Raphael Bejar (CEO of AirSavings)

Could you please present Airsavings to our readers?
Airsavings is a 7 year-old company that started as a Group Buying Service for LCCs and evolved into a leading player in the supply of Ancillary Services to the airline industry. Airsavings leveraged its purchasing know-how with its IT capabilities in order to bring to the airlines better margins, better technology (with REAL Dynamic Packaging), higher speed to market (because an airline wants to earn money in weeks, not in months), and more innovation, because airlines want to enlarge their scope of activities when it comes to ancillary services. Airsavings has also been acting as a kind of “think tank” with its customers, often taking the investments on its shoulder when launching new ancillary services, which ultimately benefit the entire industry as a result.

How do you analyze current situation of ancillary revenues for European low-cost carriers?
The development of ancillary revenues is an increasingly important part of the European LCC model, which has and will continue to evolve at a very high speed.  Around 3 years ago, we created a team dedicated specifically to this emerging field. And in these 3 years, we have migrated from the single “micro-site” selling these services (the 1.0 version), to Dynamic Packaging (version 2.0). Now, we have started running the 3.0 version, which is the Dynamic Packaging associated with a Loyalty Scheme that helps passengers buy more valuable services, and to get compensated for doing so. This version is obviously an accelerator of net income to the airline.

How do you evaluate the part of ancillary revenues in LCCs?
Well, it is dependent on the type of airline. Many of them are still relying on the suppliers they have chosen from years ago; they still do not have the right margin or the right “dynamic packaging technology”. Notwithstanding, because of their deep-seated fear to break a model (which doesn’t work anyhow), these airlines are lacking in real ancillary income. Then there is another type of carrier, who is willing to make money….and fast. This group is far more pro-active, they are willing to outsource part of this activity (ancillary revenue creation) as they know it is the shortest way to profitability and to stay on the top with more innovative services available to their customers. Once you have implemented the big 3, i.e., insurance, hotels and car hire in a Dynamically Packaged way, you have to find other services.  And this is very often where we get brought into the picture.

How do you believe it will evolve?
I believe ancillaries will eventually evolve into the Amazon model of purchasing. Amazon started by selling books over the Internet. After seeing the sheer volume of traffic coming to the site, it started selling CDs, then DVDs, MP3s and so on until the site become a marketplace for just about anything. Today, Amazon even sells fresh foods in certain areas. This is what, I believe, could be the evolution for ancillary revenues in the airline industry. An airline that captures more than 70 % of its sales through the internet has become, quite simply, an e-commerce business. And in doing so, the airline has to act in that capacity as well, meaning it has to be creative, reactive, and ready to test new products and services which will meet with its customers’ needs.

By always looking for more ancillary revenues to compensate ticket prices, there could be an imbalance. Could it be a danger for LCCs if they don’t manage this issue well enough?
Hmm, as I said just above, their own clients will show them if there is an imbalance. However, as long as the airline sells services which could satisfy their clients, why should the airline not to do it?

What could be the next generation of ancillary revenues for the European LCCs?
A service that will reward customer loyalty at every step of the purchase path.

Recently, the consumer watchdog group Holiday Which? released a report criticizing low-cost carriers for levying an increasing number of charges on consumers and requi¬ring travelers to jump through numerous hoops to avoid any additional fees (read Air Scoop February 2008). By always looking after “extra revenues”, could LCCs lose at mid-term some customers that mostly see “hidden charges”?
Consumers have different choices…. They could go with a Legacy carrier where all the charges are hidden in the ticket price. Or choose an LCC where they know what they are paying for. The key is transparency; then let the consumer choose.

What is your opinion on the analysis of ABN Amro, co-authored by Andrew Lobbenberg, published in July 2007? In the report, ABN argues that ancillary revenues can be divided into ‘genuine’ ancillaries and ‘hidden fares’. It says: ‘Genuine ancillaries are those that earn revenue from offering the customer a useful service or product related to air travel, and hidden fare increases are new charges introduced for something which was previously free.
Yes , I rather agree with this report. It is true that some airlines have been creating confusion between extra charges, and genuine ancillaries. But we are in a free market situation; passengers have become much more educated about air travel in recent years and know where they could be misleaded. In this era of Web 2.0 and social media and recommendation sites playing a bigger role in the exchange of consumer information, there is no doubt that these “tools” will help towards sanctioning such behaviors.