Towards more independence Editorial by Pascal Burg, Edgar Dunn & Company
Do you remember the Airline Payments Summit in Miami in
2009? Not just for the sun and fun evenings, but also for the
content!
At that time, the strategy consultancy Edgar, Dunn& Company
presented findings from an "airline payments" survey
among 70
airlines globally. One key finding: airlines want to and
are
becoming more independent in taking control of payments
acceptance. In other words: merchant empowerment. This was
best illustrated by the emergence of credit card surcharging, of
card issuing and of
alternative forms of payment (AFOP).
What has happened since then? Surcharging: airlines are pushing for it, but there is some strong head-wind When a large airline like Lufthansa makes a policy change across several countries,
people tend to notice. In August 2011, Lufthansa announced the introduction of a credit
card surcharge on Lufthansa tickets issued across all channels in many European
countries. So will surcharging spread like wildfire in the coming months? There are at
least two major sources of head-wind that might slow down surcharging.
At first, some major countries do not allow surcharging, either due to card association
rules or local laws, such as the US or France. Secondly, there is consistent negative
pressure coming out of consumer and corporate traveler associations against the
practice of credit card surcharging. This explains the "trial and error" / step-by-step
implementation approach (as opposed to a "big bang") followed by most airlines,
and this step-by-step approach is likely to carry on.
Card issuing: UATP issuance as an example of airlines becoming issuers
A second example of merchant empowerment is the increasing trend of airlines (and
not banks) issuing a form of payment to their customers. For instance, airlines as
diverse as China Eastern, Southwest, Etihad Airways and Malaysia Airlines have made
recently the decision to become an issuer of UATP accounts.
AFOPs: a combination of global consolidation and of local fragmentation A third example is the increasing acceptance of new and relevant forms of payment in
addition to traditional credit cards. Not only among large airlines in mature markets like
British Airways accepting PayPal in the UK, but also by smaller airlines like Kenya
Airways accepting the like of m-pesa (widespread mobile payment method in Kenya)
or Airtel Money (mobile wallet in India).
One major new trend is the hot topic of mobile commerce. According to a SITA / Airline
Business, 33% of airlines already sell tickets via the mobile channel and another 36%
will do so by end of 2012. Edgar, Dunn & Company will actually present about this topic
in Toronto in October and hopes to generate a healthy debate about where and how to
successfully deploy mobile payments.
Nobody has a crystal ball to say which of these trends will accelerate and what will be
their exact impact, so we look forward to industry discussions in Toronto in October
about this move towards independence (or "inter-dependence"?).
If you are interested in discussing these trends impact your business, please contact
Pascal Burg at pascal.burg@edgardunn.com
Payment surcharging – ancillary revenue or cost saving? Editorial by Michael Smith, Managing Partner, Europe, Airline Information
In preparing for the Airline and Travel Payment Summit in
Toronto on the 12/13th of
October 2011, one of the themes that
keeps emerging is payment surcharging. In the
UK, where I am
based, this practice very advanced, but it's also one which the
regulators are also looking at closely.
Although Ryanair is registered in Ireland, it does a lot of
business in the UK and it's at
the forefront of surcharging here. However, they are not alone. You might be surprised
to learn
that Lufthansa and American Airlines are also surcharging on their own UK
websites for credit card payments.
Here is a chart of airlines charging credit card surcharges in the UK market:
Airline
Surcharging
Amount for credit card bookings*
American Airlines
YES
£4.50 per booking
British Airways
YES
£4.50 per person per booking
Bmibaby
YES
£4.50 per person per sector, minimum charge £6
BMI
YES
£4.50 per person per booking
Delta
NO
Zero
EasyJet
YES
2.5% of booking cost, minimum £4.95
Flybe
YES
£4.50 per person per sector, plus £1 per sector, min £5.50
Lufthansa
YES
£4
Monarch
YES
£10 per booking
Ryanair
YES
£6 per person per sector
United
NO
Zero
Virgin Atlantic
YES
1.5%
The above table only shows surcharging for credit card payments, although some
airlines also include the UATP Card, which has a much lower cost of acceptance for
them. Monarch has taken the lead by charging a flat £10 for credit card payments, but
not charging at all for debit cards. Lufthansa on the other hand, doesn’t offer a debit
card option in the UK, but does offer PayPal as a free payment option.
