Airlines Forfeit $67 Billion in Revenue by Ignoring Agents, Report Says

Airlines are expected to take in $32.5 billion globally from sales of ancillary products and services this year. But they could be leaving $67.5 billion on the table, because they have not yet geared up to sell ancillaries through travel agencies.

According to a new report underwritten by Amadeus, airlines could make a huge leap in revenue by taking advantage of new technologies that enable the management and fulfillment of “a la carte” transactions through GDSs.

The report was researched and written by IdeaWorks, a Shorewood, Wisc., company that analyzes airline loyalty programs and ancillary product strategies.

Agencies still drive bookings
Offline and online travel agencies still book the larger share of airline tickets, the report noted.

Consumers currently are able to book ancillary services on airline websites or at airport check-in kiosks, but “worldwide, this represents the smaller share of airline traffic,” it said.

Titled “The ABCs of EMDs,” the report focuses on how airlines can expand their ancillary sales by adopting the Electronic Miscellaneous Document (EMD). EMDs function much like an electronic ticket for optional services, such as checked bags, inflight meals and premium seats.

EMD adoption deadlines
IATA has set several goals for EMD adoption as part of its Simplifying the Business initiative. Its target for the end of this year is to have 40 airlines set up to use EMDs in its Billing and Settlement Plan.

By the end of 2012, all airlines must be EMD-capable, it said, and by the end of 2013, “there must be 100% EMD usage in IATA BSP.”

IATA said 58 airlines have reported that they will implement the EMD by the end of the year, while 220 airlines, representing 84% of passenger volumes, are committed to being EMD-capable by the 2012 deadline.

Distribution not mandated
It’s important to note that while IATA wants its member airlines to use the EMD when they conduct ancillary business with travel agencies, it does not require airlines to distribute ancillary products and services through agencies or to make them available through the GDSs.

IATA is mandating the technology to be used; it is not mandating commercial relationships.

An IATA survey found that 96% of airlines engaged in the EMD system will use the EMD in all distribution channels, including travel agency transactions, and 87% will also use it to process interline activities.

Evolution of ancillary tracking
While ancillary sales have been around for a long time – an inflight cocktail, for example, is an ancillary product – a need for some kind of tracking and fulfillment mechanism became evident when airlines began “unbundling” their fares in earnest after oil prices skyrocketed in 2008.

In the U.S., airline adoption of the EMD has been painfully slow. No doubt it will pick up steam as airlines build ancillary distribution through the GDSs.

United, for example, is making its Economy Plus seats available through the GDSs, and several airlines are making, or planning to make, their fare families available through the systems as well.

AA holds out
The famous holdout, of course, is American Airlines, which wants to make its optional services available to agencies only through its Direct Connect technology.