How low-cost-carriers survive in the airline industry by cross-selling

Airlines have faced a challenging time in recent years which forced them to cut costs and search for new revenue streams in order to stay in business (Amadeus, n.d.). Thereupon, airlines encountered cross-selling which can be described as the scale of products to current customers who are already purchasing one or more products from the supplying company (Beltman and Peelen, 2013). In the aviation industry this source of income is called ancillary revenue and is generated by activities and services beyond the simple transportation and includes for example commissions gained from hotel bookings, insurances or sale of frequent flier miles to partners (Sorensen, 2015).

A couple of years ago low-cost-carriers started to think out of the box and came up with innovative products for their customers in order to be more profitable. For instance, the Latvian carrier airBaltic launched their own taxi company due to the fact that taxi drivers in the city often charge visitors too much for rides and thus became a big competitor for local transport companies (Kollau, 2011). Furthermore, Scoot lunched a child-free zone in their planes called ScootinSilence and charges an additional 14ZSD per seat on top of the regular fare (Kollau, 2013). A Spanish low-cost carrier introduced a loyalty pass where customers can sign up for a recurring annual charge for a year of priority treatment (Tnooz, 2012). These examples show different ways of generating revenue where customers expand the products they buy from the company by buying a product from another category (Beltman and Peelen, 2013).

LCCs in particular are dependent from cross-selling as their costs cannot be covered by the revenue of cheap tickets. They rely upon a la carte activity by aggressively seeking profit from assigned seats, checked bags or extra leg room seating. Spirit Airlines for example announced a total revenue of 119$ per passenger in 2015 whereby 52$ on average was earned from additional features (Sorensen, 2016). Moreover, Ryanair generated in the same year almost $26bn from non-flight ticket items which represents 24% of their total income (Percival, 2016). Flag carriers that sell regular fares such as Lufthansa Group in Germany generate a similar revenue from ancillaries, but it represents in comparison to LCCs only 5.5% of their total income (Sorensen, 2016).

To conclude, airlines that continue offering low fares need to find their way to survive in this highly competitive market by selling ancillaries before, along and after the booking process. It represents the safety income which determines whether low prices can co-exist with airline profitability.

Bibliography

Amadeus (n.d.). Quantas cross-sell: Case study. Retrieved on 2nd of October from: http://www.amadeus.com/airlineit/docs/qantas_cross-sell_case_study.pdf

Beltman, R. & Peelen, E. (2013). Customer Relationship Management (2nd ed.). Edinburgh, United Kingdom: Pearson Education Limited.

Kollau, R. (2011). Austrian Airlines starts its own branded airport taxi service. Retrieved on 2nd of October from: http://www.airlinetrends.com/2011/04/09/austrian-redcab/

Kollau, R. (2013). Long-haul low-cost carrier Scoot takes a cue from AirAsia X with new quiet zone. Retrieved on 2nd of October from: http://www.airlinetrends.com/category/ancillary-revenues/

Percival, G. (2016). Ryanair’s ancillary revenue hits record level. Retrieved on 2nd of October from: http://www.ideaworkscompany.com/wp-content/uploads/2016/08/2016-07-21-Irish-Examiner.pdf

Sorensen J. (2015). Airline ancillary revenue projected to be $59.2 billion worldwide in 2015. Retrieved on 2nd of October, 2016, from: http://www.ideaworkscompany.com/wp-content/uploads/2016/04/Press-Release-103-Global-Estimate.pdf

Sorensen, J. (2016). The CarTrawler Yearbook of Ancillary Revenue. Retrieved on 2nd of October from: http://www.ideaworkscompany.com/wp-content/uploads/2016/09/2016-Ancillary-Revenue-Yearbook-R.pdf

Tnooz (2012). The global all-stars of upselling and cross-selling have tricks to teach the travel industry. Retrieved on 2nd of October from: https://www.tnooz.com/article/the-global-all-stars-of-upselling-and-cross-selling-have-tricks-to-teach-the-travel-industry/

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