Flybe’s approach isn’t straightforward as it has two sets of charges. One is the basic
fee of £4.50 per person per sector. On top of that there is a £1 charge per sector (but
not per person) for each one way journey subject to a minimum of £5.50. On the other
hand, is the strategy adopted by Virgin Atlantic, which as a long haul airline has gone
for
the percentage approach. This has the advantage of being simple for consumers to
follow, whilst also maximising the surcharge revenues generated. It isn’t surprising
that United and Delta have not copied American in surcharging in the UK market.
Clearly, American is taking lessons from its OneWorld partner British Airways.
(Iberia
also charges if you have a UK registered card – the implication being if it isn’t UK
registered then there is no surcharge?). However, perhaps United doesn’t have the
same relationship with fellow Star carrier British Midland International? Or maybe
surcharging in the UK just hasn’t gotten high enough on its management's radar
screen on the other side of the Atlantic.
So is surcharging revenue generation or a cost savings? EasyJet’s 2.5% surcharge
would very roughly equate with a merchant service fee, which would imply it is revenue
neutral and probably more about saving cost, rather than being a pure ancillary revenue
stream. However, the same can’t be said for Ryanair. According to Ryanair’s own
figures, their average One Way fare is £33, and it's £6 credit card surcharge is almost
18% of this. You can avoid paying this charge by using a pre-paid Mastercard, however,
these cards often have their own associated fees for loading money on to them. On the
plus side, the charges and fees are very clear on the Ryanair website unlike some of
their competition where it is difficult to find details about them.
In summary, for some airlines, surcharging looks to be a cost savings (for such
airlines as British Airways and Lufthansa), but there is another camp (including Ryanair
and Flybe) that would appear to be treating it as a revenue stream. The next stage in
the UK’s Office of Fair Trading’s deliberations in this area will be interesting to watch for
the implications in the UK and beyond.
For more comments, analysis and insight into loyalty, airline merchandising and
payments issues, please visit the SeaMountain blog at www.SeaMountain.co.uk
* Source information company websites at 1st August 2011
The new airline GDS costs Editorial by Michael Smith, Managing Partner, Europe, Airline Information
Airlines are driving their sales from GDS and travel agencies to direct distribution via their own websites. By using e-commerce, airlines save millions in distribution costs, but often then face unforeseen payment and fraud costs. Many airlines are even seeing payment & fraud costs surpass GDS costs as their largest "controllable" expense- made more critical by the current high fuel prices, since decreasing payment & fraud costs contributes directly to an airline's bottom-line.
However, getting paid online more cost-effectively is an area where some smart airlines are making inroads. These airlines are saving huge money by implementing comprehensive global payment strategies that include taking such simple steps as converting more sales by making their checkout pages simpler.
You might also think that accepting payments can’t be that difficult, since consumers can use credit cards to make purchases at millions of places worldwide. This is true, but you might not know that the credit card limit on many cards in Brazil is just $250. So, an airline serving the fast-growing Brazilian market better know how to get paid for its tickets without a credit card. Many Germans don’t use credit cards, so airlines serving Europe's largest economy must also know how to get paid via Alternative Forms of Payment. An airline, like any other business, won't be profitable if it can't get paid.
Getting more revenue into the company bank account is just one side of the payments equation. The Airline & Travel Payments Summit (ATPS), which I am chairing, will also address the cost side of payments– combating fraud and the cost of credit card acceptance. I want to leave you with one final thought regarding airlines' payment costs:
Globally airlines are lucky to make a profit margin of 2% in most years, yet credit card acceptance costs are over 2.5% of total airline industry revenues, while fraud represents an additional nearly 1% of global airline revenues.
