Pan-Pacific Conference XXXIV. Designing New Business Models in Developing Economies

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A Study of Airline’s Ancillary Revenue Growth Strategy in The Era of Technologicallysavvy Travelers Ito, Tomihisa Ito Consultancy on Airline Business cafetf@kpe.biglobe.ne.jp ABSTRACT Ancillary revenue today is a large and crucial part of airlines’ revenue, especially of that produced from baggage fees and onboard sales of food and beverages. However, it can be observed that there remains the potential of growth as efforts continue for airlines to pursue a larger profit. Meanwhile, passenger behavior and passenger expectations have changed in the past decade, due to change in the medium of information and technology;. digital, mobile and social technology have enabled passengers to remain connected regardless of geolocation. According to Friedrich, Peterson and Koster, an emerging new generation called “Generation C” has been observed; the C initialing their attributes “connected, communicating, content-centric, computerized, community-oriented, and always clicking.” To encompass this potential market, the next up-coming category for airlines will be internet connectivity, provided using Wi-Fi services. This paper will discuss the strategy of grabbing the hearts of these potential customers who may well become game changers of the airlines industry. INTRODUCTION The concept of Ancillary Fees emerged in 2205, when the LCC Ryanair began charging all checked baggage. Today, ancillaries range across a wide variety of sales, including onboard sales of food and beverages, baggage fees, assigned seats or seat upgrades (including extra legroom seats on exit rows), billing of call center support for reservations, credit card fees, sales of rights for priority check-in and screening for security, early boarding privileges, in-flight entertainment, fees for onboard Wi-Fi, and the list goes on. This movement has also influenced legacy carriers; American jetliners such as United Airline, US Airways and American Airlines had begun charging baggage in 2008 to make up for the shrunken market after the 9/11 attacks. Ancillary Revenue was considered to be the best strategy for reconstruction. Crude oil prices are currently at 51.74USD as of March 16th, 2017, peaking at 120USD in 2008. Regardless of the drop in prices, airlines continue to struggle with accommodating this sharp price change, and with the growing problem of labor costs among fixed costs, improving cost efficiency for sustainable management is a large issue. Some carriers are introducing energy-efficient aircrafts such as B787, B737MAX, and A320NEO to reduce expenses, however the dominant choice for the majority is to increase Ancillary Revenue. Alex McWhirter comments in Business Traveller Asia Pacific (2016): “Faced with declining yield (revenue per seat), Dubai-based Emirates have commenced to introduce ancillary fees as a means of raising more cash. Emirates implemented a charge for advanced seat selection for Economy Class Special and Saver fares with a ticket purchased on or after 03 October 2016. According to Emirates, fuel had been its biggest expense over the past year, at $5.4 billion and 26 percent of operating costs, while the strong US dollar had eroded its revenues by $1.6 billion, and its profits by $1.1 billion.” This change in policy by Emirates really was the first of its kind; as a rich full service carrier. On the other hand, there are LCCs that do not charge baggage fees, the largest potential revenue of ancillary, such as Southwest Airlines which continues to be profitable. There are also bold measures taken to increase customers by both. Full Service Carriers (FSC) and LCCs: Brian Sumers comments in SKIFT (2017): "Two major U.S. airlines have started selling no-frills discount fares that do not permit most passengers to bring large carry-on bags to stow in the overhead bins. United and American designed their products to compete with fares from ultra low cost U.S. airlines, including Spirit Airlines and Frontier Airlines. Spirit and Frontier sell deeplydiscounted tickets, but charge for bin space for larger bags.” Can this strategy of cutting down on customer services, such as unbundling and charging carry-on bags, be supported by the consumer market? The author will proceed to examine the current young generation, which will eventually become the main customers of all airlines, and how they may affect ancillary revenue strategies with internet connectivity and Wi-Fi accessibility. Leaping-Advancements in Onboard Internet Connectivity Today’s passengers expect that Inflight Entertainment and Communications (IFEC) not only enable constant connectivity from the airport of departure to the airport of arrival including when up in the air, but also that they are reliable, have high bandwidth performance, even at an altitude of 35,000 feet. It is currently possible on many airlines for wireless devices such as smartphones, tablets, and laptop computers to access e-mails, update SNS posts, and browse the internet just as on land. Though it may seem we have learned to accommodate these services over a period of time, IFEC has only been around for several years; companies such as Gogo, Panasonic Avionics, and Row44 provide these internet services onboard via satellite, by sending the strongest signals directly towards aircrafts, which could only be possible with recent technological advancements. According to the research from 2015 by SITA’s Airline IT Trends Survey, “66% of airlines will offer passengers more wireless choices in-flight by 2018, compared to only 28% today.” Recently, on the other hand, the inflight connectivity market is showing growth in the pursuit for greater bandwidth, better connections and 182
more speed, greatly exceeding the predictions of the study. Technologically-savvy Travelers Giovanni Bisignani, former director general and CEO of IATA, predicts that as the current customer generation ages, a massive wave of young “technologically-savvy travelers” will gradually take their part as the target consumer (2013). In order to fully understand what pleases, attracts, grabs their hearts aboard and ties them to ancillary revenue, perhaps some describing is in order. Generation Z (Gen Z), relative to the concept of Generation C , points to the generation born between 1995 and early 2000, when the internet and computers were the norm; more accommodated to mobile devices than the post-1980 born Generation Y (Millennial Generation) (Beall, 2016). This generation is truly technologically-savvy, far more than any former generation. Alexandra Levit comments in the New York Times that despite their obvious technology proficiency, Gen-Zers seem to prefer in-person interaction over online interaction and are being schooled in emotional intelligence from a young age (2015). There are also cases of entrepreneurship among this generation, where “An 8-year-old has his own YouTube channel on which he reviews new kids’ toys and video games, garnering over 750 million views since the channel debuted and USD 1.3 million a year.”