First published on 28th September, 2016
A coalition program of organisations with differing purchase cycles, margins and customer emotional attachment can be very powerful. Importantly, such model appeals to infrequent travellers as well, writes Ai’s Ritesh Gupta
Travel isn’t a frequent buy. So if loyalty is largely equated with how much one spends, then should the “frequency” factor limit the prowess of an airline brand to become a part of a consumer’s lifestyle?
As we have witnessed, be it for airlines or even an iconic brand like Starbucks, companies are rewarding best customers based on monetary value spend - meaning that customers who spend more – should be rewarded more than customers who spend less. Now in case of an airline, if one travel twice in a year vis-à-vis a traveller who travels probably 5 times a month, then shouldn’t both be targeted? The frequency of flying or even heftier spend shouldn’t be a deterrent in having a constant dialogue with the so-called infrequent traveller. Simply because we are living in the mobile era, where we have wallets, apps etc. So an airline brand needs to be a part of consumer’s digital lifestyle. A consumer could be spending on grocery or buying seat on an aircraft, but they are getting used to accumulating points for every penny.
So when we talk of engagement and a loyalty program that rewards you for everyday purchases, it boils down to how proficient are airlines at being part of their members’ daily activities say social interactions, tracking behavior with partners (retail, petrol, finance etc.)? We also see mobile shopping wallets being opened several times in a day. There is clearly an avenue for travel brands to refine their own digital assets or even be a part of 3rd party ecosystem, which could be a mix of content, information, media, shopping, travel, finance etc. The idea is to be a part of consumer’s lifestyle in a seamless manner.
Everyday purchases points earning opens up the utility of a loyalty program to the infrequent traveller, says Nik Laming, General Manager - Loyalty at Cebu Air Pacific Air.
“Expanding the potential and the velocity of earning means more travellers can participate and get a real benefit from a program. Most retail and financial card earn options are already spend based so are a natural fit with spend based airline points,” he says.
The power of coalition program
So how to break the shackles of travel not being a regular buy and rather becoming a consumer’s lifestyle?
A coalition program of organisations with differing purchase cycles, margins and customer emotional attachment can be very powerful, asserts Laming.
Laming explained by referring to peculiar behavior associated with different product categories/ sectors. “Supermarkets see customers often and have large spends but skinny margins. Mobile phone networks see handset transactions but rarely know the customer behind the number. Airlines have very high emotional attachment for people but a small share of spend and infrequent transactions,” said Laming, as he also spoke about insurance companies and credit credit companies in the same vein.“Bringing all these organisations together into a coalition program enables the different business to fill in the gaps.” According to him, the key lies in regular, positive communication with identified and profiled customers emotionally attached to the program, delivering attractive and relatively high value rewards. Every participant benefits as the focus is on solving each organisation’s marketing shortfalls.
“Airlines have the most compelling reward and as such tend to be a good leader for such programs,” highlighted Laming.
Lure of flying for free
Travel, as an infrequent category, has its share of lure, too, as there is aspirational value associated with flying.
“Flights are the most attractive and highly perceived value rewards,” he says.
“Programs that offer flight rewards pull harder. Seats are perishable and subject to distress giving opportunities to deliver the most desirable reward at marginal true cost,” says Laming.
The option to be rewarded from everyday purchases has opened up the realms of the FFP to the average or infrequent traveller.
“Having a network of partners funding the program helps the airline, as program owner, to offset costs and even generate revenues. This dynamic has enabled LCC’s to offer rewards as part of their proposition and has resulted in a new breed of loyalty program,” added Laming.
· Targeting the infrequent traveller: The reason a coalition model appeals to infrequent travellers is simple - share of wallet. A person will spend a small proportion of their disposable income on air travel in a year. Adding credit card, supermarket, department store, petrol and other retailers massively expands the share of disposable income going through the program. With higher total spend within the program ecosystem more points are earned and so even the most infrequent traveller can attain those reward flights.
· Selecting partners: Selecting and nurturing the right partnership is critical. Bank and financial card partners have always awarded miles for everyday purchases. The extension of the concept to supermarkets and other retailers is a natural one for those programs aiming to appeal to a broader audience. “But it is not for all as some programs are designed to retain and reward only frequent fliers. In this model there is less need for more partners as the vast majority of points will come from flying and natural partners to accelerate earn are the credit cards which are prevalent amongst this audience,” said Laming.
· Capitalizing on data: Another critical aspect of a coalition program is to ensure that airlines go through all aspects of data points of the customer journey. As much as airlines can capture the flying data, there are still going to be elements of daily purchases such as co-brand cards/ financial partners/ petrol partners/online retailers partners that loyalty specialists need to capture and able to capitalize on for monetization and superlative member experience.
Hear from senior industry executives at the upcoming 7th Mega Event Worldwide 2016, The Event for Loyalty, Ancillary & Merchandising & Co-Brands, to be held in Toronto, Canada. (25 -26 October, 2016).
Twitter hashtag: #MegaEvent16
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First published on September 2, 2016
Airlines aren’t analyzing their chargeback data sufficiently or efficiently. There is a need to make the most of multi-layer fraud management.
Clean fraud, friendly fraud, fast fraud, criminal fraud, merchant fraud…the list seems to be an endless one.
Airlines can’t ignore the malice of fraud, and so much so that chargeback management needs a continuous scrutiny. There is a need to analyse data and monitor chargeback sources to identify trends and triggers; recover losses whenever possible.
It is important for airlines to understand whether they are analysing their chargebacks enough.
“Chargebacks indicate a mistake has taken place somewhere—whether that is a fraud filter that didn’t detect criminal activity, a policy that is unnecessarily restrictive, or a consumer acted unethically,” says Chargebacks911’s COO, Monica Eaton-Cardone.
Monica says reviewing each chargeback that makes it through your defenses is hugely beneficial. These transaction disputes come with a wealth of information that can greatly enhance your future management efforts. “However, identifying that useful information is challenging. Sifting through all the available data to determine which is pertinent and actionable is time consuming. And, if merchants base their decisioning on insufficient or inaccurate data, they’ll do more harm than good.”
“Bottom line: Airlines aren’t analyzing their chargeback data sufficiently or efficiently. However, simply mandating more analysis isn’t the answer. Professional insight is needed to improve the efficacy and streamline resources,” she asserted.
