This article outlines why OpenJaw believes full ownership and a transition to Integrated Airline Retailing can truly transform revenues for an airline.
In a recent Phocuswire interview, Alan French, the CEO of Thomas Cook, and Giles Martinez, the CEO of Jumbo Tours, discussed the current trends in the travel industry, highlighting the surge in demand for leisure travel this summer. Both executives emphasised that not only is the demand strong, but the average spend per traveller has also increased significantly compared to the pre-pandemic levels in 2019. This upward trend in spending has resulted in higher profit margins. Undoubtedly, this is positive news for the industry's recovery and is in alignment with the trends we are observing with our own customers at OpenJaw.
Additionally, during the interview, they touched upon the exciting potential of dynamic packaging. This innovative approach allows travel companies to offer their customers a wider range of options and opportunities. By capitalising on various destination opportunities, travel companies can enhance the overall value of travel packages, resulting in increased basket value and a greater share of the customer's wallet.
Overall, the discussion shed light on the positive developments in the travel sector, where the demand for leisure travel and increased spending are contributing to a more promising outlook for the industry's future. The potential of dynamic packaging provides a strategic avenue for travel companies to further cater to customers' needs and preferences, ensuring a more satisfying travel experience for all.
The opportunity for airlines
Airlines compete across the full travel chain with well-funded OTA’s and financial institutions who offer integrated and seamless end-to-end travel experiences. Gaining a share of the online packaging and hotel merchandising market can serve as a key differentiator for airlines, allowing them to effectively compete against the growing influence of these players and, consequently, boost their bottom-line revenue. The focal point is not just about who issues the airline ticket, but rather about who retains ownership of the customer throughout the travel journey.
This article outlines why OpenJaw believes full ownership and a transition to Integrated Airline Retailing can truly transform revenues for an airline. It also touches on some key competitive advantages that airlines have over other industry players.
The case for ownership and full service
1. Leverage your Advantage
As most travel purchases start with the flight and a visit to the airline's website, airlines are perfectly positioned to sell the full itinerary. This enables an airline to capture a greater share of the customer's wallet while simultaneously providing a seamless customer experience. By assuming ownership of the customer throughout the entire journey, an airline can also acquire a comprehensive understanding of that customer. This enables the airline to gather invaluable insights that can be utilised for crafting future offers and enhancing various customer interactions.
2. Supercharge Your Margins through Disintermediation and Greater Brand Association
Airlines often underestimate the power of their brands. Suppliers prefer to be directly associated with the airline rather than with your outsourcing partner. This provides you with greater leverage when negotiating unique inventory, discounts, and rates compared to what your outsourcing white label partner can secure on your behalf.
3. Drive Customer and Revenue Growth through Differentiated Offers
By owning the relationships with its suppliers, an airline can collaborate to create unique offers that your competitors can't match. For example, if your VP of Airline Vacations has a direct relationship with the Director of Product at a large hotel chain, you could collaborate to create tailored seasonal and/or route-based sales. The airline offers the seats, the hotel provides great room rates, providing your customers with a unique offer while driving demand and revenue for your partnership.
4. Tighter Integration of Product
Negotiate on flight loads by using your market knowledge to unlock last-minute discounts with suppliers. For instance, if your load factor is down 10% for a key market like CHI FLL, it is highly likely that hotel occupancy at that destination will also be down. Utilise this as a strategic opportunity to increase the load factor by negotiating a unique discount with Disney resorts to drive demand for seats and rooms.
Additionally, you can achieve this without undermining your underlying revenue management strategy through the utilisation of opaque pricing on dynamic packages. This approach also allows you to manage yield on the first bucket by reducing agency dependency and driving demand for seats.
5. Use Packaging to Contribute Towards Flight Revenues
Successful airline retailers use the vacation business to drive core flight revenues, not just ancillary revenues. The vacation division for some of our customers is responsible for 5% of the airline's overall flight bookings and 7% of total revenue. These airlines combine airline best practices with tour operator best practices to turn loss-making circumstances into profit-making opportunities. For example, they yield manage against the full itinerary and gain a competitive advantage by owning a broader part of the supply chain.
6. Reduce Costs and Significantly Improve your Cash Position
Servicing is typically a cost for airlines, but by using upselling and cross-selling techniques, you can turn it into a revenue-generating opportunity and increase your share of the customer's wallet. Furthermore, taking commercial ownership and being the merchant of record significantly improves the airline's cash position. Essentially, the airline will only pay its suppliers upon consumption of their products. This means that in the meantime, those funds will remain in the airline's account instead of with the outsourcing partners, allowing the airline to fund marketing and promotional initiatives.
7. Enhance Customer Loyalty
Airlines can use their packaging platform as an opportunity to increase customer loyalty and retention. By leveraging a packaging platform with support for loyalty redemption and accrual; customers will now have the ability to earn and redeem additional miles with their package bookings. This provides more redemption and accrual opportunities making your program more attractive to new and existing customers. Critically, complete ownership of the packaging platform allows airlines to fully leverage and utilise customer data to ensure relevant and targeted package offers are presented for sale to further increase customer satisfaction and conversion rates.
8. Minimise Capital Expenditure
By choosing a vacation platform that supports full ownership from the outset, the airline will benefit from a single capital expenditure investment in a platform that caters to partner-managed fulfilment as well as full service, owned fulfilment. This avoids dual investments due to transition or new platform costs when switching from a partner-managed white-label solution to full service in the future.
Making a transition to full service requires investments in both technology and organisational aspects; however, the potential rewards can be truly transformative. With the right retailing strategy and enabling technology, we have witnessed customers generate over US$1 billion per year in additional high-margin revenue.
At OpenJaw, we are dedicated to supporting our airline partners in achieving retailing excellence. Reach out to a member of our team today to discover more about what our solutions can do for you.