6 $ make the difference between survival and bankruptcy

A few days ago, IATA released an interesting report showing that, on average, airlines make just over $6 in profit per passenger. One of the most surprising facts is that revenues from fares and cargo do not even offset operating costs, labor and fuel. Only ancillary services such as priority boarding, seat selection, car rentals, hotel reservations and other upsell/cross-sell offers make the difference between profit and loss.

Of course, upsell/cross-sell ancillary revenues are more important for low-cost airlines, which account for anywhere from 25% to nearly 50% of total revenues, but other airlines are not immune. United's total upsell revenue was almost $6 billion, while Lufthansa's was $2 billion each.

Airlines learned from world-class digital merchandising companies (such as Amazon and Booking) and adopted their practices more than a decade ago. The result of these efforts is an upsell market of more than $82 billion, which is expected to generate $28 billion in net after-tax profits.

Why is this opportunity still not being exploited?

With at least five mid-sized EU airlines expected to go bankrupt this year, it is clearly imperative for any airline to find a way to increase its revenues (by earning side income) by even a seemingly insignificant amount. While some airlines take in as much as $50 per person on ancillary services alone, let us not forget that as little as $6 per person can make the difference between survival and bankruptcy.

To apply this perspective to the hospitality market, we see that ancillary services are still largely unexplored, although the market clearly exists. For example, 70% of business travelers said they are interested in more than just hotel products! They are interested in trip cancelation insurance, high-speed WLAN, transportation options, early check-in/late check-out, and fitness/wellness, to name a few.

Hotels could also benefit from offering car rentals, restaurant reservations, hair services and travel through strategic partnerships, or offering upsell or cross-sell options during the booking or other checkout process. So why are hotels mostly not exploiting this potential?

There are many reasons, most of which have to do with management and staff. Indeed, many hotels are struggling to find and retain good staff and are therefore forced to simplify their services as much as possible. Both management and staff have multiple jobs, so they are reluctant to take on new tasks, no matter how important they may be.

Therefore, the main focus of any hospitality service provider is to implement digital tools that are extremely easy to integrate with existing systems and are almost self-managing.

BE THE HOST!

Nevron is known for providing not only excellent guest experience solutions, but also employee onboarding and extra-mile support to ensure implementation goes as smoothly as a Tennessee whiskey until the system is up and running.

For more information, contact us NOW! Remember that in the airline market, ancillary revenue, even if it is a very small percentage of total revenue, is the sole determinant of who will survive and who will go bankrupt. Do not close your eyes to the fact that it will be the same in the hospitality industry very soon.