(IBM Report, 2017). What is noteworthy is that this generation is not only proficient in using computers and mobile devices, but also liberal and socially active in movements and voices. Malala Yousafzai, who raised awareness of the necessity of education for women and peace and was shot by a Taliban activist in the head, miraculously surviving the attack, describes how strong this generation can be, as she was awarded the 2014 Nobel Peace Prize at 18 years old. The same can be seen in the research of Jeff Fromm, a Forbes contributor, which states that pivotal Gen-Zers’ are becoming more involved in social activism at a much earlier stage in life (2016). What will tickle these Gen-Zers’ fancy? IBM Institute for Business Value reports the following behavioral pattern: Access to product information, — such as peer reviews, and product specifications and vendor ratings, which — empowers them to be smarter shoppers (2017). It’s important to know how Gen-Zers spend their time, what devices they use and what they expect from their brand experiences. What is important is to provide valuable sophisticated service, and send messages respecting individuals. The collective research by IBM of Gen-Zers across 16 nations also indicate the following: dictating or imposing on them is undesirable, and developing programs and initiatives to understand younger Gen-Zers as influencers will allow them to help shape brand messages. In the U.S. alone, consumer spending on Gen- Zers totaled a whopping USD 829.5 billion in 2015. Though Gen-Zers currently do not possess a large budget, it is mentioned their influence is extremely strong against the purchases of families. It is crucial for airlines to take action by respecting Gen-Zers, and also work to maintain the brand image, if one is to survive against the coming era of technologically-savvy travelers. Airline Brand According to Shashank Nigam, CEO of SimpliFlying, a brand is an intangible asset, and qualitative factors play a major role in building this asset (2016). If an airline delivers what it promises, interacts with its customers consistently and responsibly over time, while continuously innovating, people will continue to vote in favor with their wallets, their respects and their affection. Using the digital environment as a tool, which Gen Z is proficient in, will contribute to constructing one’s brand. David Aaker raises the following 4 digital characteristics: Involving; digital programs can get communities involved by providing topics for commenting. This active participation in a program attracts people far stronger than passive advertisements.Rich; there is a lot of information that can be posted on a single website. Personal; each visitor can have a personalized special experience. Reliable; online content is considered more reliable than mainstream media, due to the extended quantity and quality of content (2014). In order to construct a connection between airlines and Gen-Zers using the digital characteristics to one’s advantage, it is necessary that the Customer Service Division is designed around their taste, and ultimately gain brand trust. Interestingly, there is already an airline pursuing this commitment: According to Nigam, the mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit. Today’s generation of customers knows Southwest delivers excellent, responsive customer service on social media channels (2016). It can easily be imagined that with Southwest’s attitude, Gen-Zers will act as influencers by actively advertising the airline “experience” with a positive and appealing message through posts and blogs. Their words on Twitter, Facebook, and Instagram will spread immediately; perhaps even live onboard. One way to achieve this is to provide free and stable onboard Wi-Fi; this also is currently being pursued by another airline: Grant Martin of Skift points out that Fly- Fi is now free across the entirety of JetBlue’s fleet, which should make any Wi-Fi-dependent traveler happy. JetBlue is opening up all of its Fly-Fi Wi-Fi for free fleetwide, approximately 225 aircrafts (2017). HMGAerospace also mentions that Japan Airlines is upgrading the current 15 minutes’ free in-flight internet campaign, to a completely free internet service on all domestic flights, equipped with in-flight Wi-Fi system (2017). Albeit this campaign will only be available until 31 August, customers can enjoy free programs by using their own Wi-Fi devices. CONCLUSION Though Gen-Zers currently do not possess a large budget, it is mentioned their influence is extremely strong against the purchases of families. They acquire and possess information, and they know how to use it. It is not a cheap investment for airlines to construct an onboard internet connection environment, however it is absolutely crucial that airlines not consider Wi-Fi connectivity an Ancillary Revenue; for allowing Gen- Zers to use their mobile devices as much as they want midflight is the key to true loyalty. References available upon reques 183
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PAN-PACIFIC CONFERENCE XXXIV Design
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2017 PAN-PACIFIC PROGRAM COMMITTEE
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The Pan-Pacific Business Associatio
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TUESDAY, MAY 30, 2017 13:30 - 15:00
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WEDNESDAY, MAY 31, 2017 13:30 - 15:
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The Adverse Effect of Psychological
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Sake Branding Strategy: Securing Ne
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The Failure of Transport Megaprojec
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WP12 International Finance Alpamayo
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INDEX Anderson, John WA12 Iluz, Mic
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xx
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Women Entrepreneurs and Family Firm
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catering for the local market. In o
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three groups with performance´ dif
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Cross-Disciplinary Education: Not B
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Attitudes Towards Servant Leadershi
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[6] Liden, R.C., Wayne, S.J., Zhao,
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(SD = 7.77), and work experience 12
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A representative emotion inventory
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emergence of a paradigm. In I. J. G
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OBJECTIVE The primary objective of
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Threshold effects of psychological
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eported in Table 4. Partial F-tests
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The adverse effect of psychological
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pp. 283-289, 2011. [6] T. Vantilbor
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the scales are reported in brackets
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The Key Characteristics of Necessit
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At a glance, there appears to be so
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Job Calling, Work Identity and Job
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jobs to achieve set milestones that
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competency model is well founded on
