With squeezed profit margins, rising fuel prices, high input costs, changing customer expectations and uncertain economic climate, airlines today rely heavily on additional service revenues to stay ahead. Our experts have listed the steps that an airline can take to increase ancillary revenues and has proposed a holistic approach to leverage technology in order to improve competitiveness. Our approach also gives technology partner tips for success.

1. www.niit-tech.com
Ancillary revenues: Soaring opportunities in Airline operations
Ungroup, Augment or Extend?
Anil Batra
Vice President
NIIT Technologies
Vinay Purushottam Bapat
Manager Business Development (Travel Transportation & Logistics)
NIIT Technologies White Paper

2. CONTENTS
Overview
3
Ancillary Revenues – A Ray Of Hope
3
Steps Taken By Airlines To Increase Ancillary Revenues
3
Redefining The Future
4
How Technology Can Help
5
Leveraging Technology To Improve Competitiveness
5
Conclusion
6

3. TRANSPORTATION
TRAVEL
CARGO
PACKAGING
TRANSPORTATION
TOUR
GUIDE TRAVEL TRAVEL
TRANSPORTATION
CARGO CARGO
LOGISTICS
TRAVEL
JOURNEY
GUIDE
TRANSPORTATION CARGO
JOURNEY
CARGO
GUIDE
LOGISTICS
TRAVEL
Overview
In recent times, the airline industry has seldom had the
luxury of enjoying a clear and profitable environment. The
$22.6 billion,is the ancillary revenue 50 airlines around the
world reported making in 2011, a 66-percent jump from
the $13.5 billion that the 47 airlines that reported such
income made in 2009.
industry continues to witness challenges such as rising fuel
prices, high input costs, changing customer expectations
# Annual Amadeus Review of Ancillary Revenue
given the uncertain economic climate, whichnegatively
Results, 2012
affectprofitability. New business models adopted by
emerging low cost carriers have also pushed the margins of
legacy carriers down to rock-bottom levels.
Airline industry group IATA recently warned that global
While ancillary services were primarily restricted to low cost airlines
earlier, recent research shows that this trend is now prevalent
among large airline operators too. The report titled Amadeus
profits would be reduced by a factor of 50 percent due to
Review of Ancillary Revenue Results for 2011clearly exhibits the
rapidly rising oil prices and the Eurozone crisis. In order to
rising potential of ancillary services.
counter these challenges, several airlines resorted to cost
cutting measures such as reducing flying routes and
lowering service frequency.
Despite the challenges, a few operators have shown it is
Steps taken by airlines to
increase Ancillary Revenues:
possible to not only survive but also make profits. In a
Various airlines have, at different points in time, explored multiple
cloudy scenario, airline operators are seeing a silver lining of
measures to increase ancillary revenues. The trend was led by
hope in the form of ancillary services. These are
the low cost airline (LCA) sector,which had the advantage of not
opportunities that an airline can explore to generate revenue
being shackled by the legacy baggage. The key strategy followed
in addition to its core business of selling flight tickets. In fact
by each of these airlines’ was to lower the cost of booking a seat
it shows a future promise to innovate and reposition in the
and make flying an attractive option for travelers from a cost
evolving airline landscape.
perspective,
while
generating
additional
income
through
peripheral services.
Ancillary Revenues –
a Ray of Hope
To truly understand the potential of ancillary revenues – take a look
at the following statistics. In 2011 airline companies, worldwide,
earned $32.5 billion as ancillary revenues, a growth of over 66
percent in less than two years. This was revealed by a research
The ancillary revenue strategy can be broken down into three key
components: product ungrouping, product augmentation and
product extension. It could include anything from availing airport
lounges, car rentals, hotel bookings or visiting theme parks or
concerts. It could also mean providing the customer services such
as foreign currency exchange and travel insurance.
conducted by leading airline ancillary revenues consultancy
IdeaWorksCompany, and Amadeus, a leading travel technology
partner and transaction processor for the travel and tourism industry.
3

