Opinion: Ancillaries That Provide Unique Experiences Will Win the Day
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For the last 15 years, Pramod Jain has been leading companies to revolutionize the travel industry through technological innovation. Having previously headed up Sabre’s Commercial Planning Portfolio, Jain is now in chief operating officer at travel technology company Plusgrade. He’s responsible for strategy, innovation, product, technology, marketing, and customer operations and support.
To drive revenue recovery and build customer loyalty, the travel industry needs to invest in ancillary products that deliver incredible customer experiences.
Pramod Jain, COO, Plusgrade
What kind of ancillary products are most in demand right now?
Travelers are seeking products and experiences that provide additional comfort and peace of mind. This might be the ability to board quickly, avoid queuing, or access a lounge to have a little more room while they wait to board. In-flight, we’re seeing an increased demand for upgrades, which provide a key value proposition: space. This is especially so in cases where lie-flat seats or private “suites” are on offer.
Given that trend, we’re also seeing a strong surge in demand for blocked seats in economy class. When we ran a passenger survey late last year, we saw a 5% increase in demand for this product between May and October. Even on short-haul flights, blocked seats beat cabin upgrades and extra legroom. We predicted and observed airlines that initially blocked middle seats free of charge having to go back on their commitment because the economics were unfeasible – automatic seat blocking is a minor win for customers, but a major loss for airlines. We’re here to build win-win products, like our Dynamic Seat Blocker.
This win-win principle is behind everything we take on. We believe that this formula will drive transformative revenue opportunities over the next decade. We know that customers are hungry for incredible experiences, and have more to spend on these. They are growing wise to unbundled fees and travel businesses need loyalty more than ever. It’s important that they keep customer needs paramount as they sprint to make up for lost revenue through ancillary offerings.
Has the pandemic affected the evolution of ancillary offerings? Why or why not?
Ancillaries have become even more important for a couple of reasons. In the short- to mid-term, companies will need to look beyond core ticketed revenues to grow their bottom line. Change fees and bag fees may have got them through the last decade, but travel flexibility is now becoming the norm. Airlines need to grow and diversify their ancillary programs, and this will come from a deep understanding of what people are willing to pay for and how to merchandise products that their customers will genuinely love. In sum, the trajectory that ancillaries were on as a vital source of revenue has been accelerated, and experience-driven ancillary programs will come out on top.
Plusgrade uses machine learning. How does this predictive technology deliver a positive customer experience?
It helps us meet customers where they are and bring them what they need. So much of Plusgrade’s value comes from our understanding of what people are willing to pay for and how much they’re willing to spend. With machine learning-driven merchandising, we can make sure that customers are getting the offers they want delivered directly to them. We never want to overwhelm them with choice. Instead, we want to provide a manageable set of options that speak to their wants and needs.
If the appetite for seat-blocking diminishes, does Plusgrade remain a future-proof investment?
Demand for seat blocking is going to keep rising no matter what happens with the pandemic. The pandemic has brought awareness of the concept, but the use-cases that we initially planned for exist outside the COVID context. People will still want to stretch their arms or lie down in economy class on long flights. They will still be looking for extra space for their family or a bit of extra privacy and elbow room to get work done.
Plus, Plusgrade is an organization driven by innovation. Dynamic Seat Blocker is an expression of that innovation, but it’s not a silver bullet or a one-and-done. We are always looking across the travel industry for opportunity – Plusgrade’s vision is to be driving better experiences for travelers across the globe. We’re a team of proven, resourced and ambitious innovators.
What are other ways airlines can harness machine learning to boost revenue and loyalty?
The travel industry needs to get better at learning about its customers and moving in lockstep with them. Data and machine learning-driven merchandising are the engine behind the most successful retailers over the last few years. That’s only going to prove more true in the 2020s. We have a big need here for the travel industry to catch up, for it to invest in infrastructure for data ownership and learn from the data it does own.
Can you share a recent success story from one of your aviation customers?
Across our very broad community of airline partners we’re seeing ancillary revenues emerge as a recovery success story. Many of our partners’ programs are already outpacing the revenue recovery of their core ticket sales by more than 25%. On top of that, we’re seeing that our programs aren’t hit as hard by COVID as “available seat kilometres” (a key industry metric that measures the volume of seats flown by the distance traveled). In some key regional travel bubbles where regulation isn’t as tight, or at airlines where we developed optimization strategies, we saw major year-on-year yield increases from Q4 2019 to Q4 2020.
Many airlines have established new revenue streams. How would you grade their efforts – have they fallen short or surpassed your expectations?
It’s not an issue of falling short, but rather a need to continue focusing on new opportunities. I think doubling or tripling the size of ancillary programs is going to be the way of the future. When companies think about investing in their ancillary offerings, they should be sticking to one guiding principle: does this provide an incredible experience for my customer? This lens will enable them to rapidly scale their ancillary product offerings, while making sure they aren’t sacrificing loyalty or risking blowback at the same time. There’s a way to sell more while making your customers happy – these two ideas are far from mutually exclusive.