Travel: Ancillary Revenue The Key for Low Cost Airlines
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If it doesn’t move for five minutes, we will sell it. So says Mango CEO Nico Bezuidenhout. The creation of ancillary revenue streams by airlines has become an essential weapon in the low cost airline arsenal not only as a tool to maintain sustainably affordable fares but, more recently, as a pivotal income channel in an industry hit by the challenging economic climate.
Ancillary revenue, says Bezuidenhout, covers every aspect of revenue generation by an airline outside of the ticket price collected from passengers. In this respect Mango has followed an aggressive strategy of creating income opportunities in line with its core business model and mandate, to offer the most sustainable affordable fares to South Africans – this, while keeping opportunity costs as close to zero as possible.
“During the past 2 years Mango has introduced traditional and some innovative revenue generators,” says Bezuidenhout. Presently Mango has a successful cargo operation, on board food sales, cabin advertising and more recently, an in flight entertainment system Mango TV that is expected to generate substantial income. Mango also sells travel insurance online and plans several brand extensions next year.
Since launching its travel insurance product a month ago, Mango has seen accelerated increase in sales of up to 25% week on week based on bookings made against policy purchases. Mango’s travel insurance, in partnership with AIG, was launched in October as a travel bolt on purchase to cover Guests’ against some of the risks associated with travel like pilferage or damage to baggage.
The key to ancillary revenue generation is to make sure its effective. “There is no point in spending aviation generated income to fund massive advertising campaigns that under deliver on take up. Opportunity cost may outweigh revenue benefits when brand extensions are not carefully sought,” he says. “The key lies in identifying opportunities in one’s business, whether as simple as on board food sales or selling advertising space.”
Last month Mango launched its travel insurance products for sale online and, says Bezuidenhout, the take up has been phenomenal. Mango’s on board advertising has also delivered significant revenues and Bezuidenhout expects Mango TV to deliver good numbers. “Ideally ancillary revenue should contribute between 5-10% of total airline income,” he says, “at a low opportunity cost that delivers healthy margins.”
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