4. ADOPTED PRODUCT APPROACH
with various vendors and offer it as exclusive products to its
customers. Airlines have even linked frequent flyer programs with
UNGROUPING
AUGMENTATION
EXTENSION
the product extension services, and a few also offer credit card
services that provide users access to various premium services.
LOYALTY-LED
VALUE
LEGACY
Advertising in inflight magazines and entertainment devices is
another option that is now gaining prominence as an ancillary
revenue generator.
• Premium Liquor
• Frequent Flier Benefit
• F&b
TYPE OF CARRIER
• Baggage Fees
• Gourment Meals
• Insurance
• Inflight Entertainment
• Airport Transfers
• Hotel Tie Ups
• WI FI Access
• Extended Entertainment
• Chauffer Transport
• Seat Preference
• Airport Lounge
• Advertising
Redefining the Future
• Early Boarding
Benefits
• Select Check In
• Event Tickets
Some airlines are truly pushing the envelope in offering services
• Guided City Tours Car
Rentals
that clearly offer value to the customer, and the customer is willing
to pay a ‘premium’. For example, Vueling Airlines offers customers
LOW COST
the choice of purchasing an extra large seat for a premium.
FUNCTIONAL-LED
VALUE
IN FLIGHT
SERVICE EXPERIENCE
FLIGHT & BEYOND
Below, we will look at what each of these components mean for
the industry.
Product Ungrouping: Legacy carriersoffered services such
asbaggage, food and beverage, blankets, and even inflight
entertainment as itscore product – airline transportation. Airlines
Amadeus Worldwide Estimate of Ancillary Revenue
2012 Ancillary
Revenue
2011 Ancillary
Revenue
Traditional Airlines
$ 12.788 billion
$ 10.933 billion
17.0%
US Major Airlines
$ 12.399 billion
$ 12.496 billion
-0.8%
Ancillary Revenue Champs
$ 5.555 billion
$ 4.256 billion
30.5%
Low Cost Carriers
$ 5.376 billion
$ 4.765 billion
12.8%
Worldwide Totals
$ 36.1 billion
$ 32.5 billion
11.3%
Airline Category
Increase
Source: Ancillary revenue statistics applied by ideaWorksCompany to individual airline revenue results
for the year indicated from Air Transport World, Airline Business and at airline websites.
even differentiated itself on the basis of the inflight experience it
offered its customers. Low cost service providers turned this idea
Similarly, RyanAir, EasyJet and Allegiant Airlines offer passengers the
on its head. They unbundled these services and began offering it
choice or priority boarding for a premium. Another example is
to its passengers as a la carte services. The main attraction was
AirAsia’s Red Carpet service which gives passengers fast-track
the low cost of the seat. The passengers were offered the option of
security checks, access to lounges, and early boarding for a
buying all other services mentioned above as separate products.
pre-defined fee. Australian airline operator, Qantas, sells a unique
technology called ‘Q Bag Tag’, which is a permanent baggage tag
Product Augmentation: Many airlines offered theirbusiness class
with wireless RFID technology that allows easy self-checking of bags.
and first class customers the option of avoiding the long queues at
busy airports and boarding the flight early, selecting seating
Other airline operators are pushing in-flight connectivity as a key
preference, premium booze, gourmet meals, wider entertainment
ancillary service. A case in point is Singapore Airlines, which has
options, airport lounges, and even better service expectation.
installed Wi-Fi provided by OnAir on its A340-500 aircraft used
These services are now offered as premium a la carte services to
between Singapore and Newark and Los Angeles.
those customers willing to pay a little extra. Market analysis reveals
that this strategy has been well accepted by customer most of
However, the biggest potential lies in the ability of the airline
whom are even willing to pay a premium for such services.
operator to offer a bundled package to a traveler. For example,
Product Extension: This refers mainly to commission-based
services such as insurance, hotel accommodation, tickets to
exclusive plays and events, chauffeur driven transport, car rentals,
and guided city tours. In order to facilitate this, airlines have tied up
a bundled service of a hotel, restaurant, taxi and entertainment
that can be availed by a passenger has great value. The
customer will find value because customers are typically anxious
to book multiple tickets from different operators. Airlines can
bundle other services and earn a higher percentage of revenues
from ancillary services.
4

