Webster defines opaque as “blocking the passage of radiant energy and especially light” or, more relevantly, “hard to understand or explain.” As the internet has moved businesses, especially airlines, into an increasingly price-transparent landscape, companies have found it more difficult to drive organic revenue growth from traditional product offerings.
However, there is an opportunity for companies, especially airlines, to increase profits through the bundling of ancillaries.
Earlier this year, I wrote on this topic, detailing the potential benefits to airlines and how the customer experience can be streamlined.
The act of bundling products creates a competitive advantage, even as it provides an improved and more relevant experience for the customer. A bundled package is less transparent due to the fact that it’s prepared with a specific customer in mind. Each bundle is highly unique and customized for each traveler. Airlines can package items together based on the context of your trip: when you’re traveling, where you’re traveling, with whom you’re traveling and more.
For example, with a family of four traveling for a two-week trip, an airline might want to offer bundles for checked baggage and meals. However, a single traveler flying out Tuesday and returning Wednesday might prefer a package that includes Wi-Fi and lounge access. By accounting for the specifics of the trip context, airlines can offer customers a relevant bundle of products they are more likely to purchase, resulting in incremental revenue.
The biggest benefit airlines could see from bundling ancillaries is the return of pricing power. Consumers can find which airline offers the cheapest flight at any time using websites such as Orbitz and Kayak. This transparency has led to what is known as the “hyper-informed consumer”. This hyper-informed customer now has increased power when it comes to price, which has led to increased price competition between airlines.
Despite what will most likely be never-ending battle amongst airlines for the ideal seat price, there are opportunities to drive revenue from alternative, and more opaque, sources such as ancillary bundling.
By leveraging sophisticated analytics and available data, airlines can determine which ancillaries an individual consumer will find most relevant within the context of their specific travel, and at what price they’re most likely to buy. The pricing of these highly customized offerings will remain relatively opaque to other airlines, providing a competitive advantage in an industry where those are in increasingly short supply.