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Stretching their monetary wings: How airlines can apply social media to create a new revenue engine

Airlines have been stretching their wings in more ways than one, by continuing their efforts to develop creative ways to remain profitable. And to a large extent, they’ve succeeded – for now.

For more than a decade the engine of airline revenue progress has been tied to ancillary revenues – fees associated with now-unbundled services, including everything from baggage and beverage, to headphones, pillows and blankets and beyond. More recently airlines, recognizing the folly of forever charging for services that were once included in a standard ticket price, have began expanding ancillary revenue offerings to include a host of additional services far beyond the confines of the cabin – offerings that have spread throughout the entire booking path. Today, services include everything from hotel booking and car rental, to trip insurance and day-trip excursion reservations or advanced access to tickets for purchase. And for the environmentally aware traveller, the latest offering includes a voluntary carbon offset whose fee goes to a nonprofit or NGO that works to protect natural areas in developing and emerging countries.

But ancillary revenues’ potential is only just being tapped.

Faced with unstable political climates, a global economic crisis and ever-rising fuel costs, ancillary revenues (both fee and service-based) have been the revenue-generating answer to airlines’ collective budgetary needs. Pioneered by low-cost carriers, today’s legacy airlines travelling to destinations across the world have now adopted these principles too. But even as airlines collectively celebrate their wing-stretching accomplishments, the burgeoning field of mobile and connective technology is nevertheless causing industry insiders to say, “What more can we do?”

And, as smartphone and tablet adoption continues to reach a critical mass, averaging about 40% smartphone adoption in France, 42% in the US (with some demographics and income brackets at 60%) and better than 50% in both the UK and in Spain, travellers are more and more reluctant to be disconnected from their mobile devices, even for the relatively short duration of a several-hour flight. Thus, revenue-generating desires have driven airlines to become increasingly creative in furthering the ancillary revenue windfall.

Today, mining that ancillary revenue windfall means shifting focus toward social media platforms as airlines’ next revenue frontier. More than just offering branded products or additional booking path or inflight options, finding innovative yet privacy-respecting ways to monetize passengers’ conversations about their travel experiences through social media – the bulk of which passengers are already using – are airlines’ latest ancillary revenue ambitions.

Massive potential
To be sure, the desire to monetize a conversation is nothing new. Just think back to the early payphone era where in 1905 it cost users five cents to make a local call. And as early as the 1940s, telephone companies began offering what became known as “party lines.” Users dialled in and engaged in a social event. Often, party line initiation costs were low, followed by a gradual ramp-up once the participants were already engaged by the experience and less likely to “end the call.” This pricing model holds similarly true for airline ancillary revenue strategies today.

For airlines looking to monetize the pre-flight online conversation, the “party line” has reached digital maturity. It’s a milestone whose achievement follows the natural outgrowth of rapidly accelerating digital and mobile technology, its revenue benefits already being demonstrated in other industries and bolstered by the new expectations of today’s tech-savvy travelers. Monetizing social media advances the recent trend of expanding ancillary revenues, both fee and service based.

 

Highlighting its revenue-generating success, the CAPA Centre for Aviation reported that as recently as the Q2 2011, US airline profits hit US$1.9 billion, $1.4 billion of which came through ancillaries. The bulk of this was likely through baggage fees, but also includes the traditional “Big 3” ancillaries i.e., travel insurance, car hire and hotel booking, as well as in-flight entertainment, duty free and emerging experiential offerings. Globally, an Amadeus/Ideaworks study estimated that airlines pulled in some US$32.5 billion in ancillary revenue worldwide in 2011 - while further suggesting that an increased focus on ancillaries by airlines last year could have yielded another US$67 billion in revenue. These statistics demonstrate the growing significance that ancillary revenues already play in the airline industry. And if incorporated correctly, monetising social media may become an invaluable added revenue resource.

The value in big numbers
Eight hundred and forty-five million. That’s the total number of active Facebook users as of February 2012, with some estimates as high as 900 million and forecasts that the social media site will reach one billion users by October 2012.

