Dec 30, 2020 / Livn PR

Ancillaries Is the New Black

A year to remember, a year to forget! The COVID-19 pandemic has brought our lives to a complete standstill. Businesses shattered, labourers and employers furloughed or terminated, and the travel and tourism industry fell off a steep slope faster than anticipated. The economy took a turn for the worse since March 2020 and the economic uncertainty still lurks even in the unlock phases. The feud between the pandemic, economic upheaval and traveller wanderlust won’t end overnight. The upcoming months will witness businesses becoming more interdependent and supportive of each other in a bid to win travellers back.

The Boulder of Economic Upheaval due to COVID-19    

According to the United Nations World Tourism Organisation (UNWTO), 45% destinations partially or totally closed their borders for tourists when the pandemic struck, 30% partially or totally suspended their international flights and 18% implemented closing of borders for passengers from specific countries of origin.  

2020 saw the worst declines in the history of international tourism since 1950. For obvious reasons, Asia and Pacific were the first regions to suffer the impact of COVID-19 followed by Europe, with 19% decline in arrivals and USA with 15% decline. According to International Air Transport Association (IATA), airline revenues loss will scale upwards of US$419 billion in 2020, with passenger demand down 50%.

The consequence of COVID-19 on tourism was severe. It put 100-120 million direct jobs at risk.  Owing to furloughs and layoffs, coupled with the uncertainty, travel companies must ask themselves the tough questions to ensure business continuity. Among them is the relevance and integration of technology, as businesses must brace for operational challenges upon reopening. But technology in itself is simply one dimension of enablement. Businesses not only need the right partner but also those with significant reach to meet their goals. This is where ancillary sales play a vital role by allowing distributors and sellers to integrate and roll-out new products in the marketplace swiftly.

All Hail the Ancillaries! 

Ancillary sales are the cornerstone of profitability for some of the largest travel brands, particularly airlines, hotels and even online travel agencies (OTAs). From travel insurance to rental cars, luggage transportation to concierge-booked local tours, foreign exchange and visa services – travel companies have numerous opportunities to upsell and cross-sell along with their core products. Global airline ancillary revenues topped $75.6 billion in 2019. Comparatively, hotels earned up to 20% profit via ancillaries such as food and beverage, spa and gym. 

Ever since COVID-19 put a dent on the sale of core products across the industry, companies have been in a rush to identify new revenue streams. As the perception of travellers evolves from ‘I’m scared, I should not travel’ to ‘Lockdowns are ending, places are re-opening and everything is going to be normal again’, consumers are eager to return to their old travelling ways. The desire for in-person experiences will always trump virtual ones. But until that returns to some degree of normalcy, travel companies should consider specific in-destination products which have a strong appeal today, including walking tours, treks and hikes, adventure sports, amusement and theme parks with social distancing measures. 

As we have emphasized earlier, businesses should consider the ongoing crisis as a boon to restructure their operations, revenue streams and expand their horizon to distribute hyperlocal products. Even with the borders closed, there is a clear market for some degree of tours and activity sales to still continue. It is more than evident that ‘Ancillaries is the New Black’ in 2020.

Time for Travel Brands to Turn the Page

The upheaval brought about by the decline in sales revenues in 2020 has driven brands to move out of their comfort zone. Still, a forced pivot to sell new products poses several risks. Prominent among them are limited segment knowledge, unchartered territories of supplier relations, payment cycles, and above all settling-in for partners with limited content and sub-par technology solutions. Each of these further carry potential risk to the brand’s reputation.

The question brands must ask before diving into ancillary sales, especially that of the tours and activities variety, is if we are connecting to the right sources? Is direct connection better with specific suppliers or partnering with aggregators who offer global coverage? Ultimately harmonious technology integration can make or break the traveller experience while booking tours and activities.

In a bid to create seamless shopping experiences, travel resellers must also leverage on their existing customer base. Companies are likely sitting on tons of user data, likely  aware of their preferences and  travel histories. By capitalizing on this data, including those from frequent flier or loyalty program bases, brands can curate unique experiences that resonates with their customers from the get-go. This may further bring in a more strategic direction towards building this ancillary portfolio rather than taking an ad-hoc approach.

A Vision, A Mission!     

Not every upheaval is meant to be in chaos forever. The COVID-19 crisis has created a space to make a way for a new vision and a new mission for travel companies, which to an extent are intertwined and dependent on each other for content and sales. While coopetition was the norm in the pre-COVID era, we may increasingly see companies pitting off against each other to win the traveller. 

It is necessary to re-analyse and re-evaluate how the competitive landscape will look in the post-COVID world. It is evident that many well-established and new travel companies will not survive the current storm. By extension, that may permit brands to crossover the existing boundaries of the distribution landscape in an attempt to sell tours and activities to travellers. It may not come as a surprise if major airlines or hotels begin bidding for local activities on popular search engines and social networks, competing against Online Travel Agencies (OTAs) who are otherwise more prominent today.

Travel companies now have a rare opportunity to re-invent, restart and re-engineer themselves. Take a cue from the super apps such as Didi in China, Grab in South East Asia and Go-Jek in Indonesia – what began as a humble ride-hailing booking service is now an all-encompassing powerhouse app allowing users to pay utilities, book movie tickets, concerts, local activities, travel and so much more! Everything happens for a reason and the global pandemic is giving way for businesses to transform themselves. In the words of Bear Grylls, companies should ‘Improvise, Adapt and Overcome’ - a better tomorrow is ahead of us!

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