How does an airline value its branded fares?
Branded Fares features go beyond basic fare rules; they can include additional air miles, lounge access, limousine services, increased baggage allowances, or anything that will entice the traveller to choose a brand that provides the features and benefits that provide them value, above simply the lowest fare.
Branded fares are the bundling of optional services that airlines historically charged for a la carte — in addition to the base fare — or provided on a complimentary basis. We refer to these in industry terms as ancillary services and ancillary fees. These service offerings fall into the following categories:
- Onboard sales of food and beverages
- Checking of baggage and excess baggage
- Assigned seats, preferred seats (window or aisle) or seats with additional leg room
- Call center support for reservations
- Fees charge for purchases made with credit cards
- Priority check-in and screening
- Early boarding benefits
- Onboard entertainment systems
- Wireless internet access
“Branded Fares” are a re-bundling of optional ancillary services back into an inclusive fare
Normally includes a discount versus purchase of all features ala carte
Lufthansa launched its version of “branded fares” in 2015
Many U.S., Middle East, and other international airlines offer such re-bundling
Airline financial analysts project over $1 Billion additional value from such branding for key carriers going forward
How to an airline value its branded fares?
First, airlines begin by understanding the ancillary purchase behaviour of different market segments
For Example: Business Vs Leisure VS Family
Base Case: Business passenger
How do business passengers currently purchase their tickets, and their ancillary services?
At Current prices, what ancillary services do they tend to purchase?
Do they check bags? Do they purchase onboard Meals?
Would business passengers purchase more ancillary features if the prices were lower?
Would they pay for checked bags if the fee were $5 lower?
Would they buy drinks more often if the price were $2 lower?
Any likely increase in purchases is reflected in ancillary price elasticity
The discount on the bundle thus translates into additional ancillary purchases
Business Passengers: Total New Purchases
Base Case (before branded fares)
Changes due to branded fares
Discount for bundle
But increased ancillary may not just be because of the discount on the bundle
Simplified buying process
The simplified buying process- one click purchases the flight along with the desired ancillary by the business passenger’s
Incremental Revenue versus Dilution
The new revenue stream can be divided between:
Dilution (a lower price for travelers who already were purchasing the bundle at the base prices)
Incremental ancillary purchases
(due to both price elasticity and ease of booking)
Will the total revenue actually increase when existing purchasers of the same bundle of features pay less?
Net Revenue Impact
Factoring in Ancillary Costs
Incremental ancillary purchases will drive higher costs
Analysis must focus on incremental profitability, new revenue net of costs
1. Price of bundle of features
2. Quantity Purchased
Channel cost Impact
Some airlines offer branded fare as a way to move more customers to lower cost distribution channels
Booking directly through the airline website is significantly lower cost than booking through OTA’s or traditional travel agencies
Often, the branded fares are more accessible, and much more transparent, on the airline website
Other Market Segments
Each Segment is likely to respond differently to the branded fares
- Business: More likely to value new flexibility or onboard amenities
- Leisure: Appreciate the discount relative to other airlines & more likely to move to the airline website
- Family: Will value checked bags, pre-reserved seating and inflight entertainment
Total Profit Impact
The total profit impact on the airline is the sum of the impacts across the various segments
Eg. A branded fare that targeted more ancillary purchases by business passengers would be expected to drive incremental profit in the business segments that would offset any potential dilution in other segments.
Each segment is likely to respond differently to the branded fares
Represent a streamlined way for certain customers to buy ancillary service
Drive incremental ancillary purchases in their target market segments
May drive distribution cost saving by directing more bookings to the direct channel
Expect to see new variations on such branded fares as airlines continue to explore e-merchandising
Provide branded fares’ ticket attributes on your Travel Portal. You can show customers covered services (Priority Check-in, Priority boarding, Ticket upgrade, Lounge Access, etc.) for Branded Fares.
for more detail visit: https://lnkd.in/fgEsxsi