And if this isn’t addressed properly, problems only compound. For instance, accounting for chargebacks is dreadful. If a chargeback has been filed, the damage to your accounting has already been done. Also, the process is a prolonged one. As Chargeback911 highlights, each chargeback comes with a fee. That means you’ll have to document not one, but two transactions in your accounting software!
Ai’s Ritesh Gupta recently interacted with Monica about related issues. Excerpts:
Ai: The commerce industry has seen dramatic changes in how payments are handled. Can you explain how the problem of chargebacks has evolved?
Monica Eaton-Cardone: The groundwork for chargebacks was first laid with the U.S’s Truth in Lending Act of 1968—long before the invention of the Internet. The federal government began to provide consumer protection against fraud liability. Chargebacks were a brick-and-mortar protection mechanism, and back then, there were only two sources of chargebacks—criminal fraud and merchant error. Cardholders were incentivized to use payment cards because they wouldn’t be liable if a criminal made purchases with a counterfeit card or the merchant accidentally processed a transaction twice. Merchants were rightfully held responsible for providing a safe and secure purchasing experience—until the Internet came along.
Seemingly overnight, the chargeback system became archaic, unable to handle modern payment processes. All of a sudden, there was a new and illegitimate way to use chargebacks. Consumers learned about the loopholes and identified ways to cheat the system.
Despite this new consumer behavior, merchants are—like they always have been—the bearer of all responsibility. What’s worse is more and more policies and technologies are sought out to protect the cardholder while less and less is being done to alleviate merchant’s friendly fraud liability.
Ai: What do you recommend when it comes to understanding what is causing chargebacks? How can you airlines become smarter and learn from their mistakes?
Monica Eaton-Cardone: It’s only possible to learn from our mistakes if we can identify mistakes for what they are. An inability to detect issues can limit the effectiveness of an in-house team. An outside perspective, however, is often more objective and filled with constructive criticism that will produce greater results. (Points in favour of in-house - can be cost-efficient since there isn’t an incremental cost per transaction, in-house teams come to recognize fraud and chargeback patterns and can adjust pre-emptively. For example, fraud associated with Black Friday is predictable; product knowledge etc.).
Airlines need to carefully analyze the effectiveness of their in-house teams and be open to the idea that outsourcing might have greater return on investment.
Fraud threats are constantly changing. As fraud detection technology evolves, criminals alter their tactics—what worked for them yesterday might not work today. When it comes to fraud and chargeback management, agility is one of the most valuable characteristics.
Unfortunately, most in-house teams are unable to be as dynamic as they’d like to be. In-house experts might know every nuance of their own business and even be aware of trends in their industry; however, a chargeback expert is aware of trends in all industries and how those tactics are affecting payment processing across the board.
Ai: Can you talk about the latest developments in the arena of fraud filter technology? How has it helped in dealing with issues and where does it tend to fall short?
Monica Eaton-Cardone: Fraud filter technology has made great strides in recent years. Machine learning, as opposed to static rule sets, helps decrease unauthorized transactions while also reducing the risk of false positives.
However, as Bill Gates once said, “automation applied to an efficient operation will magnify the efficiency…automation applied to an inefficient operation will magnify the inefficiency.”
Merchants are tempted to trust fraud filters implicitly and take their results at face value. While technology can help streamline efficiencies, they can’t fully replace human analysis. Manual reviews still play an integral part in effective fraud detection and chargeback prevention.
Ai: Chargebacks can also result from merchant fraud and criminal fraud. Going forward, how do airlines need to gear up for all sorts of fraud that can result in chargebacks?
Monica Eaton-Cardone: A phrase that is quite common throughout the industry right now is “multi-layer fraud management,” an idea that no single solution or strategy is sufficient to detect all fraud (rather this approach combines multiple complimentary solutions). Airlines can’t rely on just the basic tools, nor should they use every product on the market; neither strategy will effectively minimize risk exposure. For example, any merchant who uses Address Verification Service along with card security codes or 3D Secure is technically using multiple solutions to prevent fraud. (Other options include card security codes, geo-location, device authentication, proxy piercing, biometrics etc.)
Airlines need a carefully constructed fraud mitigation plan that incorporates complimentary tools for comprehensive protection. On the surface, this may seem like an elementary idea, implementation of the concept is quite complex. Airlines need to carefully consider a plan that will address their individual threats.
(Airlines also constantly need to understand what sort of fraud is taking place, especially with a number of new ways in which a transaction can be done. For instance, in case of clean fraud, a fraudster manages to impersonate genuine cardholders and tend to commit fraud without raising red flags!).
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First Published on 27th June, 2016-06-24
Ai Editorial: Sharing economy platforms can be global from their very outset so they need to create global identity verification processes, writes Ai’s Ritesh Gupta
What’s holding back online peer-to-peer transactions?
HooYu’s recent Trust in the Digital Age Survey found that 61% of people will refuse to or are unlikely to trust in somebody they don’t know until they are confident in that person’s identity.
Before we look specifically at the travel sector and related sharing economy platforms, it needs to be understood that the trust factor also depends upon the nature of the transaction.
According to HooYu’s survey, not all sharing activities require the same level of trust in the other participant’s identity.
The survey, which featured over 2,000 people in the UK and the US, indicated that sharing activity that required the most identity trust were renting personal items to other people (69% require proof of identity) or renting a room in somebody’s house (68% require proof of identity).
Trust and booking funnel
Talking of online peer-to-peer transactions such as buying something from an online marketplace or renting a holiday property, it needs to be noted that this segment has grown exponentially in the last five years. eBay, for example, has over 158 million active buyers and 800 million listings worldwide. To date, Airbnb has facilitated 10 million nights of accommodation. And BlaBlaCar motors 40 million passengers and drivers a year. “There has been huge growth but it has to date been delivered by the early adopters and trust and confidence issues are holding back mainstream expansion of the sharing economy,” said David Pope, marketing director at HooYu.
As a specialist in this arena, HooYu helps in building trust and security. As an ID checking service, it uses online and social media identity data, ID documents and facial biometric checks to prove that a person is who they say they are.
So how should operators that facilitate peer-to-peer transactions look at increasing the credibility of their platforms during the course of the booking?
Pope says the first step that sharing economy platforms need to take is to get rid of their caveat emptor approach to the identity of their users. Statements such as “We cannot and do not confirm each member’s identity” or “User verification on the Internet is difficult” are frequently buried in the T&Cs on sharing economy sites.
