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Airlines Cautious About Service Change Impact

October 21, 2008 By: George Dooley


Despite the importance of ancillary revenues, the majority of air carriers have made little progress toward executing innovative merchandising strategies like bundling and unbundling airfares to help increase airline revenues, a new survey released by Sabre Airline Solutions Consulting shows.

According to the survey, airlines cite a number of reasons for the lack of progress, including the perception that merchandising is too difficult to put into operations. They are also concerned about consumer rejection or brand impact of the various merchandising options. Tactics such as pay-for-meals, pay-for-in-flight entertainment and fees for first checked bags could negatively impacting customers and their brand image.

“Airlines are focused on the obstacles of change, but it’s imperative to concentrate on the value merchandising offers them and their customers,” said Greg Webb, chief marketing officer for Sabre Travel Group. “Despite the struggles airlines are facing, there is a real opportunity for them to provide choice and value to passengers while at the same time generating incremental revenue.”

Sabre consumer research has found that travelers value maximum choice when deciding which airline products and services to purchase, with one-third preferring a hybrid of bundled and unbundled pricing options. If airlines match their offerings with traveler wants, they can increase consumer loyalty.

The global survey of nearly 90 airlines, which represented a strong mix of business models and carriers of various sizes, indicated that 36 percent agree that, other than fuel costs, revenue growth via pricing action will be their greatest business challenge over the next two years.

With revenue growth a top priority and challenge for airlines, they find themselves in unchartered territory. “This likely means that airlines find themselves in a hybrid situation— they are trying to balance a new world of now having to become a more fulsome service provider, travel supplier and travel retailer,” Webb said. “It’s an unusual situation where airlines are trying to ensure they have the ability to market products to consumers, while also trying to keep up with a marketplace that’s evolving rapidly.”

To help increase revenues during times of economic uncertainty, some airlines are pursuing more traditional tactics such as frequent flier products and services, including co-branded credit cards, and the selling of advertising space on their website or in-flight materials. Frequent flier mile programs remain a top strategic priority for one-in-three airline decision makers, twice the rate of using  families/branded fares, the next highest-rated merchandising opportunity.

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