Airline Ancillary Revenue and Loyalty Guide for 2014 The best single resource in your quest for revenue success Contents Welcome Aboard An Introduction by Jay Sorensen... 5 VIP for a Fee: Airport Services Designed for... 8 High Value Customers... 8 Board it like Beckham... 8 VIP status was once only earned, now it s also paid... 9 Universal Studios provides star quality pampering... 10 Shocking news offer a better product and people will pay for it... 11 From Air Asia to Virgin Atlantic, eleven carriers offer VIP airport services... 12 Travelers seek simplicity not complexity... 16 Design and deliver experiences to satisfy high value customers... 17 Points, Pillows and Porsches: Car and Hotel Rewards... 19 at the Top 30 Airlines... 19 Frequent flier members like plenty of product on the shelves... 19 Car rental and hotel rewards also address a business need... 20 The top 30 list represents the world s largest airlines... 21 Car and hotel rewards go beyond rewarding... to fulfilling dreams... 24 United is a car and hotel reward innovator... 26 Reward complexities rob consumers of convenience... 27 Entertainment, customer service and value for money...... 29 Worldwide Report of Reward Availability for 2013... 31 Introduction to the Report... 31 Carriers Included in the Analysis... 37 Components of the Reward Booking Data... 38 Reward Query Methodology... 39 Airline Data Section Notes... 40 Commentary on Individual Airline Results... 41 Graph: Overall Reward Availability... 43 Graph: Long-Haul Flights Reward Availability... 44 Graph: Flights 251 to 2,500 Miles Reward Availability... 45 Graph: Overall Reward Availability by Month... 46 Air Asia BIG... 47 Air Berlin topbonus... 50 Air Canada Aeroplan... 53 2014 Ancillary Revenue Loyalty Guide 2015 IdeaWorksCompany.com LLC Page 1
Air France/KLM Flying Blue... 59 American AAdvantage... 65 British Airways Executive Club... 71 JetBlue True Blue... 89 LAN Airlines LanPass... 92 Turkish Miles&Smiles... 110 Appendix: Table of Query Dates Used in This Report... 122 2014 CarTrawler Yearbook of Ancillary Revenue... 124 Summary of the Results... 124 Tables 1a and 3a euros... 130 Ancillary Revenue Defined... 131 About Individual Airline Listings... 132 Europe and Russia... 137 The Americas... 159 Asia and the South Pacific... 183 Middle East and Africa... 200 Currency Exchange Rates Used for the Worldwide Statistics... 204 Top 10 Things You Need to Know About... 205 Ancillary Revenue and Airlines... 205 We are here to celebrate something new... 205 Baggage is the king of a la carte... 206 Branded fares are easier for consumers and better for revenue... 208 Subscription programs create the best loyalty... 209 High value customers happily consume a la carte services... 210 The best ancillary revenue managers are diplomats... 211 Greed is not good for new a la carte fees... 211 Transparency is a virtue for consumers, employees, and your brand... 212 Frequent flier programs provide big revenue potential... 213 Create new products, not just new fees... 214 A final point A la carte shopping is good for consumers... 214 Revenue-Based Accrual as the New World Order... 216 The times they are a-changin... 216 Mileage-based accrual prevails today... 217 Southwest and the all new Rapid Rewards of 2011... 219 High value customers are highly accrued... 222 Qantas chooses revenue-based complexity... 224 The slow one now, will later be fast... 225 2014 Ancillary Revenue Loyalty Guide 2015 IdeaWorksCompany.com LLC Page 2
Profit From Innovation:... 228 Ancillary Revenue Examples From Around the World... 228 It has become the difference between profit and loss... 228 Low cost carriers continue to lead a la carte innovation... 229 Traditional airlines adapt to ancillary ways... 234 Innovation from outside the airline industry is worth noting... 238 Tomorrow we will run faster, stretch out our arms farther...... 241 Disclosure to Readers of this Report: IdeaWorksCompany.com LLC makes every effort to ensure the quality of the information in this report. Before relying on the information, you should obtain any appropriate professional advice relevant to your particular circumstances. IdeaWorksCompany cannot guarantee, and assumes no legal liability or responsibility for, the accuracy, currency or completeness of the information. Terms of Use for this Report: You may not disseminate any portion of the Report through electronic means, including mail lists or electronic bulletin boards, without the prior consent of IdeaWorksCompany. You may make one hard copy by downloading and printing it. You may store the document as a file on your computer. Please contact IdeaWorksCompany if you require multiple downloads for use within your company, and for all other uses. Except as expressly permitted in this Terms of Use, the Report may not be reproduced, transmitted, or distributed without permission. You may not commingle any portion of the Report with any other information and shall not edit, modify, or alter any portion. IdeaWorksCompany provides the Report and services as is and without any warranty, or condition, express, implied or statutory. IdeaWorksCompany specifically disclaims any implied warranty of title, merchantability, fitness for a particular purpose, and noninfringement. In no event shall IdeaWorksCompany be liable for lost profits or any special, incidental, or consequential damages arising out of or in connection with the Report (however arising, including negligence). Distribution of this Report is protected by the Economic Espionage Act of 1996 of the United States and the data protection laws of Europe. Issued February 2015 by IdeaWorksCompany.com LLC Shorewood, Wisconsin, USA IdeaWorksCompany.com 2014 Ancillary Revenue Loyalty Guide 2015 IdeaWorksCompany.com LLC Page 3
