The Journey to Travel Retail

October 24, 2011

Airlines have done a heroic job over recent years in cutting costs and raising revenues, yet frustration abides with the current economics of distribution and the struggle for profitability. The evolving airline merchandising strategies seek to maximize profitability and champion a new future in travel retailing, which refines the customer engagement across all direct and indirect channels.

Capacity in the market has remained sufficiently high and competition sufficiently fierce to prevent airlines pricing tickets at normal profitable levels. Consumer spend has tightened and this race to the bottom on price is no longer sustainable. Airlines have therefore in recent years looked to maximize the opportunity to sell more products and services and some now generate 15–20% of gross revenues from ancillary sales.

While a proven lucrative revenue opportunity, the concept of ancillary sales is largely unrefined as a retail practice; the airline continues to add a multitude of product and service choice, the conversation with the customer shortens, shelf space becomes more precious and channel/touch point opportunities to engage the customer remained untapped.

It is time to move to a more refined and meaningful retail engagement with the traveler across all channels. Hence the concept of ancillary has been replaced by airline merchandizing as the next stage in the maturity cycle. At its core, airline merchandising looks to create intelligent and high-value retail, which involves creating experiences, not just commodities at every stage in the purchase continuum.

Core to an airline merchandising strategy is recognition that travelers represent multiple markets and personas. A high value corporate traveler on one channel or market today may also be a high value leisure traveler on another channel or market the next. Travelers increasingly search, buy, and share travel and brand experience. They are always connected and while they want choice, they expect the choice to be relevant, tailored throughout the engagement.

To inspire, optimize, and personalize the traveler experience, airlines have to recognize that all channels must provide a single view of customer. That means all channels must always be connected. Moreover, they must support all offerings and merchandising, and apply active listening to identify intent, history, and the value of multiple personas and markets.

Putting aside the resistance from those reliant on traditional supply chain dynamics, airline merchandising remains a critical growth avenue for carriers. It will significantly transform the distribution model. It will put customers to the fore. It will enable airlines to make immediate and tactical decisions based on real revenue and profitability promise.

Technologies continue to play a key role in enabling growth and transformation of airline merchandising practice, yet radical business change is also required if airlines are to have the agility and control to champion and challenge new retailing practices across all channels.

Airlines have always sold more than a seat; they sell an experience and a brand.  Those leading the transformation envision a future where the airfare is the base product and through effective active listening and personalization of product, price, and promotion, the traveler can be provided with greater visibility and choice of products and services tailored to their desired travel experience.

The airline holy grail of sustainable profitability may become a reality for more than just a few.

Padraig O'Neill
Datalex COO