When some 3.8 billion flyers took to the air last year, they spent $57 billion on “extras” in addition to their original ticket prices. That’s an average of $15 per passenger in ancillary revenue for airlines. Although flight prices have come down over the years, things we took for granted now come at an additional fee. While airlines and passengers battle over revenue extras versus bargains, the real opportunity is in creating new sources of revenue that leave customers feeling delighted, not taken. Behavioral economics can guide us.
Searching for and purchasing tickets, checking-in and even tagging luggage are now all digital experiences – convenient, accessible, and speedy for the passenger and cost-effective for the airline. Why not stretch digital offers throughout the journey, changing consumer mindsets and increasing consumption of goods and services? Here are five considerations:
1. Losses vs. Wins
Consumers have a unique way of tallying their gains and losses. For the sake of argument, consider the following consumer mental model of losses and gains during an airline journey.
“People do not think of small outcomes in terms of changes in overall wealth, but rather in terms of losses or gains.” Nobel Laureates Daniel Kahneman & Amos Tversky
Consumer mindsets when it comes to airline travel can be similar: despite better ticket prices, the number of “losses” in added service pricing can outweigh their (psychological) gains. Putting this lens on, consider digital offers and enhancements that could flip the negatives of lineups, baggage waiting, and meal options (that often run out) to positive enhancements to the passenger experience.
2. Deliberated vs. Impulse Decisions
Consumers use different mental accounts for money they obtain from different sources. We spend windfall gains and pocket money easily. Income is less easy to relinquish, and savings the most difficult of all. So how are these framed in the airline experience? For most consumers, ticket prices are highly deliberated purchases through hard-earned savings and income.
Reminding someone to purchase an additional meal and relinquish some of the savings from the ticket cost may not be very effective. However, if we incent passengers closer to their flight time to treat themselves to a quality meal in exchange for a bit of pocket money, we may have more take-up on the meal offer – and greater satisfaction. Untethering a meal choice from a ticket choice also nicely unhinges the unfortunate mindset that an economy ticket equates to an economy meal.
3. Middle Options
Consumers love the middle option. There is a reason coffee shops offer their core product in three sizes – not two and not four. In experiments when the actual volume is adjusted by 2 ounces either up or down, 70% of consumers will choose the middle option and claim the size was “just right” for them.
The question here for airlines: why are so many options offered in binary format? Consider the psychological benefits of offering three levels of baggage tagging: Option 1 is for customers who are business class, a high level of Loyalty, or willing to pay a high fee. Option 3 is the no additional pay option. Right in the middle could sit an Option 2: a moderate fee to see your luggage come out before those opting for the no-fee option.
4. Sense of Control
There are many instances in a passenger’s experience where they feel no sense of control over their experience and airlines are hamstrung to change those circumstances, leaving all parties frustrated. There are a host of challenging issues – weather, mechanical issues, airport management failures to name a few – that I term “not your fault but definitely your problem.”
Online applications that give customers a feeling of control can mitigate some of these issues. Courier companies, for example, track a package step-by-step so that customers feel a sense of control over their order, even if it’s late. An app that allows passengers to track various aspects of their journey would greatly reduce stress both on passengers and on airline staff. It would also open up additional in-the-moment marketing opportunities to passengers that can again increase both passenger satisfaction and ancillary revenue.
5. Nudging
Nudges are an excellent way of steering people to make better choices. They are also particularly well suited to use in digital technologies. The win-win here is obvious. If more consumers use an airline’s app, then a broader, more enticing and more efficient set of offers can be provided to these same consumers. However, we know that simply telling people of the long-term benefits of opting into such a system is typically not very effective.
If passengers were nudged at various touch points to download the app with the promise of an immediate and highly relevant “reward” (not necessarily financial), more uptake could be expected. Why should I download your app? 24 hours before my flight it may be simply to reduce my anxiety of flight changes. Three hours ahead it may be to reduce my stress over security wait times. One hour ahead it may be to entice me to get a great meal. Twenty minutes before it may be for me to go to the front of the line for boarding.
Conclusion
There are so many ways that airlines can consider boosting ancillary revenues by seeing options through a behavioral economics lens. Just as importantly, there are many ways that consumers can walk away from their flight experiences feeling travel savvy and gratified. The route to getting there is made clear by one of Daniel Kahneman’s truest expressions: “We are not thinking machines that feel, we are feeling machines that think.” Let’s find ways that passengers can feel great about their purchases and airlines follow along for the ride.