“As a traveller using peer-to-peer sites if I trust the platform I am likely to trust the person on the other end the transaction,” says Pope. “Our research found that four times as many people would be likely to use a sharing economy platform is they received an in depth identity confirmation report on the person they are transacting with. In other words, knowing the identity of the other party in the transaction is key to credibility of the platform.”
Fraud in online peer-to-peer transactions
It’s an inconvenient truth that fraudsters find ways to exploit any economic system, highlighted Pope. He referred to following:
· Some car sharing sites have had to shut down because they have not adequately checked the identities of customers using their car fleet and fraudsters using fake identities have disappeared with cars.
· In the ride sharing sector, fraudsters use ride sharing platforms to launder money. A fraudster creates two accounts, one using compromised identity and card details and another with a fake identity that they control. The then pay for a rideshare (that never actually took place) and via the rideshare platform move money from the compromised card to another financial instrument that they control.
· In the vacation rentals sector, stories abound of fake property owners. They post a property for rent and in their profile on the marketplace add text to say to email them if they don’t respond quickly via the platform’s own messaging system. The unwitting holiday maker who wants to bag that property at that low advertised price follows-up by email and at that point the fraudster has taken the holiday maker Out-Of-Bounds of the safety of the platform. Then they encourage the holiday maker to pay via bank transfer instead of the platform’s payment mechanism. Then the holiday maker has paid for a non-existent booking on that holiday rentals platform.
5 ways to increase trust and confidence in vacation rentals sites
Pope recommends five ways:
· Offer a well-lit marketplace by verifying your sharers, it will return dividends in terms of keeping fraud out and attracting new customers to register and transact.
· Don’t just use social sign-in as your verification mechanism. Social sign-in just identifies the customer, it doesn’t verify the customer. Platforms need to examine and cross reference the data that they are receiving. HooYu’s approach to identity uses multiple sources of identity to confirm and corroborate an identity.
· Lose the caveat emptor approach, it doesn’t engender trust & confidence
· Enable your customers to build confidence & trust in the people they wish to transact with. HooYu can be offered as a peer-to-peer identity confirmation system
· Go beyond identity. Identity is just one component of trust. If somebody is using their own identity, then you can more safely assume that they will evidence good behaviours. However, competence and intention are also parts of trust and confidence which must be built through mechanisms such as ratings and reviews.
Sharing economy platforms can be global from their very outset so they need to create global identity verification processes.
Checking identity databases such as voters’ rolls or credit reference agency data will only work in a handful of countries. Instead platforms need to look at universal identity attributes.
Also, a platform needs to understand its demographics’ attitudes to trust and confidence in the context of the peer-to-peer transaction that they are offering.
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First Published on 28th April 2016
Making innovation and digitalisation an integral part of any corporate’ DNA is a major exercise. Ai’s Ritesh Gupta interacts with Bornemann to know how Lufthansa is setting a prime example of being customer-centric.
A minor glitch or an unpleasant moment at the airport can spoil a business trip or a holiday with a family. Travellers intend to be in control, to gain easy access to information as they embark on a journey.
Let me share a couple of examples.
Last week I flew from Barcelona to New Delhi via Amsterdam. My flight was booked by my office in the U. S via Delta. So I was forwarded a confirmatory email from Delta. On the day of travel, I also received an email from KLM to check-in. Apparently, the first leg of my travel (Barcelona-Amsterdam) was operated by Transavia. I tried to check-in, but I couldn’t. Also, the KLM site didn’t facilitate my check-in for Amsterdam-New Delhi flight. The point here is if a traveller is clicking on given links, originating from the email, then the task needs to be completed.
Also, as I arrived at the Amsterdam Schiphol Airport, the screen didn’t show the gate for the next flight initially. I took few steps and asked the KLM staff available at a particular gate just where I was looking at the screen. She told me “F3”. This gave me ample time to relax, even as the screen didn’t flash the gate for another half-hour.
So there are many areas of flying, right from dreaming to planning to booking to physically travelling to sharing the journey, where airlines are looking at facilitating a personalised, simplified experience.
I say simplified as at times gaining access to mundane information isn’t easy. As for personalised, airlines are digging deeper to ascertain the profile, travelling pattern etc. of a traveller to drift away from generalised information.
Making it simple, personalised
Singapore-based Frank Bornemann, Head of Marketing, Loyalty Programs and Provider Management APAC, Lufthansa German Airlines explains how the group is focusing on doing the same.
“Passengers tend to be anxious…at times nervous (as we physically travel or even start our journey). So right piece of communication in a timely manner (considering the context, location) can help,” says Bornemann. Here a mobile app can be of immense help, but even then the lack of easy access to free Wi-Fi at certain airports can hinder the plan. In order to combat this, the Lufthansa group is banking on the beacon technology. This way Lufthansa can share details about boarding, departure time and gate number via smartphones. Also, to display information on the luggage carousel number for arriving passengers and expected waiting time. In fact, the group is going beyond routine flow and looking at refining the experience as it strives to drive digitalization with diligence.
Bornemann referred to the testing of services at the Munich airport when passengers are within a certain proximity of a location, for instance, an offer for entry into the Business Lounge for €25. Bornemann says this message would be delivered to a flyer present in the vicinity of a lounge. It would be sent if the passenger doesn’t have automatic lounge access through customer status or booking class.
Another utility-oriented feature is electronic baggage receipt on the app. So one doesn’t need to roam around for a screen or check among 10 or so carousel for luggage. The service results in knowing the baggage carousel. This service is currently available at several airports in Germany, and Milan, with plans to expand in the future.
Setting up right processes
The organization is currently in the process of rolling out a slew of digital initiatives, with focus on being precise with what to offer to customers, matching the need/ intent, the location etc.
It needs to be highlighted the Lufthansa group introduced seven fields of action or its “7 to 1 – Our Way Forward” strategic plan in 2014. Two of the initiatives are - innovation and digitalisation, and customer centricity and quality focus. The group is digitizing the entire air travel chain. A major initiative is the SMILE program, taking a closer look at processes and products more intensively from a customer perspective.