This alone shows why many airlines are starting to implement comprehensive payments strategies. I invite you and your interested colleagues to join me in Toronto on 12 & 13 October 2011 at the Airline & Travel Payments Summit to discuss these strategies and network with relevant experts from airlines and the payments industry. You can find out more and register by the deadline of Friday, 27 May 2011, for extremely low early bird registration at: www.AirlineTravelPayments.com
Brands must fight harder to keep customers engaged, says Collinson Latitude sister company to ICLP
Innovative products launched to boost customer engagement and
produce incremental revenues Collinson Latitude Press Release Download press release in PDF
As the U.S. recovers from the biggest economic downturn since the Great Depression, brands in all sectors are facing a tough challenge: how to keep customers loyal and encourage interaction with their brand? Collinson Latitude is calling on U.S. brands to act fast or risk losing share of wallet to competitors.
Collinson Latitude, part of the Group behind the world's leading loyalty marketing agency, ICLP, is launching a suite of engaging promotional products into the US market. As a global provider of incremental revenue products and services, Collinson Latitude believes brands across all sectors, in particular travel, retail, hospitality, technology and telecoms, need to think more innovatively to retain customers who are being presented with ever growing choices.
Collinson Latitude's Strategy Director for the Americas, Mark Dority, says: "The economy continues to recover but customers are still very conscious of their spending and are demanding good reasons to engage with their preferred brands." A recent study1 predicts an increase in customer spending for 2011 and now is the time to engage your current customers, recruit new customers and ensure this increased spend reaches you.
It takes an awful lot of time and money to win back lost customers, but there are rapid, low-cost ways to maintain the loyalty of the customers you already hold while at the same time encouraging new customers to take a test-drive. Superior customer service and high quality products remain key, but the real challenge remains the ability for a brand to provide added value to the customer experience. The 'value exchange' will enable differentiation, increase your customers' engagement and keep your brand top of mind. The results will be a long-term, profitable relationship. Companies must find ways to stand out from their competitors. US brands understand the importance of customer loyalty but, until now, have lacked access to the latest products for engaging and encouraging customer interaction. Collinson Latitude's innovative multi-channel products and services allow brands to offer the value that will endear customers to them; products such as interactive match and win challenges that drive repeat purchases, auctions and prize draws that will keep your customers hooked – now and in the future. Each product can be seamlessly integrated into existing loyalty programs or marketing campaigns or used stand-alone.
Dority says: "These days customers are demanding and empowered but we are committed to helping brands fight back and re-engage with their customers, and anyone visiting our new campaign site – www.latitudehooked.com – will see how we can create more active, loyal and profitable customers for life."
1 Advito "2011 Industry Forecast" Study
Airlines lost $1.4 billion to fraud in 2010
Cybersource's Airline Online Fraud Survey, conducted
in conjunction with Airline
Information, found that
airlines lost $1.4B USD worldwide to online fraud in
2010.
Fraud
loss rates and management practices vary
significantly by years of online selling
experience or
type of airline.
To find out more about the survey
results, you can
download the report free of charge
by clicking here.
The CyberSource Airline Online Fraud Report examines the online payment risks in
the airline industry. Based on data collected from airlines worldwide, this report
highlights fraud management trends, techniques and practices that airlines employ
to
protect revenue.
The report's contents include:
* Overall fraud rates in the airline industry
* Fraud management practices
* Tools and techniques for fighting fraud
* Future adoption plans
If the fast-growing Latin American market is of interest to you or to some of your
colleagues responsible for that region, check-out the website for the "Airline & Travel
Payments Summit Latinoamerica" to take place in Buenos Aires on 18 & 19 August
2011.
