Ai Editorial: Convergence between Ancillary Revenue & Loyalty

Ancillary Revenue & Loyalty will converge at Mega Event'13, 13-14 November 2013 in Vancover. (Photo: Mega Event'12)

Ancillary Revenue and Loyalty: Silos, Collaboration or Tolerated Co-existence?

Travel related insurance and assistance products, may be one of the oldest sources of airline “ancillary revenue”, and simultaneously, one of the most neglected products in “loyalty” programs of those same airlines. Why? One overarching reason is the way airlines manage their “ancillary revenue” & “loyalty” programs. It was clear, at the recent “Mega Event” in San Diego, that across the board, there are a wide variety of views and operating practices. Keep them separate & siloed was eschewed by several speakers. Integrated and collaborative was there too; but tolerated co-existence (with token co-operation) appears more the norm. In many cases, what’s working well in one company’s program, may have low, or no visibility, even within the same organization. Particularly a non-glamorous category like insurance.

A second reason may be that the manager of the mature, highly profitable, low maintenance, “ancillary revenue” travel insurance program sees no benefit or value (personal or corporate) in promoting the product to another department (“loyalty”). The incumbent underwriter, too, may be complicit, not wanting to risk another department (“loyalty”) getting interested in insurance, then going to RFP, with the possibility, that they (the incumbent) are unsuccessful, and a second underwriter is selected. These scenarios are probably not conspiratorial, it may simply be a case of “why make work for ourselves, when what we have, is doing well”. So if the “loyalty” program is busy with “loyalty”, and “ancillary revenue” is not championing the creative use, by “loyalty”, of travel related insurance and assistance – what happens. Nothing happens, particularly in those companies with the siloed or tolerated co-existence philosophies.

Why should airlines care? What benefit can the creative use of travel related insurance and assistance bring to a “loyalty” program. It depends. There are a very wide range of insurance/assistance products and features available in the marketplace, and they can customized to be revenue generating, or revenue neutral, or provide member benefits at a cost. It depends on the overall strategic and merchandising direction of the “loyalty” program. It depends on a willingness to investigate, review product(s), strategize and test.

Within the current “ancillary revenue” model, with most airlines, less than 10% of ticketed passengers are purchasing the travel insurance/assistance offering. It’s therefore highly likely, relatively few of the airline’s “loyalty” members are currently buying the insurance product. Adding 2 or 3 basis points to the insurance sales will generate millions of dollars of ancillary revenue. Surely “loyalty” should at least be creating programs that a least showcase the insurance category.

Better yet, create a portfolio of complementary products that in addition to educating and informing, also generate revenue within the “loyalty” program.

This editorial was contributed by:
Frank Shellabear

Chief Consulting Officer, FS Consulting Services
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