The industry is gearing up to stitch up data across channels and combine fragments to create a single identity of a traveller. Today there is talk of probabilistic and deterministic methods of identifying a digital user, but it’s a work in progress. Of course, airlines are assessing their own sources of data and systems to capitalize on the prowess of the company-owned digital assets. Lufthansa, for example, is evaluating how to make the most of its 80 databases available within the organization. “Many of our current database systems do not yet “talk to each other” because they were commissioned a long time ago, based on previously relevant needs,” shared Bornemann. Such first party data obviously can lay a strong foundation for personalisation, but it’s not as straightforward as it seems considering the fact that one has to respect the data protection laws, mentioned Bornemann. As per the German laws, there could be several different levels of permission that need to be approved by users before one can act on a certain set of data to send them other offers or promotions.
Bornemann indicated that the organization has aligned its operations over the years to gain a strong foothold in the arena of customer centricity. “Whilst the relevant data is available, we have been working in departmental silos for decades and as a result created systems and databases that are not yet talking to each other. We at LHG have created a central project team on a very high level addressing exactly these issues and making this our priority to underline our brand core “enriching travel experience”,” he said.
Being savvy with devices, tech and content
A lot is happening in the world of ad tech, analytics, ecommerce, mobile technology etc.
Bornemann finds all of this “very exciting”, and adds “through digitalization it is possible to address the needs of travellers better than ever”.
Today travel marketers are working out ways to make the most of available content and make it an integral part of an organization.
For instance, a European carrier is working on plans to set up a virtual content store to personalize information and offers via various in-house communication channels like apps, newsletters, app pop-ups, pre-check-in messages etc. And this will be delivered in the most relevant format. “It is of course very challenging to merge all data points, apply the right algorithms and have the right text and visual components come together to create a seamless flow of information to our customers,” shared an executive.
For its part, Lufthansa group is also making steady progress on similar projects, but the team isn’t in a position to comment yet.
Areas of improvement
It is not tough to analyze gaps where airlines tend to struggle when we think from the perspective of a traveller. So which areas of flying tend to disappoint in terms of loyalty – right from planning to travelling?
Bornemann the industry at large is falling short when it comes to “personalisation to individual needs”. He added, “Airlines have so much data available to address individual needs, but yet they usually blast offers to all customers in newsletters, apps, social media etc.”
It is still challenging for airlines to act on real-time operational data to improve upon their FFPs. “At the moment it is very challenging but in the future we are going to address exactly this point, which will help us to differentiate us from competitors and enrich our customers journey, which should result is loyalty beyond the classical FFPs,” acknowledged Bornemann.
Sometimes it is easy to get swayed with what technology or a new concept can do for the organization. Being customer-centric is fine, but it can also result in “information overkill,” cautioned Bornemann. “It is very easy to blast everything to everybody, but respect for our customers time is crucial to break through the communication clutter and build trust.”
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First Published, 23rd March 2016
When carriers embrace unreasonable ways of charging a customer for an upgrade or a service, it just results in displeasure. This only upsets us and it should be avoided, recommends Japan Airlines’ Akira Mitsumasu.
Is unbundling going to make it hard for a family to sit together in a plane? Will I have to pay for early boarding request with my toddler?
Now if an airline is already charging for checked bags, overhead bin space etc., it is unlikely that the pre-boarding policy would allow a family to get into the aircraft first. Those who have paid for such services are likely to find space first for their bags, before anyone takes it including a family with kids.
Now this might be a common phenomenon in the U. S. but these issues tend to be seen in a completely different way in Asia, simply for the fact that many travellers could be new to flying.
So how to approach unbundling or offering ancillary offerings at large in Asia?
“There is no one size fits all solution, especially when we think of how diverse the APAC region is,” says Akira Mitsumasu, VP, Marketing & Strategy, Asia & Oceania Region, Japan Airlines.
It’s never easy to know if a given attribute (say, seat selection) is better to be included in a fare family or sold as an ancillary. Depending on your brand, market perception can be a big issue.
One important thing Mitsumasu recommends is to make sure that the proposed value and price are easy to understand.
“Search and purchase are important activities within a customer’s journey, and hence a proper understanding of the ancillary value proposition not only helps facilitate sales, but also helps create a better customer experience,” says Mitsumasu, who adds although some Asian carriers seem to have responded quicker than others to the retailing trend in aviation, the overall trend is, as in the West, is essentially driven by consumer needs and expectations. “In the APAC region, because of very diverse and different needs, finding or testing what is relevant is a very important process in determining what to invest in and co-produce with partners,” Mitsumasu told Ai Correspondent Ritesh Gupta in an interview. Excerpts:
Ai: If we were to talk of ancillary products and services, what has really delighted you and annoyed you going by your personal experience?
In my opinion, ancillary delights when they deliver value and annoys when they are just fees for something that is unbundled. It is somewhat like taking a regular product and deliberately breaking it to create artificially inferior versions. I do to certain extent agree that there are times when some elements of full service offerings could be taken out and sold separately. But when it goes too far, and this can easily be the case especially in markets where travellers expect a standard product to include a decent level of convenience without having to calculate the costs and decide whether to include or exclude certain elements of service.
Ai: So what annoys you?
To me, when I ask for a full English breakfast in a 5-star hotel, for example, the last thing I would want is the hassle of ticking item by item what I need and wondering how much that adds up to.
Another thing that I find annoying, from a traveller’s perspective, is the “clever” idea of opportunity cost pricing. Why should I pay an extra $20 for an economy class aisle seat just because the flight is not full today, knowing that a week ago a same seat on a fully booked flight did not demand any extra price? Or why should airlines cram their customers together in tight narrow seats and then announce minutes before departure that they can move to comfortable seats at a price?
These ideas may appeal to carriers as ways to capture extra revenue, but they could also generate very negative travel experiences to the customer. Again, this is my opinion, and other travellers may feel quite differently. But this diverse attitude towards ancillaries is precisely why customer experience could easily go wrong.
Ai: How close is the industry to offering consumers what they are seeking?
With big data analytics and better merchandising platforms, today’s technology has opened up many new ways to propose personalised air travel and related offerings through multi-channel and device environment. What is technically possible however is not necessarily always feasible, and I think the industry, which has just started to embrace this, will go through a period of trial and error, during which the more relevant offerings will be adopted and the less-so ones eliminated. Although airlines are getting better at personalizing offerings, this does not necessary mean that they are capable of customizing them. Building up an attractive repertoire of different offerings to different customers may not be technically possible nor financially viable either.
Ai: When you hear about average revenue per passenger rising up in the markets like the U. S. or Europe, how do you assess the relevancy of the same in a market like Asia?
