Latest news with #ancillaryRevenue
Skift
3 days ago
- Business
- Skift
4 Ways Airlines Can Win With Real-Time Retailing
Legacy pricing systems are holding airlines back from delivering the level of personalization, revenue optimization, and cross-channel consistency that modern travelers expect. IBS Software's forward-looking approach offers a clear path to higher revenue and improved traveler experiences. This sponsored content was created in collaboration with a Skift partner. In a world where e-commerce platforms can instantly tailor pricing and promotions to every shopper, it seems almost unthinkable that many airlines still operate with pricing systems built in the 1970s. Today's travelers expect the same level of speed, personalization, and seamlessness they experience with top e-commerce platforms — and airlines that can't deliver risk falling behind. This disconnect is even more striking given that ancillary revenue hit a record $118 billion in 2023, according to Skift Research, highlighting how crucial it has become for airlines to dynamically price and personalize offers in real time. Yet many still rely on outdated technology that limits both revenue potential and customer engagement. Why Legacy Systems Hold Airlines Back 'The problem with older systems is that they're bulky and slow,' said Ben Simmons, VP and regional head of Europe and Africa at IBS Software. 'They weren't built for the speed and flexibility today's market demands. Our real-time pricing tools, powered by AI, are leaner, more responsive, and more cost-effective. They help airlines respond instantly to demand and deliver smarter offers to their customers.' A new video from IBS Software illustrates what this next generation of airline retailing could look like — faster, more personalized, and better connected across channels. That vision is at the core of IBS Software's new airline retailing manifesto. SkiftX sat down with Simmons to explore its four guiding principles, developed to help airlines move beyond legacy systems and adopt a more dynamic, customer-centric approach. 1. Real-Time Pricing Unlocks Revenue Potential Traditional airline pricing models are slow and inflexible, making it difficult for carriers to respond quickly to shifts in demand or competitive pressures. Although the Airline Tariff Publishing Company (ATPCO) updates fares several times a day, this cadence still falls short of the speed and adaptability seen in industries like e-commerce. By contrast, AI-driven, real-time pricing empowers airlines to optimize revenue by instantly adjusting fares in response to traveler behavior and changing market conditions. According to Simmons, this evolution isn't just about updating prices faster — it's about rethinking what's being sold altogether: 'You're not just pushing a seat anymore. You're offering a seat, a meal, a premium experience — priced dynamically based on real demand.' In this model, airline sales become full-service retailing opportunities, where the focus shifts from simply selling tickets to curating and monetizing the entire traveler experience. IBS Software's approach leverages dynamic pricing to enable limitless price points, tailored in real time to each customer's journey. Airlines no longer need to rely on opening and closing fare classes — instead, they can intelligently price products at the moment of decision, aligning perfectly with fluctuating demand. But optimizing revenue is just one side of the equation. Delivering the right offer to the right traveler at the right time requires real-time personalization. 2. Personalization Must Be Instant, Not Predefined Sending the same 'exclusive' offer to every traveler falls short of true personalization. AI-driven retailing changes the game by enabling airlines to create real-time, customized offers based on individual factors like customer intent, loyalty status, and purchase history. This capability is critical as airlines shift from broad, one-size-fits-all promotions to targeted, dynamically bundled fares and ancillaries. 'For example, a mother flying with her infant might see very different bundles than a solo business traveler booking just two days before departure,' Simmons said. 'This is real-time personalization in action, as shown in our retailing video — smart technology that helps airlines deliver more relevant, timely offers to every customer.' These micro-moments of relevance allow airlines to evolve from reactive selling to proactive engagement — boosting loyalty, increasing conversion rates, and enhancing the overall passenger experience. With AI, every touchpoint becomes an opportunity to reflect the traveler's immediate needs and intent. But to maximize the value of tailored offers, airlines must go a step further — ensuring that what's offered is not only personalized but also available and packaged in ways that meet real-time demand. 3. Real-Time Stock and Bundling Prevents Revenue Loss While seat inventory is often managed dynamically, many ancillaries — such as baggage fees, premium seating, and upgrades — are still governed by outdated, manual systems. This disconnect limits revenue potential. However, airlines adopting modern pricing strategies through NDC (New Distribution Capability) can unlock significant gains. According to Skift Research, this approach can generate an additional $5.30 per passenger — translating to approximately $500 million in extra revenue for Lufthansa and $1 billion for American Airlines. 