5. How Technology Can Help
In an era where customers book tickets online, it makes sense to
Leveraging Technology to
Improve Competitiveness
offer them the option of customizing their travel plans. Even as
If a passenger wants early boarding passes or wireless Internet
airfares are dropping, personalized services can shape the future
access or priority check-in, the airline needs to invest in the
of the industry, as they offer customers the ability to pick and
required technology infrastructure to make this happen.
choose customers based on their convenience and price. Take the
Fortunately, for airline operators, the technology is available with
case of a technology called ‘Dynamic Packaging’ which is now
existing service providers and product companies to make this
being used by a host of major airline operators to boost their
ancillary revenues. Dynamic Packaging allows airline operators to
tap into a full ecosystem of suppliers (hotels, car, and
entertainment) into a single reservation. If a customer travels from
happen. They do not need to reinvent the wheel to develop such
solutions. These solutions can be seamlessly integrated with
existing systems of airlines.
say India to London, and books a hotel and a car through the
In order to succeed, airlines have to position themselves as a
airline portal, the airline earns commissions from the hotel and the
retailer. If they take an approach like Amazon, they can play a big
car agent. Over a period of time, as the hotel and car bookings
role in fulfilling many of the needs in different segments where
rise, the airline has an opportunity to generate significant amount
they do not operate. By leveraging technology, airline operators
of revenues.
Technology to make this happen is crucial, as the airline portal has
to dynamically tap into separate inventory management systems,
such as a hotel’s inventory system or a ticket from a popular show.
can offer the right service at the right time and improve adoption
of their ancillary services. For example, just as Amazon
recommends certain products, depending on the product or
service you buy, airline operators too can do the same.
This is a win-win situation for both consumers and airline operators
as the consumer uses only one portal to make all the bookings, and
Ancillary Revenue: Technology partner tips for Success
pays a consolidated amount for all the bookings. This is a huge
• Partner with proven vendors with domain understanding
benefit for customers as they do not have to manually visit multiple
• Ability to understand and integrate the distribution
channels
websites and travel agencies to plan trips and vacations. The
customer has more flexibility in customizing his or her package
according to specific needs, than being forced to choose from
• Ensure seamless integration of your front-end
operations with your backend systems
pre-defined packages.
• Customer experience understanding for user interface
flexibility and configuration
For the airline operator, it is an opportunity to tap into an additional
• Understanding of new generation technology and
enabling faster speed-to-market
source of revenue, without incurring additional costs. It also gives
them an opportunity to broaden their scope of offerings, and giving
more choice to the end customer.
• Experience in implementation of payment gateway
interfaces to support e-commerce transactions
• Including customer feedback mechanism on each new
service offered
• Alignment through understanding the biz positioning
5

6. Consider a person who has booked a round trip for the same day. In
For example, if a passenger is sitting in the lounge, he or she can
such cases, an intra-city taxi option is a better option to be
pre-order a customized meal before he or she boards the airline.
recommended than a hotel stay. This option can only be provided if
Technology can enable this differentiation and help in providing the
the analytics throws up automated recommendations for the
airline operator the right context. Leveraged intelligently, technology
passenger to make a choice.
can significantly enhance the ability of an airline to cross-sell and
up-sell products and services. In the period that the user travels,
The airline websites needs to be integrated with the enterprise
there is a huge opportunity for the airline to link the customer with
backend systems and also third party vendors to provide customers
different brands – which ultimately, not only generate revenues for
a seamless experience irrespective of the service they opt for. The
the airline but also help in improving customer satisfaction.
website of a typical low cost carrier resembles that of an
e-commerce vendor than a pure airline player. An IT service vendor
can enable a legacy airline carrier to attain that state.
Conclusion
Similarly, if Wi-Fi is enabled within the aircraft or if passengers are given
In an era of rising fuel prices and intense competition, airlines have
the ability to book hotels or resorts using the in-flight entertainment
to reinvent themselves as retailers. Using technology, they can
system, then it opens up new opportunities for the airline.
ensure that they not only offer the customer a richer experience, but
also position themselves as providers of value. By doing so, they
Given the huge popularity of smartphones, airlines can also consider
can go beyond the traditional positioning of just being flight
creating mobile apps. These mobile apps can be used by
providers. In the future, the ability to customize a travel experience
passengers to avail and book ancillary services on the go.
will only be limited by imagination and the sky!
6

7. About NIIT Technologies
NIIT Technologies is a leading IT solutions organization, servicing customers in North America,
Europe, Asia and Australia. It offers services in Application Development and Maintenance,
Enterprise Solutions including Managed Services and Business Process Outsourcing to
organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and
Government sectors. With employees over 7,000 professionals, NIIT Technologies follows global
standards of software development processes.
Over the years the Company has forged extremely rewarding relationships with global majors, a
testimony to mutual commitment and its ability to retain marquee clients, drawing repeat
business from them. NIIT Technologies has been able to scale its interactions with marquee
clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into
extremely meaningful, multi-year "collaborations.
NIIT Technologies follows global standards of development, which include ISO 9001:2000
Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO 27001 information
security management certification. Its data centre operations are assessed at the international
India
ISO 20000IT management standards.
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