About Jay Sorensen, Writer of the Report Jay, with sons Anton and Aleksei, on the North Fork Trail in North Cascades National Park in Washington. Jay Sorensen s research and reports have made him a leading authority on frequent flier programs and the ancillary revenue movement. He is a regular keynote speaker at the annual MEGA Event, spoke at IATA Passenger Services Symposiums in Abu Dhabi and Singapore, and has advised the US Congress on ancillary revenue issues. His published works are relied upon by airline executives throughout the world and include first-ever guides on the topics of ancillary revenue and loyalty marketing. He was acknowledged by his peers when he received the Airline Industry Achievement Award at the MEGA Event in 2011. Mr. Sorensen is a veteran management professional with 30 years experience in product, partnership, and marketing development. As president of the IdeaWorksCompany consulting firm, he has enhanced the generation of airline revenue, started loyalty programs and co-branded credit cards, developed products in the service sector, and helped start airlines and other travel companies. His career includes 13 years at Midwest Airlines where he was responsible for marketing, sales, customer service, product development, operations, planning, financial analysis and budgeting. His favorite activities are hiking, exploring and camping in US national parks with his family. About Eric Lucas, Editor of the Report Eric Lucas is an international travel, natural history and business writer and editor whose work appears in Michelin travel guides, Alaska Airlines Magazine, Westways Magazine and numerous other publications. He is the author of eight books, including the 2013 Michelin Alaska Guide and the 2014 Michelin Hawaii Guide. Eric has followed and written about the travel industry for more than 25 years. He lives in Seattle, Washington, where he grows and sells organic garlic; visit him online at www.trailnot4sissies.com. Eric, at his favorite summer retreat, Steens Mountain, Oregon. 2014 Ancillary Revenue Loyalty Guide 2015 IdeaWorksCompany.com LLC Page 4
Welcome Aboard An Introduction by Jay Sorensen IdeaWorksCompany begins a new year-end tradition by identifying the airlines that have shown the greatest prowess in the areas of ancillary revenue, a la carte pricing, and loyalty marketing. Vueling Airlines is the 2014 Champ for Revenue Innovation and Marketing Leadership. The top 5 revenue innovators named by IdeaWorksCompany also include Delta Air Lines, Wizz Air, Ryanair, and Jeju Air. Throughout 2014, we assessed the top ancillary revenue producing airlines and the most generous frequent flier programs, and issued reports that described the industry s service innovation and product development; as well as offering practical advice for airline executives. The culmination of this work is the Airline Ancillary Revenue and Loyalty Guide for 2014. The Guide includes every published report and survey issued by IdeaWorksCompany during the year. In reviewing this material, IdeaWorksCompany found that a select group of airlines readily stood apart in their quest for revenue success. This list of the Top 5 Revenue Innovation Champs for 2014 represents our desire to recognize the management teams and front line employees who delivered exceptional results during the year: 1. Vueling Airlines. Since this airline was born in 2004, it has experienced a merger, been acquired by a global holding company, and achieved robust growth. Year after year, the carrier has also demonstrated a knack to create, market, and deliver remarkable ancillary revenue products. Its most recent addition is the My25% program which delivers a simple 25% discount to subscribers who pay an annual fee. Earlier innovations included a price lock feature and the Vueling Pass which sells an annual package of benefits for business travelers. All these have since been adopted by other carriers around the world. 2. Delta Air Lines. This carrier has certainly created a strong tailwind for itself. Profits are at record levels, corporate debt is declining, lie-flat seating has been introduced globally to business class, and the cash dividend has been increased for investors. Its inclusion in this list is due to the bold move to switch the SkyMiles frequent flier program to revenue-based accrual. Starting in 2015 distance-based accrual is out and members will earn miles based upon how much they spend with the airline. This nicely aligns the financial objectives of the company with its loyalty program. 3. Wizz Air. The sneak peek offered by the airline in its pre-ipo financial documents demonstrates this historically secretive airline is among the most profitable in Europe, with a fiscal 2014 earnings margin of 24 percent (EBITDAR). But that was hardly a surprise to those in the ancillary revenue profession who highly regard the carrier for a continuous roll out of a la carte services and a very transparent and effective online booking process. 2014 Ancillary Revenue Loyalty Guide 2015 IdeaWorksCompany.com LLC Page 5
4. Ryanair. The airline that defined ancillary revenue is included because it demonstrated a huge change of heart during 2014. The Always getting better plan introduced by CEO Michael O Leary will fix the things our customers don t like, such as relaxing the carry-on policy and lowering bag fees at the airport. The plan seeks to end the conflict between front line staff and passengers. Profits increased nicely during the year, with half year results announced on 03 November 2014 revealing a stunning profit increase of 32 percent, proving that kindness can pay dividends. 5. Jeju Air. This Korea-based low cost carrier is profitable, growing, and hopes to become a public company in 2015. Its marketing approach is fresh and young as evidenced by sponsorship of top K-pop music groups. Jeju Air demonstrated real innovation with the opening of Free Travel Lounges. These in-city lounges specialize in the booking of commission-based services for travelers and operate as ancillary revenue incubators. IdeaWorksCompany looks forward to another year of ancillary revenue, a la carte, and loyalty marketing activity and will announce its 2015 selections in December next year. I hope you enjoy reading this copy of the Airline Ancillary Revenue and Loyalty Guide. With nearly 245 pages, it is our largest publication to date and remains the only single resource dedicated to the topics of ancillary revenue and loyalty marketing. I thank you for your support of my consulting firm and its mission to boost airline revenue through innovation. President IdeaWorksCompany.com LLC 2014 Ancillary Revenue Loyalty Guide 2015 IdeaWorksCompany.com LLC Page 6