I think this depends on which part of Asia we are talking about. There are mature markets that behave in ways similar to that of the U.S. and Europe, but there are also new emerging markets that are quite different. Many people in Asia's emerging economies have just started to afford to travel, and many have travelled for their first time on LCCs - the experience of which could shape the perception and expectation these new travellers have towards an airline product.
Ai: Can you share your observations where you think merchandising strategy requires a different approach say in regions like North Asia or Southeast Asia?
I think there are regional differences such as in terms of consumer needs and sophistication that consequently affect merchandising strategy.
In Japan, for example, consumers generally have relatively high demand for quality and would often expect full service. There are, however, also segments that are more willing to sacrifice quality for cheaper prices.
In some Southeast Asian countries, the norm is to buy "good enough" products and services, and consumers in such segments would want to save air travel expenses and spend instead on other areas. I would look at both regional differences, as well as intra-regional differences, such as the difference between a price sensitive versus a less price sensitive segment within a region.
Ai: Any example which shows blindly following best practices can prove to be a disastrous move as far as air and non-air ancillaries are concerned?
Best practices work because they often define well two gaps. Firstly, the goods and services an airline offers that is not always needed and hence can be taken out as a separate value offering. And secondly, the goods and services that are required by its customers, but are not offered by the airline; in other words areas for new value fulfillment. It would be highly risky and potentially disastrous if an airline just blindly follows the ancillary offering of another airline without having first an understanding of its own value gaps and hence feasible opportunities.
Understanding the market is crucial, and starting with small steps to test what works and what doesn't would be a good approach. Identifying competence gaps, and finding partners that complement your capability is also important.
Ai: What would you term as the next biggest development in the arena of ancillary revenue generation?
As ancillaries move from air to non air travel related products, airlines will increasingly need to collaborate with other partners, and be flexible enough to un-bundle and re-bundle their resources. In light of this trend, I think the next biggest development would perhaps be extensive value co-production networks competing against one another.
Note: The above remarks are Mitsumasu’s personal views and do not reflect that of Japan Airlines.
First Published, 11th March 2016
With developments such as the new standard NDC, airlines are able to deliver richer, more personalized offers across multiple channels. But still there is a need to curb the gap between direct and indirect channels when one considers the overall point of sale capabilities, asserts Jim Davidson, CEO, Farelogix
Airlines are increasingly getting proficient at defining their respective retail strategies, and working out a technology infrastructure that would pave way for merchandising capabilities consistent with their chosen policy.
A key decision that every airline has to make is to whether to acquire merchandising technology that they can control and even operate.
As it is turning out, airlines are open to running their own merchandising engines, embracing a flexible approach to creating, managing, and modifying offerings as per their discretion.
The sort of air and non-air products that are being offered - irrespective of the type of trip - too can be a key factor as the traveller may respond positively to a relevant offer shown by the airline. Now this mandates control over both merchandising initiative and technology so that there is a mechanism by which frequent product/ pricing testing can be enabled. Plus, a merchandising system needs to be linked to internal systems such as CRM, customer profiles and FFP database.
Also, carriers acknowledge that managing numerous merchandising processes/ systems across direct and indirect channels is not scalable. If each GDS needs a carrier to execute and support their distinctive procedure/ methodology (say a blend of ATPCO filing and GDS direct filing), then the notion or expectation that airlines will manage their merchandising products and services featuring three-four different ways is a faulty hypothesis, something accepted by both the airlines and GDSs.
Level of control today
So in order to know more, Ai’s Ritesh Gupta asked Jim Davidson, CEO, Farelogix asked if he were to relate as a traveller, which areas of flying disappoint him till date - right from planning to travelling (for both as FFP member and even with an airline with which he doesn’t fly frequently)?
“I do believe the travel shopping process is an area where there is scope for improvement,” stated Davidson.
He added, “Ancillary or bundled products are not readily available when shopping through most travel agencies or corporate booking tools – creating an unnecessary discrepancy and lost opportunity for both the airline – in terms of revenue, and the traveller – in terms of understanding all the products and services that might be available.”
According to him, in this time of online retailing, it is a reasonable expectation to be able to get the airline’s best offer from any touchpoint that an airline or travel agency offers. “Whether you are at airline.com’s mobile site, website, etc. that process should be seamless, and the requirement applies not only during the shop process but also in the case of a trip interruption. Right now, this isn’t always the case, and this can cause customers (and potential customers) quite a bit of inconvenience.”
Looking at the same from airline business solution management perspective, Davidson said the more channels and touchpoint that can showcase an airline’s product and brand, the more the airline can grow revenue and loyalty. “The industry has taken some important steps to solve this problem – including adoption of new merchandising, and distribution technology and industry standards such as NDC, and new distribution approaches from major airlines such as Lufthansa, American, Air Canada, United and others,” he said. “The challenge now is to expedite adoption in the GDS and corporate booking tool channels which serve a large portion of the market worldwide. We are seeing this start now, it just needs to go faster before the gap gets too wide between direct and indirect.”
Airlines are trying to sharpen their distribution technology capabilities. For instance, there are tie-ups in place between airlines and technology providers to facilitate a connection directly to sales partners. This way there is a provision to look into each individual direct interface and offer support in planning and implementation.
Commenting on this trend, Davidson said all of this comes back to airlines taking control of the offer in order to offer more choices and differentiate their products.
“This is why we see airlines investing, now more than ever, in better, more reliable technology for airline-controlled merchandising, distribution and ecommerce, including direct connect as well as new platforms for merchandising and e-commerce that are adaptable, scalable, and more future-proof in the sense new solutions are PSS and channel agnostic,” he said. There are specialists today that are offering airlines the opportunity to markedly enhance their .com spaces while also creating easier methods to reach and appropriately engage more customers.
No conflict as such with travel agents
With NDC-XML, and any other messaging protocol, airlines control the content they send to travel agencies. Travel agencies on their side optimize the information they display—be it airline information or hotel information—to maximize sales. Talking of control, are airlines going to be happy with this equation?
Davidson doesn’t think there is a major conflict in this equation; in fact, it represents a more robust value chain and opportunity for all.
“The airlines are finally in a position to control and personalize their offer using NDC-aligned XML, and third party intermediaries are able to access this broader, richer content and package it for their customers, be it a corporate booking tool, OTA or travel management company. Everyone stands to benefit from a more dynamic approach to travel retailing,” he said.
Moving together with standardization
Airlines are looking at single, standardized set of XML messages to feed their distribution partners.