Editorial Archive > Click here to contact Airline Information regarding
editorial content
Social media - why the hassle? (Ai Op-Ed - Ursula Silling)
Social media - why the hassle? - 10 tips how to get started Ai Guest Editorial by Ursula Silling, CEO, XXL Solutions
Here are our top 10 tips for airline Social Media beginners:
1. Start with listening
2. Add options in the booking process to bookmark or share information
3. Extend your activities from points 1 and 2 to foreign markets
4. Assign clear ownership in the organization
5. Interact with your staff via social media
6. Start responding
7. Develop a long term social media strategy and objectives
8. Review and introduce tools for analysis
9. Actively invite your customers - and staff - for feedback 10. Actively spread content
To read the entire editorial and find out what airline Social Media can learn from
the Tate Modern Art Gallery, click here
Getting more returns from alternative payment providers - Michael Smith
Getting more returns from alternative payment providers Editorial by Michael Smith, Managing Partner, Europe, Airline Information
There never is a dull moment in the airline industry. From rising
fuel costs to the introduction of lots of new aircraft types! The
last several months have seen a renewed focus on controllable
costs. CFO’s of airlines worldwide have taken a renewed
interest in their payments costs – for some airlines these costs
can be larger than their GDS’s charges. So a big chunk of
money. On top of that, the alternative form of payment (AFOP’s)
providers have been selling a very strong story.
Why pay 3% for
all those returning business travellers paying thousands of
pounds to
travel across the Atlantic when some AFOP’s charge a flat fee? Plus you can
get your
money immediately with no holdbacks and much less fraud.
All sounds like a CFO’s dream!
None of us in the industry like to lose out to the
fraudsters who seem to view travel
as an easy target. Our recent Airline Information
survey in conjunction with Cybersource
shows that this is still a costly problem with the
industry losing some US$1.4 billion.
You can download the comprehensive survey at this link. Your CFO will certainly thank
you if you are able to see how the fraud
companies are helping the industry address
this difficult challenge.
Speaking of challenges, Payment Service Providers are certainly doing their bit to help.
They are innovating and investing to provide AFOP’s as part of their drive to provide
one stop, global solutions to airlines and travel companies. An excellent guide to these
PSP’s is at this link (click here).
If you’re interested in more detail about payments
issues you can read all about them
in the latest edition of Low Cost and Regional
Airline Business Magazine. The fact that
the Low Cost Carriers take such a keen
interest in payment costs gives an indication
of how they can help with profitability.
AMERICAN AIRLINES, THE WAY FORWARD FOR DISTRIBUTION? - (Chris Staab)
American Airlines, the way forward for distribution? Ai Editorial by Christopher Staab, Managing Partner, Airline Information
American Airlines is changing how it distributes its fares,
potentially affecting every
airline globally with particular impact
on Latin American airlines, since American has
substantial
marketshare in the region. American has decided that it owns its
own fare
data and to obtain access its fares, the GDS and
others must pay. American wants
travel agencies to connect to
American Airlines directly via an Internet portal to avoid
paying for access to its fares, thereby bypassing the GDS.
The present state of affairs
Currently, airlines distribute fares to ATPCO, which in turn distributes them to the
GDS,
which then distribute them to Travel Agencies and now Online Travel Agencies. Each intermediate step in this multi-step distribution chain adds cost. Each
intermediary
company must obviously generate revenue. New technology is allowing
airlines to
consider disintermediation or direct sales to the consumer. In this context,
American is
questioning why fare distribution is its 4th largest expense, costing it
much more than
its own profit margin, even in a good financial year. (Although with
payment, fraud and
credit card costs rising, some airlines now see payments as their
4th largest expense.)
The irony is that American developed the current fare
distribution model when it
launched Sabre in the 50's and 60's.
The traditional distribution model also has value
for the customer. Many airline
customers, particularly in Latin America, rely on travel
agencies to purchase airfares.
The Global Distribution Systems have also developed
into IT Solutions Providers that
have many value-added products and services for that
help their airline customers to
be
more profitable.
A new paradigm for distribution & sales American appears to have decided that as a large airline that it has the capability to
develop its own IT systems required for fare distribution. But, do smaller airlines,
such
as many airlines in Latin American, have this same capability? American's
intitial
moves into this area have resulted in American pulling out of the Online Travel
Agency,
Orbitz. And Sabre, the now independent GDS founded by American, has been
threatening to remove American from its fare displays, although it was stopped from
doing so by U.S. courts.
AA also has another point. It wants airlines to compete on service and not on the
lowest
price. Under the current fare distribution model, it's easy for consumers to
compare
airfares, forcing all airlines to match the lowest fare of any airline and driving
down fares
in an industry with slim profit margins. So, in addition to reducing
distribution costs by
cutting out intermediaries, American seems to hope for airlines
to compete on service
offerings.