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I-deal, I-craft, I-perform: A theor
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changes that affects their roles (G
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mechanisms.There were three overarc
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Table 1. Efficiency Results. DMU DE
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Not by Bread Alone: Estimating Futu
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squeeze more potatoes for direct hu
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well explains glocal with a holisti
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motor-vehicle industry in the Johan
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The Collaboration with Infrastructu
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Table1.Koshino Shu Kura (Jyoetsumyo
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product: its focus is on the needs
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The Rise of Populism in the West an
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It is important to note that althou
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1.3 1.2 1.1 1 0.9 0.8 0.7 0.6 Commu
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0.85 customs, the reduction in time
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Table 1. Confirmatory Factor Analys
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Uncovering the Beauty of the Capita
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the largest number of research stud
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An Exploratory Study regarding Mode
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According to the results of hierarc
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Standard Sake has been circulated b
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Can Ethics Be Used as a Tool of Inf
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85
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Defensive reactions as potential re
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Data gathering methods Data (in thi
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utility by comparing with the exist
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Virginia Tech - most calculations f
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Aggression and bullying attributes
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implications for both the individua
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The Role of Factory Facilities on S
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[44]. The following hypotheses are
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Delhi’s garment sector. In Toward
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A Manager’s personal value system
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commenting that good staff would le
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Law, Ethics and Business -How compa
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But to accept as quote, not reprodu
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integrity. In identifying the posit
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Consumer Awareness of Supply Chain
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Applications of Supplier Governance
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oth relational governance mechanism
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changing environment will disrupt g
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The Seven Efforts of Toyooka City:
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Study Related to Factors causing Fo
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- More people tend to choose privat
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students wishing to go to Italy. Ho
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Page 159 and 160: The failure of transport megaprojec
Page 161 and 162: C. Gautrain Gautrain is a high spee
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Page 165 and 166: TABLE 1: Ranking of sills requireme
Page 167 and 168: [16] Taylor, M. B., 2016. A strateg
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Page 171 and 172: Information Technology Project Fail
Page 173 and 174: Factors of IT project failure One o
Page 175 and 176: TFIDF w, a = TF w, a * IDF w (1) ID
Page 177 and 178: A Big Data Processing of Anxiety an
Page 179 and 180: Anxiety Index is defined as the rat
Page 181 and 182: serious problems due to pet fires,
Page 183 and 184: Deployment of Japanese Companies to
Page 185 and 186: stable politics and society situati
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Page 189 and 190: esults in higher levels of adaptati
Page 191 and 192: Web 2.0 tools for Virtual Reference
Page 193 and 194: Yes % 12.5% 14.8% 31.5% 33.2% 60.5%
Page 195 and 196: (Brundage, 2015), reminding one of
Page 197 and 198: CONCLUSION The review fostered a br
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Page 205 and 206: webpages, the Scopus database, Webo
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Page 217 and 218: CONCLUSION AND DISCUSSION The resul
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Page 221 and 222: Business and Social Initiatives in
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Page 225 and 226: Purchase intention Purchase intenti
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Page 231 and 232: 2. DEVELOPMENT OF HYPOTHESIS Existi
Page 233 and 234: Perceptions of financial institutio
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Page 241 and 242: still intriguing, (Carrington, 2013
Page 243 and 244: The effectiveness of strategic mana
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Page 247 and 248: elatively stable collection of soci
Page 249 and 250: Measuring human capital disclosure
Page 251 and 252: DISCUSSION Managerial implications
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1 if St k ( k 1,2) Skt 0 otherwi
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India’s Technology Initiatives: I
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engine, sanitation, health and work
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Enterprise Finance, Agency), Develo
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Saharan African countries [8]. It i
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Systemic exclusion - barrier to eff
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ecause they focus on managing the r
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II. LITERATURE REVIEW The role of l
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60 50 40 30 20 10 0 Graph 3: Locati
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[25] Blok, M.M., Groenesteijn, L.,
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conducted in ways that diminishes t
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the supply chain. Second, suppliers
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In addition, firms’ responses to
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Limitations of the Theory of Planne
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[6] Barney, J. Firm resources and s
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