Agents Still Largely ‘Shut Out’ Of Ancillary Trend

Last year, the Top 10 airlines raked in $26 billion in ancillary revenue, according to IdeaWorksCompany, which has been tracking the ancillary phenomenon since 2008.

If you subtract the amount attributed to the sale of frequent flyer points—about $7.42 billion—the total comes to about $18.6 billion.

Yet according to the Airlines Reporting Corp.’s data, travel agents reported only $19.5 million in EMD sales in 2015. (Electronic Miscellaneous Documents are the industry standard for tracking and fulfilling ancillary sales.) The numbers are increasing—$32.4 million so far this year—but agents remain “almost completely shut out” from airlines’ ancillary sales, said ARC president and CEO Mike Premo.

“For every 1,000 tickets issued, only three have EMDs attached,” he said at ARC’s third annual TravelConnect conference in Washington. “Almost all airline ancillaries are available only on airline websites.”

It’s a state of affairs that is baffling to Premo, given that “the airlines’ single-largest channel continues to be agents. And agents disproportionately serve the premium traveler.”

One not-so-baffling reason may be the airlines’ reluctance to commit to compensating agents for their time.

During a panel discussion at last year’s Travelport customer conference, Steve Glenn, CEO of Executive Travel in Lincoln, NB, said it costs him $12 to have an agent spend five minutes selling a seat. “You need to compensate me,” he said.

But Dave Hilfman, United’s senior vice president of worldside sales, is one of the few airline executives who has indicated publicly that the question of compensation is “a fair discussion.”

Another issue is whether it makes sense for airlines to sell all their ancillary products through the agency channel.

Paid seats are a natural because they represent an upsell opportunity, Cory Garner, ‎managing director, distribution and data commercialization at American, has said. On the other hand, the decision to check a bag often is made at the last minute, and “you can’t upsell a bag,” he said.

And there is everything in between, from inflight Wi-Fi to upgraded meals. Should agents sell such products? At this point, the technology to incorporate the products in GDSs is not a simple on-off switch, so return on investment is an issue.

Premo believes ancillary products will be key in shaping the future of airline distribution, and new technology will play a role.

“I see three scenarios brewing,” he said. “The first is evolutionary: Airlines and GDSs make modest progress on NDC,” IATA’s new distribution capability that aims to facilitate airline merchandising and put more control of the interaction with the customer into the airlines’ hands.

For example, Premo said, Air Canada is in the final stage of implementing sales of paid seats in Sabre using an NDC connection. American completed its implementation early this year.

A second scenario is “cherry picking” by the largest airlines, in which they establish deep integration with the largest online travel agencies. That is likely to push up costs for everyone else, Premo said.

The third is “The Full Lufthansa,” in which ARC’s Top 10 agencies opt for direct connections with airlines. The big online agencies will be able to pick up the additional content they need, but it may be more difficult for others, and ARC would be left painfully unfunded.

While most audience members who ventured a guess as to which way the industry would go opted for Scenario 3, Premo selected No. 2.

Premo told agents in the audience that “the only tools you’ve got are your relationships and experience.” He told airlines in the audience that the winners will be those airlines that bring agencies’ knowledge into the process to work with airlines on behalf of customers.”

Airlines can benefit from agents’ relationship with their customers, Premo said. “I expect carriers to understand what I need no matter the nature of the trip,” he said. “I don’t want to fit into a bucket.”