For example, it could offer priority boarding for a seat
with extra legroom with
a
gourment meal for price X, which can not be compared to
another airline with a
different bundled service offering. This would all be done in an
environment of
consumers and Travel Agencies connecting directly to each airline,
making it difficult
for
consumers to compare prices, forcing them to chose by brand
and service
offering.
OMG! AIRLINES PAY FEES TOO? (Ai Editorial by Roger Williams, Managing Partner)
OMG! Airlines pay fees too? Ai Editorial by Roger Williams, Managing Partner, Airline Information
The International Air Transport Association (IATA) recently
reported that “the world is moving again…” according to the
Director General & CEO. Scheduled air traffic showed an 8.2%
increase last year according to IATA, which in December,
revised its industry outlook for 2010 to reflect a net profit of
$15.1
billion. Projections for 2011 were also bumped up to a
net profit
of $9.1 billion from $5.3 billion. Not too shabby, right?
Well, besides a notable reduction in capacity, and continuing a 20-year low in fares,
airlines, especially in the United States, have been reaping real bottom line benefits
from fees charged to passengers.
In case you missed it from countless releases and blogs out there; the top 20 U.S.
airlines earned $4.3 billion in fee revenue -- $2.56 billion for checked bag fees
and $1.7
billion for cancellations and changes -- in the first nine months of 2010,
according to the
US Bureau of Transportation Statistics (BTS).
The macro picture is even more attractive as my colleague Jay Sorensen explains in
the
2010 Amadeus Guide to Ancillary Revenue. According to Jay’s report, airline
ancillary revenue will top off at €18.4 billion ($22.6 billion) worldwide in 2010. For
airlines like Ryanair, Alleigant, and Spirit ancillary revenues have been the definitive
difference between profit and loss.
The BTS data and Jay’s numbers at the end of the day are the facts. You have most
likely seen them rehashed in different forms on the Internet. However, what you will not
see in the blogosphere and in the media is the inherent fee burden of the airlines
themselves. In a business where single digit profit margins are considered a
success,
after taking a closer look at airline liabilities, I wonder how we make any
money at all.
As we well know the highest cost centers for airlines include: Infrastructure, fuel,
labor, and distribution. However, just taking a look at one of these areas,
infrastructure, in
part, will expand your scope on the airline fee argument forever.
I am using 2008 figures for this example because IATA wanted to charge me a fee to
download the latest data – touché. So let’s take a gander at fees paid by airlines for
services and facilities provided by airports and Air Navigation Service Providers
(ANSPs):
Airport and ATC charges:
Use of the runway (landing charges)
Use of the airport infrastructure (parking and boarding bridge charges)
Use of the terminal building (passenger charges)
Airport security (security charges)
Protection of the environment (noise charges)
Air traffic control (en route navigation and terminal charges)
Other air navigation services (Meteorological and Aeronautical Information
Services)
The totality of these fees for airlines worldwide was US$64.1 billion in 2008
representing 11% of airline revenues.
“It’s the cost of doing business” …some might say – but it begs the question how
much
cost is reasonable for airlines which already bear a heavy burden with high
organized
labor costs, an unpredictable global petroleum market, and adverse affects
from
climate change?
Notwithstanding airlines' arguable cost burden, perhaps the fair question that we
should ask ourselves as an industry is: Can airlines be profitable without fees?
I would say that the answer is yes. Just as the purveyors of ancillary revenue (myself
included) love pointing out profitable fee-based airlines, some of the most profitable
airlines for some time, like Copa, Emirates, and SIA, have little or no customer fee
initiatives – they simply make money the old fashioned way – from business traffic!
The problem is that traditional business traffic is rapidly changing in demand, margin
and even what a business traveler looks like. In fact it has changed so much that
many
airlines can’t seem to identify their business travelers among increasing load
factors
comprised of low yield passengers. Here's a hint... they're still there, but they
have been
looking for deals just like everyone else.
