According to a recent study by IdeaWorks, the top 10 airlines sold $26 billion worth of ancillary products in 2015, a sliver of the purchases being made by U.S. travel agents over a GDS. ARC said it settles just three ancillary sales for every 1,000 bookings it handles on behalf of airlines and agents, and 97% of those are for seat selections. Senior editor Robert Silk caught up with ARC CEO Mike Premo at ARC's annual conference in Washington early this month to discuss how he thinks agencies and airlines will handle ancillary products in the years to come.
Q: How much are airlines generating in ancillary sales through the GDS channel?
Mike Premo
A: I think we might do $30 million of ancillaries this year. Compare that to $88 billion in tickets.
Q: Why are airlines loath to put ancillary products on the GDS?
A: I don't think we can underestimate the technical obstacles. Most carriers are only just starting or have only recently implemented [electronic miscellaneous documents] internally. So in some cases the ability to allow third-party agents to sell those products doesn't exist, or they are using other means to accomplish it. An example is the partnership between Farelogix and American.
We've got to remember the first ancillaries were bag fees. American decided, "We need these fees; we've got to have revenue." So it wasn't three years in the making and they planned for it. It was, "Let's put it on and we'll figure out how to account for it later."
Q: That was 2008. Why haven't the carriers' technical improvements been faster?
A: It's only when oil prices crashed in 2014 that it looked like long-term profitability was coming. If you're an airline and you only have a certain number of dollars, are you going to put it into a lie-flat seat or your revenue-accounting system? That's not a tough decision.
Q: Aren't airlines reticent to sell ancillaries on the GDSs because they want to avoid the fees?
A: The agents haven't helped, because for a long time they said that if you're not going to pay us for this, we're not going to sell it. But that's shortsighted. Sending your customers directly to the supplier's website to do business doesn't seem like a great business strategy. Are you offering the best service possible?
Q: Is it your view that carriers are open to displaying their full product lines on the GDSs?
A: I think that carriers have seen there is a significant upside opportunity in making ancillaries available to agents. Their best customers are the agents' customers. So in a perfect world, yes, they would love for all of their branding and ... ancillaries to be available to customers using agents.
Q: Do you see a slow drip of additional ancillaries being available on the GDSs, or do you see an explosion?
A: There are two pieces of it. One is the channel, and the other is the context. I think what we are going to see are larger, more sophisticated, technologically savvy agency businesses telling the carrier, "We want the content." And the carrier is going to say, "Use our channel."
Q: Agents probably won't like that. Are you saying agents are going to have to just bite the bullet?
A: If you are a massive OTA, you don't want to be at a competitive disadvantage against [airline's websites], so eventually you sit down and say, "What's it going to take? And if it means using your direct channel, we'll entertain that."