It’s an impressive statistic that has airlines tuned in to the monetary possibilities abounding in social media platforms.

Beyond Facebook, the data serves as a proxy of just how tech-savvy our society has become. For airlines, though, it may mean something else. The time for monetising the social media experience has arrived and could be the latest way to re-invigorate the ancillary revenue profit model and serve as yet another safeguard against ever-fluctuating fuel costs, which in April 2012, was trading at US$103.82 a barrel.

But while the recent Facebook revenue news is largely rooted in the growth of banner ads and monetized links that Facebook users can click on, or the third-party access of proprietary sites that also sell products or deliver restricted company information (also accessed at a price), innovative airlines are looking to take social media’s revenue generating potential one step further and monetize the travel conversation itself. Considering social media’s growing popularity, our company’s launch of the “Let Me Think” ancillary revenue solution taps into a valuable monetary opportunity for airlines.

 

“Let Me Think” lets passengers log in via their Facebook profile and place a fare “on hold” for a limited time. More than just placing a fare on hold, (which any call to a customer service representative can achieve) the service takes advantage of Facebook’s integral social media experience and seamlessly allows users to discuss their upcoming trip with their friends and family through that medium – just like they are already accustomed to doing. By linking with friends via Facebook, however, Let Me Think can also distribute promotional messages to people in a given social circle, generating a fun and productive conversation in real-time that may inspire some of those potential customers to book a future flight. Facebook continues the conversation and improves the odds that friends of friends will be interested in booking too.

Talk, text and Tweet “Mobile” to win customers and ancillary revenues
So what does monetizing the social media conversation really mean? Like the party lines of old – or your mobile phone carrier or even your nearest (yet dated) corner payphone – it means literally charging for the conversation. From the first stirrings of a planned trip, right through the booking process and the post-trip re-cap, travellers are eager to discuss their experiences through social media, be it Facebook, Twitter, Foursquare, or even email. Whether through direct fees or its indirect benefits, social media is fast becoming the ultimate conversation starter – and continuer. And the more an airline’s brand is discussed via that medium, the greater the possibility that new revenue opportunities will emerge, as the social media-savvy passenger establishes brand loyalty, drives the online conversation, and attracts their friends, family and loved-ones to that carrier.

To be sure, social media is not the airline industry’s revenue panacea. But in spreading their monetary wings, monetizing the social media conversation is the latest creative outgrowth helping reinvigorate the decade-plus success of fee and service-based ancillary revenues. Fuel costs are likely to continue rising, political brushfires will need stamping out, and the global economy may still be years away from a complete recovery. These extra-industry challenges aren’t going anywhere, which means the time for creative revenue solutions has never been more urgent. While fee and service-based ancillary revenues have helped the airline industry go so far, monetizing social media will be the latest “push” to help it overcome it’s monetary mountain. Consider this article a conversation starter on how airlines can best spread their creative wings and soar. But if I’ve begun the conversation, now it’s up to you, the readers, to help further it. What else can airlines do to help: a) further monetize the social media conversation and b) where else can the ancillary revenue frontier be expanded?

The revenue potential in monetizing social media is there…all airlines have to do now is embrace it.

Raphael Bejar, founder and CEO of Airsavings, SA, is widely considered one of the pioneers of ancillary revenues in the airline industry. Airsavings, the company he founded in 2001, has consistently been in the vanguard of ancillary revenue innovation, leveraging the capabilities of the online booking path to create new revenue generation opportunities for airlines on four continents. Bejar is a 20-year veteran of the airline industry, working primarily in finance and purchasing, eventually translating his expertise in the field into Airsavings' group purchasing and ancillary revenue development model for many of Europe's leading low-cost carriers. He has also worked with Jet Finance, Credit Foncier, and SH & E, holds degrees in engineering from ESTACA and in finance and banking from Paris University. He is a frequent speaker at airline conferences on the topics of ancillary revenue development and innovation.

 

25 April 2012

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