybrid situation – they are trying to balance a new world of now having to become a more fulsome service provider, travel supplier and travel retailer,” Webb said. “It’s an unusual situation where airlines are trying to ensure they have the ability to market products to consumers, while also trying to keep up with a marketplace that’s evolving rapidly.”

Some 40% of survey respondents in Asia Pacific listed frequent flyer products and services, as their top priority for generating ancillary revenues. Selling advertising, second in Asia Pacific airlines' priority list for ancillary revenues, has been implemented or is being considered as a key merchandising strategy by half of those surveyed.

Other options like charging for second checked bag and premium seating were considered top priorities by only a small percentage of those surveyed in Asia.

“In many cases, airlines view implementing tactics, such as advertising and frequent flier programs, as both the quickest to market and the least complicated to implement,” Webb said. 

Although many U.S. carriers recently began charging for second checked bags, only 4% percent of those surveyed considered it a top priority in APAC, while none of those surveyed in EMEA consider it a top priority.

The Sabre survey also showed that rejection of tactics such as pay-for-meals, pay-for-in-flight entertainment and fees for first checked bags appear to be due to concerns of negatively impacting their customers and their brand image.

Yet the study also shows distinct perception differences among airlines regarding implementation difficulty. For example, 61% of those surveyed who have not implemented pay-for-in-flight entertainment capabilities perceived this tactic to be too difficult to execute. In contrast, only a handful of airlines surveyed that have pay-for-in-flight entertainment found it difficult to implement. 

Those surveyed indicated there are a number of challenges to enabling a successful and leading-edge merchandising strategy. Among the issues cited by survey participants include a lack of industry standards, lack of available technology, government regulations and internal strategy development/alignment.

“Sabre has a strong desire to help develop and implement industry standards and we’ve been working toward that end for some time,” Webb said. “Without those standards in place, it has made bringing the right technology to the marketplace very difficult as each airline wants to execute the various merchandising strategies in different ways, which requires a great deal of customisation.

“All the right parties have been working for some time on developing industry standards, but it has been a very slow process. We all need to find a way to break through this piece of the puzzle quickly,” Webb said.

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