CUSTOMER EXPERIENCE LEADERSHIP (Ai Op-Ed by Rainer Uphoff, CEO, avionline)
Customer Experience Leadership - elevating "the customer thing" to corporate strategy Ai Op-Ed by Rainer Uphoff, CEO, avionline
At the end of what has been a banner year in terms of airline revenues, now is a good time to look at the history of how airlines look at their customers. After decades of initiatives about "customer centric organisations" (the 1980s), "loyalty and CRM" (the 1990s) and "customer experience management" (the 2000s), business leaders are finally discovering with dismay that the customer of the 2010s is less loyal than ever. What happened?
What has happened is actually the logical consequence of the brutal commoditization of the airline business. All (well... most) airlines are basically offering the same thing- transporting loads of people from Point A to Point B, using the same types of aircraft, the same airports and even the same handling agents! Satisfying customers no longer guarantees their loyalty, as competitors satisfy the same needs. But, does this mean that only the cheapest airlines survive?
Well, of course not! Sure, costs are key to remaining competitive, but only one airline can be "the cheapest". Luckily, the others have no need to be just another Ryanair. Commoditizing yourself is a formula for disaster unless you are the real cost leader! However, it is amazing to watch to what extent many airline companies are losing opportunities to create new value propositions for their customers.
We are experiencing the second revolution of the airline industry. The first happened after deregulation starting in the 1970s. With the arrival of true competition, the age of "pilot-CEOs" ended, giving way to a new reality, dominated by "financial CEOs".
But now, as the low-cost-revolution hardly permits any new turns of the "cost screw,"
the age of the "customer CEO" has arrived. It's a new breed of leader genuinely concerned about serving customers, employees and now, for the first time, also the communities the airline is operating to. Reputation is about genuine leadership, not
PR stunts orchestrated by external consultants.
Only Southwest Airlines has been able to combine both revolutions consistently now for nearly 40 years - any doubts about ROI for consistent customer experience management? Today, airlines must be able to create new value-driven propositions
for which customers will be happy to pay. Obsession with cost must give way to obsession with offering value.
This requires a whole new strategic alignment of the organisation. You can generate active customer loyalty only by managing expectations and service levels. It's okay to define a zero-expectations policy (like Ryanair). However, not managing them is not
an option as you lose control over your value proposition.
This is only one perspective of why Customer Experience Management is giving way to Customer Experience Leadership. It's a holistic strategic management approach and, yes; it's finally penetrating the airline industry.
Many airlines are creating Customer Experience VP roles. Some are doing so because they genuinely want to inject a new customer value centered leadership style into their organisations. Others only re-label their old-style "customer service department" or
bury it somewhere in their organisation chart at the same level as "female marketing," sending a message to employees and customers that Customer Experience guided value creation is just "one more thing".
Customer Experience Leadership provides airlines both with a strategic realignment opportunity and a set of practical management tools to focus on value for customers and stakeholders, generating a measurable ROI. You may want to have a look at my airline customer experience management leadership blog: http://ourpax.com
But, how does an airline get started with a customer experience corporate strategy?
A number of good books, consultants, workshops and seminars are available, but few are focused on the airline industry specifically. As a result of the increasing industry specific demand, AI and airline Customer Experience specialist, avionline, have teamed up to publicize industry best practices and provide you with tools, resources and forums to effectively implement customer experience leadership in your airline. Stay tuned in 2011!
Rainer Uphoff, MBA in Aviation Management by Embry-Riddle & ESADE PMD. Businessman, consultant and senior executive/board member of several aviation and communications companies. Was CEO of Iberline and executed several airline corporate turnaround projects.
Do you remember the Airline Payments Summit in Miami in
In preparing for the Airline and Travel Payment Summit in
You might also think that accepting payments can’t be that difficult, since consumers can use credit cards to make purchases at millions of places worldwide. This is true, but you might not know that the credit card limit on many cards in Brazil is just $250. So, an airline serving the fast-growing Brazilian market better know how to get paid for its tickets without a credit card. Many Germans don’t use credit cards, so airlines serving Europe's largest economy must also know how to get paid via Alternative Forms of Payment. An airline, like any other business, won't be profitable if it can't get paid.
American Airlines is changing how it distributes its fares,
