how to increase airline revenues through trending practices revenues presentation-2016.pdfhow to...

HOW TO INCREASE AIRLINE REVENUES THROUGH TRENDING PRACTICES

S. ARAS KUBILAY, AVMP HITIT CS

OWN YOUR PLANESS. ARAS KUBILAY, AVMP

HITIT CS

WAIT A SECOND, THEY ARE ALREADY OUR PLANES?(ALRIGHT SOME OF THEM ARE LEASED, BUT STILL…)

Every Airline Here Right Now

OR ARE THEY?

LET’S START WITH JUST ONE

Others%9

Boeing 767%4

Embraer E190%4

Airbus A330%5

Boeing 777%5

Boeing 747%6

Airbus A320%29

Boeing 737%37

Source: Boeing, Airbus, Embraer, Bombardier

MARKET SHARE OF CURRENT PASSENGER JETS

184 Passengers (1-Class) 162 Passengers (2-Class) 189 Passengers (Max. Seating)

Source: Boeing

AVERAGE LOAD FACTOR: 80%

Source: ICAO 2015 Annual Report

147 SEATS FILLED 37 SEATS EMPTY

IF I COULD FILL THAT PLANE 100%, WOULD YOU GIVE IT TO ME EXCLUSIVELY?

SO AN IMPORTANT QUESTION TO ASK IS…

WHO FILLS YOUR SEATS?

IS IT YOU?OR GDS, OTA, METASEARCH, AGGREGATORS?

20FOR AN AIRLINE, IT IS

TIMES COSTLIER TO SELL THROUGH GDS/OTA THAN DIRECT.

Source: Atmosphere Research Group, IATA

20

THAT IS DISTRIBUTION COSTS

+OPPORTUNITY COSTS

AIRLINES EARN 9 TIMES MORE ANCILLARY REVENUE WHEN SELLING DIRECT.

Source: EyeForTravel

AND THAT’S A LOT OF MONEY!

Source: EyeForTravel

0

200

400

600

800

2010 2011 2012 2013 2014 2015

703,7696,1665,4630,9544,5451,4

59,249,942,636,132,522,6

AncillaryTotal Revenues

Source: IdeaWorks, Air Transport World

AIRLINE REVENUES ($ BILLION)

SO HERE IS A VERY ORIGINAL, TOTALLY UNHEARD OF IDEA: “UNBUNDLING”..!

…OF COURSE, EVERYONE IS DOING THAT NOWADAYS. BUT DO THEY DO A GOOD JOB?

Air37,6

Non-Air21,6

ANCILLARY REVENUE BREAKDOWN ($ BILLION)

Source: IdeaWorks

ANCILLARY REVENUE BREAKDOWN ($ BILLION)

Source: Hitit Research, IdeaWorks

2,80,92,6

3,1

12,4

15,8

BagSeatOnline / CC FeesB2C FFPUMNR / Sport etc.Others

11,89,8

B2B FFPCommissions

$$$ IS FINE, BUT THERE IS ANOTHER BENEFIT TO SMART UNBUNDLING

WHAT DO THESE THINGS HAVE IN COMMON?

Post-It

THEY ARE ALL VICTIMS OF “COMMODITIZATION”EVERY SUV IS A “JEEP”, EVERY PHOTOCOPIER A “XEROX”, EVERY STICKY NOTE A “POST-IT”

IF YOU DON’T DIFFERENTIATE FROM YOUR RIVALS, YOUR BRAND JUST BECOMES A GENERIC CONSUMER PRODUCT.

IN SUCH A PICTURE, CONSUMERS DON’T SEE THE AIRLINE BRANDS AT ALL

DIFFERENTIATION IS IMPORTANT, BUT…

“TOO MANY” CHOICES ARE ALSO BAD FOR BUSINESS

BETWEEN 2007 - 2012, MENU CHOICES AT MCDONALD’S INCREASED BY 70%.

Source: Bloomberg

IN 2013, THEIR SALES DECLINED FOR THE FIRST TIME IN 10 YEARS.

Source: Wall Street Journal

UNBUNDLINGUNBUNDLING SOME BUNDLING

OFFER EASY TO UNDERSTAND VALUE ADDS (OR AT LEAST THE ILLUSION OF IT!)