'In the traditional world, dynamic pricing of ancillaries is virtually non-existent,' Simmons noted. 'We use AI to analyze past behavior and compute the right prices and bundles in real time. One of our airline customers saw a 20 to 25% revenue increase just from dynamically pricing their seat maps.' By combining real-time inventory with dynamic bundling, airlines can move beyond selling individual products and start offering complete travel experiences. This approach not only reduces revenue leakage from mispriced or unavailable ancillaries but also opens the door to new retail categories — from in-flight upgrades to third-party partnerships. Still, even the most well-designed bundles and pricing models can fall short if travelers encounter inconsistent experiences across booking channels. 4. Omnichannel Consistency Builds Competitive Advantage Today's travelers expect seamless and consistent experiences, no matter where they book. But as airlines adopt dynamic pricing through modern API-driven channels, GDS systems that rely on legacy pricing models can struggle to keep up — leading to pricing and content discrepancies. These gaps, often rooted in uneven adoption of NDC standards, result in missed sales opportunities and customer frustration. By adopting real-time, omnichannel retailing strategies, airlines can align pricing and availability across all touchpoints while reducing reliance on costly third-party distribution. Lufthansa, for example, cut its distribution costs from €524 million in 2018 to €302 million in 2022, according to Skift Research. 'Direct channels give airlines better insight into their customers, which makes personalization more effective,' Simmons said. 'That's why having a modern, flexible system matters. It helps airlines deliver the right offers, in the right moment, to drive more value from every interaction.' IBS Software's platform supports this approach by acting as a single source of truth for offers. It ensures consistency in what travelers see while enabling airlines to tailor strategies by channel — strengthening brand trust and unlocking more intelligent, channel-specific pricing and merchandising. The Future of Airline Retailing Is Now While much of the industry is still evaluating what the future of retailing could look like, IBS Software is already making it a reality with a fully integrated, real-time retailing platform. With the IATA Annual General Meeting on the horizon in early June, there's no better moment for airlines to reimagine their retail strategies and take bold steps toward real-time, personalized commerce. 'Don't just observe. Take action,' Simmons said. 'When we show airline executives what's possible, like real-time ancillary sales across partner carriers, it literally blows them away. The old systems are overly complex, expensive, and full of friction. The new world is simply better for both airlines and travelers.' For more information about IBS Software's iRetail solution for airlines, click here. This content was created collaboratively by IBS Software and Skift's branded content studio, SkiftX.
Forbes
4 days ago
- Business
- Forbes
How Much Will Southwest Airlines Make Off Charging For Bags?
Southwest Airlines will begin charging for checked bags starting May 28th, 2025. In case you missed it, Southwest Airlines announced earlier this year that it will end its long-standing free checked bag policy—which has been in place since the airline's inception in 1967—and begin charging customers on May 28th. It wasn't clear how much checking a bag on Southwest Airlines would cost at first. But now, the airline has revealed that the first checked bag will cost $35 and the second piece will be $45. Any flight booked on or after May 28th will now incur the bag fees. Any flight booked prior to May 28th will still be granted two free checked bags. Due to financial and operational issues, Southwest has slowly been rolling back some of its long-standing, industry-differentiating policies, such as free checked bags and open seating. The idea behind the change is to increase ancillary revenue by charging for bags and selling premium seats. We don't yet know enough about what the new seating classes (starting in 2026) will look like on Southwest, but now that we know the price of checked bags, we can estimate how much Southwest will benefit from the change. Southwest has priced its bags similarly to industry competitors like American, Delta, and United. Each of those airlines earned a billion or more on checked bag fees in 2024. American collected $1.5 billion, with United ($1.3 billion) and Delta ($1 billion) not too far behind. According to CNN, Southwest had two to three times as many checked bags as some of these airlines, which means that profits could eclipse the above numbers. However, it's likely that the airline will see less checked bags overall now that they will be charging for them—how much less remains to be seen. If checked baggage rates remain relatively stable, Southwest could be in for a big pay day. But at the very least, we can expect them to pocket about a billion from bags alone, even if the checked bag rate drops off a bit. If it does, Southwest passengers should expect more competition for overhead space onboard. This reality could also drive demand for the premium seat classes, which will debut in 2026 and no doubt include priority boarding.
