“Many big content disruptors, like Google, are already looking into this. If airlines still don’t strive to do the same, we will all become hostages and become a mere supplier of the air travel portion.”
– Jiri Marek, Vice President of Alliances & International Affairs, Alitalia –
Following the successful Aviation Festival Asia 2018, we’re launching an eBook featuring some of the industry’s most forward-thinking digital innovators to talk about their digital innovation journey and where they think we are headed. Download our ebook here for full interviews. Below is an excerpt of our chat with Jiri.
How would you sum up Alitalia’s successful ancillary strategy?
Jiri: If you are working in a legacy airline, I believe to first concentrate on the Big Five — baggage revenue, upgrade revenue, change and distribution fees, seating and product bundles. If you set these right, you will have an immediate new stream of revenue coming in for the airline. You should not immediately focus on buzzwords like AI, merchandising, retailing, digitalisation… which are all important but without putting the Big Five in place, you cannot dream about the next level. With just the basics right, you will get millions of revenue coming in instantly. Only then you move on to optimising the basics and their delivery.
What do you think your team has done differently from other airlines which are still struggling with their ancillary revenues?
Jiri: First, we have to determine what constitutes ancillary revenue. Ancillary is meant to support your main revenue, it cannot exist without your main revenue. You need to first have the passenger to generate ancillary revenue. Then you need to establish how important is ancillary revenue in supporting the airline’s main revenue stream, and then get this understanding aligned across the whole organisation.
One key internal challenge is competition with marketing, which usually like to give everything for free as a benefit and extra value to the customer, and they consider ancillary as something that will drive customers away as we are asking customers to pay for things. In Italy, where LCCs penetration is over 40%, customers are starting to understand that it is more transparent for them if they can choose and pay for only what they want, and as an airline we are obliged to deliver a better service than before because now we are charging for such services and not giving it for free. This helps to elevate our standard of service delivery too, and it creates an interesting feedback loop for the airline.
Second, put someone responsible and accountable within the organisation for ancillary revenue, as it sits over multiple departments, and airlines are used to operating in isolated silos, so someone needs to create bridges between them.
Third, we must put the reporting right. We need to understand and agree on the components of ancillary revenue, then we set measurable KPIs to measure the revenue and success of each ancillary component. Only when something is understandable and measurable, then you can start optimising and maximising revenue coming from that product.
When we first implemented “big pieces” which are paid luggage and upgrade, immediately millions of revenue came in, which got people excited and we started building on this momentum.
Did understanding your customer matter in any of the three stages you mentioned?
Jiri: Not necessary at the initial phase. If we had spent time understanding what passengers want, we would have lost a lot of time. At the start, we took on a “follower” strategy and copied the best practices within the industry. Once results started coming in, we began to…
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