1) PARIS HOLIDAY WITH 5* HOTEL

2) ROME HOLIDAY WITH 5* HOTEL

3) ROME HOLIDAY WITH 4* HOTEL

YOU HAVE WON A FREE HOLIDAY! CHOOSE ONE:

1) PARIS HOLIDAY WITH 5* HOTEL

2) ROME HOLIDAY WITH 5* HOTEL

3) ROME HOLIDAY WITH 4* HOTEL

2) ROME HOLIDAY WITH 5* HOTEL

YOU HAVE WON A FREE HOLIDAY! CHOOSE ONE:

WHEN FACED WITH “FUZZY” OPTIONS, PEOPLE TEND TO CHOOSE BASED ON PERCEIVED WORTH (5* ROME IS BETTER THAN 4* ROME)

“ASYMMETRIC DOMINANCE EFFECT”

DECOY EFFECTA “BAD” OFFER WOULD MAKE SOMETHING ELSE LOOK GOOD IN COMPARISON, AND MAKE PEOPLE MORE LIKELY TO GO FOR IT

✔

ENCOURAGE FREEDOM OF CHOICE BY ALSO OFFERING “HORIZONTAL” VALUES

VERT

ICA

L VA

LUE

HORIZONTAL VALUE

ECONOMY

BUSINESS

FIRST

FLIGHT BAG MEAL SEAT LOUNGE

BASIC

PREMIUM

SPECIAL THANKS TO SOME OF THE AIRLINES THAT MOVEDTO “SOME BUNDLING” SINCE WE FIRST MENTIONED IT…

…FROM BOTH ENDS OF THE LEGACY / LCC SPECTRUM!

REMEMBER THIS GUY?

147 37

$$$

REMEMBER THIS GUY?

37?

CURRENT REVENUE PER SEAT: 0(OR EVEN NEGATIVE, GIVEN THE FUEL COSTS)

IF THE PLANE LOOKED LIKE THIS, IT WOULD ACTUALLY MAKE MORE MONEY!

PARIS, 2 ADULTS, 3 NIGHTS AVERAGE HOTEL PRICES

716 USD

603 USD

Source: Respective websites, booked 8 weeks in advance, average for Top 10 Rated hotels

WHAT IF…YOU COULD OFFER LOWER RATES

ANDINCLUDE THE FLIGHT TICKET

ANDSTILL TURN A PROFIT?

…AND DO ALL OF THESE USING YOUR UNSOLD SEATS?

THREE “MAGIC” NUMBERS:

65.6% 52.5% 22.5%

AVERAGE GLOBAL HOTEL OCCUPANCY RATE

AVERAGE OPAQUE DISCOUNT OVER PUBLISHED RATES

AVERAGE HOTEL COMMISSION RATE FOR SELLERS

Source: 1- Statista 2015 Report, 2/3- Hitit Research

THAT MEANS YOU CAN SELL A 650 USD HOTEL FOR AS LOW AS 308 USD, AND STILL KEEP 70 USD FOR YOURSELF.

BUT WAIT! THERE IS A CONDITION FOR SELLING OPAQUE RATES!

YOU HAVE TO PACKAGE THEM WITH OTHER SERVICES… … SUCH AS FLIGHT TICKETS (I WONDER IF WE CAN FIND SOME UNUSED SEATS SOMEWHERE)

70UNUSED SEAT REVENUE: USD

SELL A $650 HOTEL FOR $308, KEEP $70.

UNUSED SEAT REVENUE: USD

SELL A $650 HOTEL FOR $308, KEEP $70.SELL A $650 HOTEL FOR $308, KEEP $70.

SELL A $650 HOTEL FOR $500, KEEP $262.

SELL $20 WORTH OF ANCILLARIES, KEEP ALL.

282

HOTELS ARE NOT THE ONLY ONES WITH OPAQUE PRICES.THERE ARE ALSO RENTAL CARS, TRANSFERS, SAFARIS, GUIDED TOURS…

UNUSED SEAT REVENUE: USD

SELL A $650 HOTEL FOR $308, KEEP $70.SELL A $650 HOTEL FOR $308, KEEP $70.

SELL A $650 HOTEL FOR $500, KEEP $262.

SELL $20 WORTH OF ANCILLARIES, KEEP ALL.

SELL $100 SERVICES FOR $80, KEEP $25.

307

$307$000REVENUE PER 2 SEATS THAT WOULD OTHERWISE NOT BE SOLD AT ALL.

AND FINALLY..!

$$$ $$$

TAKE CONTROL OF YOUR PLANES:

1- ENHANCE SEAT REVENUE WITH VALUE ADDED BUNDLES AND SERVICES

2- LEVERAGE YOUR IDLE CAPACITY WITH PACKAGES AND TURN IT INTO PROFIT

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