The good news is that new technologies and standards (NDC) make it possible for airlines to deliver richer, more personalized offers across multiple channels, and make it possible for aggregators to more cost-effectively scale their integration efforts.
Davidson says this is a major accomplishment and bi-lateral win for the industry.
“We are seeing that play out in a number of forms – whether it is OTAs such as Priceline consuming airline direct connects; GDS such as Sabre consuming American Airlines API; or innovative business rewards program such as we see with Air Canada Rewards for Business, which also ties into its XML API,” shared Davidson.
“So the opportunity and real life examples are there. Where we’re falling short again goes back to the pace of adoption and innovation in the indirect channels, specifically when it comes to travel agency point of sale solutions and the GDS, where there are still major limitations in terms of point of sale capabilities,” he said. “What’s the point of putting rich, personalized content in a robust API if it will end up being sold using selling system that strips the offer down to a commoditized “everyone looks the same” display?” There is essentially no industry or business that can effectively compete this way. This is where the biggest innovation is needed, else the gap between direct and indirect channels will continue to widen in spite of NDC.
Ai is scheduled to conduct a “Complimentary MasterClass with Farelogix - Best Practices in Airline Merchandising & Digital Commerce” next month.
Date: 20th April
Location: Barcelona, Spain
Assessing how filing of fares is going to evolve in the NDC era
Ai Executive Interview: ATPCO’s managing director - Product Strategy and Development, Thomas Gregorson
Airlines are trying to control what they sell and the way they sell. Ai’s Ritesh Gupta explores how ATPCO is set to play its part in the future
The way airlines intend to distribute their product, right from filing of fares to sharing their offerings with intermediaries, has been under scrutiny for a while now. Personalisation and doing away with commoditised way of disseminating information are areas that carriers are keenly looking at.
In this context, a section of the industry has questioned the efficacy of ATPCO filing system.
For instance, an executive told me the concept of even a personalized price, let alone a set of products and services of which many are dynamically controlled inventory, was never conceived when the ATPCO filing system was set in place. The same executive also questioned the attempt to distribute dynamic airline ancillary products and services.
Meeting dynamic pricing needs of the future
ATPCO’s managing director - Product Strategy and Development, Thomas Gregorson acknowledges that when ATPCO initiated its journey 50 years ago, personalisation was not really a need.
“However, since this time as we continue to automate the fare distribution process in the industry ATPCO has enabled much of the personalisation that already exists and will continue to work with the industry to meet all of their needs in this regard,” says Gregorson.
To provide some context, ATPCO has for decades enabled the ability for airlines to distribute different content to different entities as well as to offer many different prices and products through the interaction of ATPCO data and prices with the inventory management controls. The organization also allows airlines to offers different prices, services and branded products to the passenger segments (Passenger Type Codes, Accounting Codes, Promotion (Ticket designator) Codes, and Frequent Flyer Tier Status).
“We have recently introduced the ability to further segment the services that are offered to the level of an individual based on the airline proprietary Customer Index Score. Even with all of these capabilities we recognize that this may not be enough for the future,” admits Gregorson.
A multidisciplinary industry working group has been set up that will look at the next level of dynamic pricing capabilities. This working group will include inventory management and pricing and distribution experts. The goal of this working group is to have the full industry implement globally all the capabilities that are already defined within the product as well to define what enhancements need to be created to support the dynamic pricing needs of the future.
Gearing up for NDC
Gregorson says, “ATPCO continues to acquire new airlines that use our fare and rule collection and distribution services, the amount of data that goes through this service continues to grow and we have presented our and have received support from the airline industry that supports ATPCO being their infrastructure and central conduit for all distribution (NDC and traditional)”.
Some major steps towards this vision is ATPCO’s progress on acquiring airline ancillary content with over 130 airlines using ATPCO to distribute their optional services and us being the industry source for baggage fees.
“We have launched an airline profile into production for NDC,” says Gregorson.
ATPCO has completed its R&D and now is making progress with the building of a Message Hub that will serve as a cost efficient method for airlines and aggregators to connect to each other in a NDC world, while maintaining all the benefits of the current data distribution services.
“In 2016 – we will finalize our technology transformation and build out our message hub and dynamic fare creation capabilities,” says Gregorson.
“We recognize that the collection of content needs to expand from the current data push/upload or input via our user interface to also include more interactive APIs to airlines systems. The Message hub will be our first method of collecting content from an airline offer management that we will then normalize so it can be easily consumed by all airlines and systems.”
Control and filing of fares
ATPCO currently supports over three million parameters which dictate the control and use of traditional distributed content for the airlines.
Gregorson says this level of control continues to grow and take new form with the creation of airline profile.
“The methods of control will need to merge as airlines seek a simple and consistent method to control all content regardless how distributed. With this we need to move to build an industry infrastructure that is connected to the message hub and has implemented airline profile in its distribution process,” he says.
Gregorson shared that the biggest changes in the fare distribution process with NDC will be the airlines owning or licensing airline controlled offer creation engines.
“So instead of raw data being distributed to multiple systems, the process will change where the raw data will be sent to each airline offer engine and the airline offer engines will generate the offers,” he says.
The biggest challenges with this transformation is the need to cost effectively support the Internet and consumer needs to shop for airline offers and services, and the need for airlines to obtain content creation engines to be integrated in their offer engines.
ATPCO is focused on enabling a method for airlines to distribute raw data and created content to provide the most efficient method to support the industry shopping process, to continue to expand its distribution infrastructure of airline to GDS to be also used for all airline to airline distribution to support their offer engines.
“Finally, we are building content creation engines that can be leveraged by all airlines,” he says.
Gregorson says the data distribution process that is there today will exist and be extended to include more volume and more frequency.
“We have seen over the last 5 years our data base grow by 80% and we expect to see another doubling of the data base within the next year as airlines begin to adopt branded fares. We also see that there is need to have more frequent updates of some of the data,” he says.
“As such in the first half of 2016 we will have completed our technology transformation project which will include upgrading our systems to enable us to perform instant updates to the marketplace. When and how this instant update process will be sued in the market is still being defined, but one item fully supported by the industry is the need to instantly remove or cancel a price in the marketplace.”
ATPCO believes the most cost efficient and effective way to maintain airline prices moving forward is through a blend of distribution of raw data, utilization of ATPCO content creation engines and creation of processes that enable airlines with the ability to define dynamically alter their pre-constructed prices. This method of maintaining prices, as Gregorson says, will leverage the airlines huge investments in their advance revenue management systems and ensure that their pricing is rational and optimally being implemented.
