A Review of Ancillary Services Implementation in the Revenue Management Systems

Authors

  • Maja OZMEC-BAN Faculty of Transport and Traffic Sciences, University of Zagreb
  • Ružica ŠKURLA BABIĆ Faculty of Transport and Traffic Sciences, University of Zagreb
  • Andrija VIDOVIĆ Faculty of Transport and Traffic Sciences, University of Zagreb
  • Matija BRAČIĆ Faculty of Transport and Traffic Sciences, University of Zagreb

DOI:

https://doi.org/10.7307/ptt.v34i4.4065

Keywords:

ancillary services, willingness to pay, personalised pricing, revenue management, airline, low-cost airline

Abstract

Ancillary services in air transport represent a set of services provided to passengers to choose from, enabling them to enhance their travel experience while accumu-lating additional airline revenue. Low-cost airlines pi-oneered the practice, but the separation of ancillary services from the basic service has become an intense-ly growing trend in the air transport industry over the last decade. This practice has enabled low-cost airlines to significantly reduce the price of the basic service. To remain competitive in an era of transparency provided by search engines, traditional airlines offer ancillary ser-vices in addition to the basic service. To meet the passen-ger’s needs, a whole range of ancillary services has been created. However, existing revenue management systems do not take this ancillary revenue into account when cal-culating reservation limits. If the airline knew that an in-dividual passenger is willing to pay more for ancillary services, the system would be able to adjust the availabil-ity of the service for that passenger during the booking process. A review of research on passengers’ willingness to pay for ancillary services is presented in the paper, as well as a review on research on the personalisation of ancillary services and challenges of integrating person-alised pricing into existing revenue management systems.

References

Belobaba PP, Odoni AR, Barnhart C. The Global Airline Industry. West Sussex: Wiley; 2016.

Belobaba PP. Did LCCs save airline revenue management? Journal of Revenue and Pricing Management. 2010;10(1): 19-22. doi: 10.1108/JTF-11-2016-0040.

Škurla Babić R, Ozmec-Ban M, Bajić J. A review of recent trends in ancillary revenues. Časopis za ekonomiju i tržišne komunikacije. 2019;IX(I): 136-155. doi: 10.7251/EMC1901132S.

Vasigh B, Fleming K, Tacker T. Introduction to Air Transport Economics, Second edition. London: Routledge; 2016.

Sorensen J. The 2021 CarTrawler Yearbook of Ancillary Revenue. IdeaWorksCompany; 2021.

Cook GN, Billig BG. Airline Opeations and Management. London: Rutlage; 2017.

IdeaWorksCompany. Airline Ancillary Revenue Projected to Leap to $109.5 Billion Worldwide in 2019. 2019. https://ideaworkscompany.com/wp-content/uploads/2020/04/Press-Release-142-Global-Estimate-2019.pdf [Accessed 12th Nov. 2021].

IdeaWorksCompany. Airline Ancillary Revenue Plummets to $58.2 Billion in 2020, Erasing 5 Years of Annual Gains. 2020. https://ideaworkscompany.com/wp-content/uploads/2020/11/Press-Release-150-Global-Estimate-2020.pdf [Accessed 12th Nov. 2021].

Garrow L, Lurkin V. How COVID-19 is impacting and reshaping the airline industry. Journal of Revenue and Pricing Management. 2021;20: 3-9. doi: 10.1057/s41272-020-00271-1.

Sorensen J. The 2021 CarTrawler Yearbook of Ancillary Revenue. IdeaWorksCompany; 2021.

Sabre Hospitality Solutions. Personalization and the regional traveler. 2016. https://www.sabre.com/files/Sabre_Personalisation-and-the-regional-traveller.pdf [Accessed 11th Jan. 2020].

Hao E. Ancillary revenues in the airline industry: Impacts on revenue management and distribution systems. Master Thesis. Cambridge: Massachusetts Institute of Technology; 2014.

Hanke M. Airline E-Commerce: Log On. Take Off. First edition. London: Routledge; 2016.

Wittman MD, Belobaba PP. Dynamic availability of fare products with knowledge of customer characteristics. Journal of Revenue and Pricing Management. 2016;16(2): 201-217. doi: 10.1057/rpm.2016.26.

Reales CN, O’Connell JF. An examination of the revenue generating capability of co-branded cards associated with Frequent Flyer Programmes. Journal of Air Transport Management. 2017;65: 63-75. doi: 10.1016/j.jairtraman.2017.08.001.

IATA. Resolution 787 Enhanced Airline Distribution. 2018. https://www.iata.org/contentassets/6de4dce5f38b45ce82b0db42acd23d1c/ndc-resolution-787.pdf [Accessed 11th Jan. 2020].

IATA. IATA NDC Solutions White Paper. 2019. https://www.iata.org/contentassets/6de4dce5f38b45ce82b0db42acd23d1c/ndc-solutions-wp.pdf [Accessed 11th Jan. 2020].

Wittman MD, Belobaba PP. Dynamic pricing mechanisms for the airline industry: A definitional framework. Journal of Revenue and Pricing Management. 2019;18: 100-106. doi: 10.1057/s41272-018-00162-6.

IATA. IATA Dynamic Offer Creation White Paper. 2018. https://www.iata.org/contentassets/2d997082f3c84c7cba001f506edd2c2e/air-white-paper-dynamic-offer-creation.pdf [Accessed 5th Feb. 2020].

Garrow LA, Hotle S, Mumbower S. Assessment of product debundling trends in the US airline industry: Customer service and public policy implications. Transportation Research. 2012;46(Part A): 255-268. doi: 10.1016/j.tra.2011.09.009.