“ATPCO has focused on reinforcing our infrastructure to provide the airline industry with the most flexible, robust, reliable, and cost effective fare distribution that works today as well as for the years to come,” stated Gregorson.
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Airlines are beginning to understand that gamification provides a set of tools that compliment their existing loyalty practices, says Aaron Carr, CEO and founder, Friendefi.
There really are many options for using gamification to create fun, interactive ways of obtaining educating customers, capturing customer data, driving transactions, and more.
Airlines are trying to incorporate gamification into routine features of a loyalty program. Be it for social activity, for instance, rewarding for completing valuable social sharing activities, or flying on specific routes, such initiatives need to fulfil a certain objective.
And rather than just focusing on the tactical aspect, airlines need to augment the overall experience via gamification, Carr told Ai Correspondent Ritesh Gupta.
Ai: How do you indulge in gamification yourself?
Carr: I do indulge in gamification from time-to-time…The practice isn’t that widespread yet - we’re working on changing that, but a recent airline example that I really enjoyed was Air Canada’s Earn Your Wings. This promotion encouraged Air Canada’s frequent flyers to ‘race’ and out-fly one-another over a two-month period. Although it mainly appealed to very frequent flyers, I thought it proved to be innovative from the standpoint of bringing competition and goal achievement (earning “Wings” and destination badges) to a very ‘business-centric’ customer group.
Ai: If you were to highlight areas that signify progress of gamification in the arena of loyalty, what would these be? What are the concrete benefits that gamification is offering to strengthen loyalty?
Carr: Most of the advancements around incorporating gamification into the program experience have largely been tactical – only used on a promotional basis.
But increasingly we’re seeing programs incorporate some aspects of gamification – such as recognition for achieving objectives through badging – as part of the core experience. While the benefits of tactical gamification can be very impressive, we believe that weaving these practices into the fabric of the program can yield even greater benefits.
Gamification – done well – creates activity and engagement loops where participants repeat a behavior, becoming better and better at it (think about levels within a video game). And, of course, encouraging repeat behaviour is a core objective of loyalty programs.
Ai: What is the most attractive part of social gamification for airlines today?
Carr:Gamification can be attractive to airlines for several reasons. But at the top of my list are two in particular: the ability to engage customers to learn about their frequent flyer offering and the ability to drive short (and potentially long)-term flight behaviour.
Ai: Any campaign that you would like to highlight?
Carr:The American Airlines AAdvantage Passport Challenge, which we launched with AA last year stands out as a very strong case study – both for its scale and its results.
AA had three broad objectives:
(1) loyalty program education and partner awareness;
(2) social channel use and engagement; and
(3) drive short-term flight behaviour.
The promotion consisted of a digital “passport” and members could sign-in using their Facebook credentials and by entering their AAdvantage number. For each activity and game participants’ completed, they earned the accompanying passport stamp (like a badge) and AAdvantage miles. The games proved very popular and effective at improving participants’ awareness of partners. In fact, we saw a double-digit increase in mileage accumulation (spending) by members who played the partner games at those same partners. The social actions were also popular – participants dramatically increased their social channel engagement with AA as a result of the promotion and even helped the promotion achieve a greater reach by sharing with their social network friends. Finally, we saw an incredible lift in flight behaviour – mostly attributable to the personal goal we assigned to every participant. The goal was based on your actual historical flight behaviour and pro-rated to the 60-day duration of the promotion. A significant number of participants hit their goal resulting in a dramatic increase in pre / during flying on AA.
Ai: How should airlines approach social gamification?
There isn’t one approach for how airlines can use gamification. A gamification initiative should always start from the airline’s business objectives and target audience.
When designing a gamification initiative you should also always ask the question: “What actions do I want my target audience to take?” Literally – think about what exact actions you want the target audience to perform and then consider the game mechanics that can be used to motivate those actions. And if your initiative includes purchases (e.g. Booking a flight), then consider how that information will be communicated from the airline’s reservation system or loyalty system to the gamification platform. Gamification works best when information flows in near real-time. I do something and see the result instantaneously or pretty quickly thereafter. So, in my book, the only do’s and don’ts have to do with designing your initiative based on a good assessment of your objectives, target audience, and desired actions / behaviors.
Ai: From your experience, who generally forms the core target audience for gamification? What are the strengths and limitations of gamification when it comes to targeting a specific audience?
Carr: Actually, I would flip this question on its head. Gamification is a broad tool-set and its appeal isn’t limited to a specific audience. Rather, the game mechanics and narrative should be determined based on the group a company wishes to influence. This should be judged based on behaviour characteristics. Using the Air Canada example, we know that most frequent flyers are traveling for business. Many business executives, by nature, are competitive and achievement-oriented. So a race to out-do others works. But this wouldn’t be the case for a less competitive subset of their customer base. Although these characteristics are not always known (as they’re not often measured by companies), they can often be inferred and tested.
Ai: Considering the utility of mobile devices, how social gamification offers a bigger opportunity?
Carr: So much of the traveler journey remains untapped. Airplanes contain captive audiences for hours at a time. As an alternative to watching last month’s Hollywood films, imagine being able to play educational games about the airline, its products and services, its loyalty program and its loyalty program partners while earning miles. Or playing games that challenge you to create your dream travel itineraries so that the airline can understand your future potential travel intentions…Or creating in-airport challenges or global travel challenges.
There really are many options for using gamification to create fun, interactive ways of obtaining educating customers, capturing customer data, driving transactions, and more.
Ai: Can you share metrics associated with social gamification that help in meeting different campaign objectives?
Carr: In addition to the traditional metrics for any marketing campaign or program, gamification provides another layer of data capture and information. For example, when we ran the AAdvantage Passport Challenge, we not only measured how many people participated in the campaign, but how many completed each game and action. In addition to this, if the game involved trivia, we measured how many questions they answered correctly. In my view, this is a really compelling aspect of gamification, because we could tell AA not just how many customers played a specific game, but how many actually absorbed the marketing message promoted within that game. This is why, we believe, we saw such impressive increases in mileage earning at partners during the promotion. We didn’t offer bonus miles for shopping at those partners. Rather, we enticed customers to learn about those partners by playing games and trivia and only rewarded them for answering correctly. This had the effect of really increasing awareness and understanding.
Similarly, gamification can be a really effective tool for encouraging people to provide their purchase or travel intentions. Within the AAdvantage Passport Challenge, we had a couple of ‘create your own story’ or ‘dream getaway’ activities, where we asked customers to select their dream trip, hotel property, and activities at destination. From the customers’ standpoint, they were simply taking a minute to day dream about an ideal trip they would like to take. But, from our standpoint, they were providing valuable interest and intention data that could be used later to target highly relevant offers.
Ai: One factor that seems to be annoying a lot of customers these days is the availability of the lowest cost award tickets. Is there any way gamification can help in making perception of FFPs better?
Carr: Having been responsible for flight rewards when I worked at Aeroplan, I understand the issue of seat availability very well. While many complaints about seat availability are valid, at Aeroplan we recognized that most program members didn’t understand how to maximize their chances of getting a seat using their miles.
For example, booking window, departure and destination airport, time of year, day of departure…etc, all impact the likelihood of getting a seat. Having seen the effectiveness of gamification as an educational approach, I would say that this could definitely be applied to educating program members about seat availability and the various options they have (e.g. departing on a Tuesday instead of a Saturday) for improving their chances of getting a seat.
Our chat with Nik Laming, General Manager – Loyalty Division at Philippines’ leading carrier Cebu Pacific Air, who spoke at the FFP Loyalty Conference, a part of 2nd Annual Mega Event Asia-Pacific (held in Singapore, 31st Aug 2015 – 2nd September 2015).
From a Traveller's Lens:
From A Traveller’s Lens
Airlines today are not only expected to recognize a loyal flyer, but achieve top-notch personalization, too.
If one has to deliver a consistent and yet tailored experience to members then it is imperative to clearly define processes and execute flawlessly, asserts Laming. Laming says there are many moving parts in the airline business and the loyalty program is a tool that helps to identify customers and customise offerings to their needs but only if the organisation can operationalize the good intentions.
For its part, Cebu Pacific launched its GetGo lifestyle rewards program for frequent fliers (over 1.4m) in March this year. It allows members to accumulate points on everyday spending (on groceries, utilities, gasoline, etc.) and redeem those points for a free flight. Laming spoke in detail about what needs to be done to ensure a loyal passenger gets his or her due in an interview with Ai Correspondent Ritesh Gupta.
Ai: If you were to assess loyalty as an air passenger, what makes you happy?
As a loyalty member I am happy when the core benefits are done well – don’t give me non-air rewards and frilly extra’s to paper over the cracks of a fundamentally flawed program. Make sure I can get redemption flights when I want them albeit at variable rates. Tier qualification is poorly done sometimes – for example only business or first contributing to top status is too restrictive and just isn’t viable in this day and age.
Ai: What would you count on as the biggest development as well as the challenge in loyalty marketing today?
(It would be) The member revolution powered by smartphones and social media. People are more connected, more vocal and more demanding than ever before. A small issue coupled with a canny member can result in wide spread social media unrest if not managed carefully. And the speed of change and reduction in reaction times required to manage this new world are a big challenge.
Ai: The onus is on marketers to serve the customers in the best possible manner by being data-driven. What does it means to you, and how actually do you think one can excel in an omni-channel environment?
Getting the basics right is vital. There is effectively an agreement between the program and a member whereby data is exchanged for rewards. Using the data with respect and to improve customer experience is the key. We currently operate across multiple channels including web, mobile, call center, Facebook, Twitter and Instagram – monitoring all the channels and having the tools in place to enable a single view of customer communication and respond is critical.
Identifying customers across proliferating social platforms, devices and channels is difficult and becoming more difficult every year. Having the right technology in place to knit together the different streams of data is a good start but there are often gaps. These gaps mean that customers do get frustrated as they are not addressed as one individual. It is an area of focus for every organization to solve in the near future.
Ai: Can you cite examples where you feel you have excelled in offering what customers expect from loyalty?
GetGo is a very new program so the best is yet to come. However we have built in some best-in-class features to deliver above and beyond expectations from launch. These include any seat redemption, points pooling, dynamic top up and an expanding range of earning opportunities.
Ai: Where do you think airline loyalty programs generally are going wrong – from both technology and operations perspective?
There are inherent issues with airline loyalty programs with broken commercial models, complex technology and omnichannel customer service. Most programs from legacy carriers suffer from a lack of award seat availability due to the underlying business model and conflict with revenue management.
At Cebu Pacific, we did not originally anticipate the need to view Instagram as an inbound customer service channel. But we had to adapt our process to accommodate it after we received a complaint as a comment under a photo we had posted.
Ai: What role data analytics is playing in the arena of loyalty – for instance in improving upon merchandising redemption and the overall experience of flyers?
Data analytics underpins the ability to deliver a tailored experience and appropriate offers in the most efficient way. Applied correctly the insights derived from analytics are the most powerful aspect of loyalty marketing. Simple profiling and targeting remain very effective.
The ability to deliver real time and highly targeting messages has finally enabled marketers to answer the conundrum of right customer, right place, right time with the right offer. Predictive modeling adds another dimension to aid targeting and improve marketing efficiency. Differentiated service and offers are only made possible with data analysis. So the role of data analytics is simply huge.
Ai: What would you term as major priority today especially when airlines are not only expected to recognize a loyal flyer, but also achieve top-notch personalization?
Process and operationalization do not tend to be viewed as a major priority for marketers. However if you are going to deliver a consistent and yet tailored experience to members you have to be able to both clearly define processes and execute flawlessly.
Delivering benefits such as priority boarding or baggage handling requires consistent process across wide networks. As campaigns become more complex and multi-dimensional the need to manage them efficiently relies on process. Points programs are essentially mini banks but managed by marketers. Without well defined processes to award and redeem points and secure data programs are frustrating for members best case and worse they are open to fraud and abuse.
Ai: What’s on your agenda for Cebu Pacific Air in the next year or so?
A major focus on the basics. Make the program attractive and efficient to attract members and keep the current ones engaged and excited. We are adding new partners and ensuring we serve current ones well. We have a roadmap of exciting developments in the coming 12 months but these need to be built on a solid foundation.
(The airline has a 55-strong fleet, and it carried 16.9m passengers in 2014, 17.5% more than flown in 2013. Ancillary revenue grew 29% to P8.7 billion last year. It posted a core net income of P 3.3 billion, up 77% compared to the previous year, on the back of notable improvement in both revenues and operating expenses).