Allon G, Bassamboo A, Lariviere, M. Would the Social Planner Let Bags Fly Free?. SSRN; 2011. https://ssrn.com/abstract=1919807 [Accessed 11th Jan. 2020].

IdeaWorksCompany. Global Baggage Fee Revenue Jumps to $28.1 Billion. 2019. https://ideaworkscompany.com/wp-content/uploads/2020/04/Press-Release-136-Global-Baggage.pdf [Accessed 5th Feb. 2020].

Scotti D, Dresner M. The impact of baggage fees on passenger demand on US air routes. Transport Policy. 2015;43: 4-10. doi: 10.1016/j.tranpol.2015.05.017.

O’Connel JF, Warnock-Smith D. An investigation into traveler preferences and acceptance levels of airline ancillary revenues. Journal of Air Transport Management. 2013;33: 12-21. doi: 10.1016/j.jairtraman.2013.06.006.

Wittmer A, Rowley E. Customer value of purchasable supplementary services: The case of a European full network carrier’s economy class. Journal of Air Transport Management. 2014;34: 17-23. doi: 10.1016/j.jairtraman.2013.07.002.

Rouncivell A, Timmis AJ, Ison SG. Willingness to pay for preferred seat selection on UK domestic flights. Journal of Air Transport Management. 2018;70: 57-61. doi: 10.1016/j.jairtraman.2018.04.018.

Warnock-Smith D, O’Connell JF, Maleki M. An analysis of ongoing trend sin airline ancillary revenues. Journal of Air Transport Management. 2017;64(Part A): 42-54. doi: 10.1016/j.jairtraman.2017.06.023.

Tuzovic S, Simpson MC, Kuppelwieser VG, Finsterwalder J. Unbundling in the airline industry: An empirical study of airline fees and their consequences on customer behavior. In: Brown S, et al. (eds.) QUIS12 – The 12th International Research Symposium on Service Excellence in Management QUIS12, 2-5 June 2011, Ithaca, NY, USA. Ithaca: Emerald Group Publishing Limited; 2011.

Chen M, Chen ZL. Uncertain about your travel plan? Lock it and decide later: Dynamic pricing with a fare-lock option. Transportation Research. 2019;125(Part E): 1-26. doi: 10.1016/j.tre.2019.02.003.

Bockelie A, Belobaba PP. Incorporating ancillary services in airline passenger choice models. Journal of Revenue and Pricing Management. 2017;16: 553-568. doi: 10.1057/s41272-017-0100-6.

Shaw M, et al. Third party ancillary revenues in the airline sector: An exploratory study. Journal of Air Transport Management. 2021;90: 101936. doi: 10.1016/j.jairtraman.2020.101936.

Klein R, et al. A review of revenue management: Recent generalizations and advances in industry applications. European Journal of Operational Research. 2020;284(2): 397-412. doi: 10.1016/j.ejor.2019.06.034.

Wastermann D. The potential impact of IATA’s New Distribution Capability (NDC) on revenue management and pricing. Journal of Revenue and Pricing Management. 2013;12(6): 565-568. doi: 10.1057/rpm.2013.23.

Wittman MD, Belobaba PP. Personalization in airline revenue management – Heuristics for real-time adjustment od availability and fares. Journal of Revenue and Pricing Management. 2017;16: 376-396. doi: 10.1057/s41272-016-0002-z.

Wang K, Wittman MD, Bockelie A. Dynamic offer generation in airline revenue management. Journal of Revenue and Pricing Management. 2021;20: 654-668. doi: 10.1057/s41272-021-00349-4.

Madireddy M, et al. Constructing bundles offers for airline customers. Journal of Revenue and Pricing Management. 2017;16: 532-552. doi: 10.1057/s41272-017-0096-y.

Fiig T, Le Guen R, Gauchet M. Dynamic pricing of airline offers. Journal of Revenue and Pricing Management. 2018;17: 381-393. doi: 10.1057/s41272-018-0147-z.

Zhao G, Cui Y, Cheng S. Dynamic pricing of ancillary services based on passenger choice behavior. Journal of Air Transport Management. 2021;94: 102058. doi: 10.1016/j.jairtraman.2021.102058.

Shukla N, et al. Dynamic pricing for airline ancillaries with customer context. In: Teredesai A, et al. (eds.) Proceedings of the 25th ACM SIGKDD International Conference on Knowledge Discovery & Data Mining, KDD 2019, Anchorage, AK, USA, August 4-8, 2019. ACM; 2019. doi: 10.1145/3292500.3330746.

Van der Rest JP, et al. A note on the future of personalized pricing: Cause for concern. Journal of Revenue and Pricing Management. 2020;19: 113-118. doi: 10.1057/s41272-020-00234-6.

Gerlick JA, Liozu SM. Ethical and legal considerations of artificial intelligence and algorithmic decision-making in personalized pricing. Journal of Revenue and Pricing Management. 2020;19: 85-95. doi: 10.1057/s41272-019-00225-2.

Priester A, Robbert T, Roth S. A special price just for you: Effects of personalized dynamic pricing on consumer fairness perception. Journal of Revenue and Pricing Management. 2020;19: 99-112. doi: 10.1057/s41272-019-00224-3.

Shao S, Kauermann G. Understanding price elasticity for airline ancillary services. Journal of Revenue and Pricing Management. 2020;19: 74-82. doi: 10.1057/s41272-018-00177-z.

Downloads

Published

07-07-2022

How to Cite

OZMEC-BAN, M., ŠKURLA BABIĆ, R., VIDOVIĆ, A., & BRAČIĆ, M. (2022). A Review of Ancillary Services Implementation in the Revenue Management Systems. Promet, 34(4). https://doi.org/10.7307/ptt.v34i4.4065

Issue

Section

Articles