Executive Interview: JAL’s Akira Mitsumasu on “opportunity cost pricing”
First Published, 23rd March 2016
When carriers embrace unreasonable ways of charging a customer for an upgrade or a service, it just results in displeasure. This only upsets us and it should be avoided, recommends Japan Airlines’ Akira Mitsumasu.
Is unbundling going to make it hard for a family to sit together in a plane? Will I have to pay for early boarding request with my toddler?
Now if an airline is already charging for checked bags, overhead bin space etc., it is unlikely that the pre-boarding policy would allow a family to get into the aircraft first. Those who have paid for such services are likely to find space first for their bags, before anyone takes it including a family with kids.
Now this might be a common phenomenon in the U. S. but these issues tend to be seen in a completely different way in Asia, simply for the fact that many travellers could be new to flying.
So how to approach unbundling or offering ancillary offerings at large in Asia?
“There is no one size fits all solution, especially when we think of how diverse the APAC region is,” says Akira Mitsumasu, VP, Marketing & Strategy, Asia & Oceania Region, Japan Airlines.
It’s never easy to know if a given attribute (say, seat selection) is better to be included in a fare family or sold as an ancillary. Depending on your brand, market perception can be a big issue.
One important thing Mitsumasu recommends is to make sure that the proposed value and price are easy to understand.
“Search and purchase are important activities within a customer’s journey, and hence a proper understanding of the ancillary value proposition not only helps facilitate sales, but also helps create a better customer experience,” says Mitsumasu, who adds although some Asian carriers seem to have responded quicker than others to the retailing trend in aviation, the overall trend is, as in the West, is essentially driven by consumer needs and expectations. “In the APAC region, because of very diverse and different needs, finding or testing what is relevant is a very important process in determining what to invest in and co-produce with partners,” Mitsumasu told Ai Correspondent Ritesh Gupta in an interview. Excerpts:
Ai: If we were to talk of ancillary products and services, what has really delighted you and annoyed you going by your personal experience?
In my opinion, ancillary delights when they deliver value and annoys when they are just fees for something that is unbundled. It is somewhat like taking a regular product and deliberately breaking it to create artificially inferior versions. I do to certain extent agree that there are times when some elements of full service offerings could be taken out and sold separately. But when it goes too far, and this can easily be the case especially in markets where travellers expect a standard product to include a decent level of convenience without having to calculate the costs and decide whether to include or exclude certain elements of service.
Ai: So what annoys you?
To me, when I ask for a full English breakfast in a 5-star hotel, for example, the last thing I would want is the hassle of ticking item by item what I need and wondering how much that adds up to.
Another thing that I find annoying, from a traveller’s perspective, is the “clever” idea of opportunity cost pricing. Why should I pay an extra $20 for an economy class aisle seat just because the flight is not full today, knowing that a week ago a same seat on a fully booked flight did not demand any extra price? Or why should airlines cram their customers together in tight narrow seats and then announce minutes before departure that they can move to comfortable seats at a price?
These ideas may appeal to carriers as ways to capture extra revenue, but they could also generate very negative travel experiences to the customer. Again, this is my opinion, and other travellers may feel quite differently. But this diverse attitude towards ancillaries is precisely why customer experience could easily go wrong.
Ai: How close is the industry to offering consumers what they are seeking?
With big data analytics and better merchandising platforms, today’s technology has opened up many new ways to propose personalised air travel and related offerings through multi-channel and device environment. What is technically possible however is not necessarily always feasible, and I think the industry, which has just started to embrace this, will go through a period of trial and error, during which the more relevant offerings will be adopted and the less-so ones eliminated. Although airlines are getting better at personalizing offerings, this does not necessary mean that they are capable of customizing them. Building up an attractive repertoire of different offerings to different customers may not be technically possible nor financially viable either.
Ai: When you hear about average revenue per passenger rising up in the markets like the U. S. or Europe, how do you assess the relevancy of the same in a market like Asia?
I think this depends on which part of Asia we are talking about. There are mature markets that behave in ways similar to that of the U.S. and Europe, but there are also new emerging markets that are quite different. Many people in Asia's emerging economies have just started to afford to travel, and many have travelled for their first time on LCCs - the experience of which could shape the perception and expectation these new travellers have towards an airline product.
Ai: Can you share your observations where you think merchandising strategy requires a different approach say in regions like North Asia or Southeast Asia?
I think there are regional differences such as in terms of consumer needs and sophistication that consequently affect merchandising strategy.
In Japan, for example, consumers generally have relatively high demand for quality and would often expect full service. There are, however, also segments that are more willing to sacrifice quality for cheaper prices.
In some Southeast Asian countries, the norm is to buy "good enough" products and services, and consumers in such segments would want to save air travel expenses and spend instead on other areas. I would look at both regional differences, as well as intra-regional differences, such as the difference between a price sensitive versus a less price sensitive segment within a region.
Ai: Any example which shows blindly following best practices can prove to be a disastrous move as far as air and non-air ancillaries are concerned?
Best practices work because they often define well two gaps. Firstly, the goods and services an airline offers that is not always needed and hence can be taken out as a separate value offering. And secondly, the goods and services that are required by its customers, but are not offered by the airline; in other words areas for new value fulfillment. It would be highly risky and potentially disastrous if an airline just blindly follows the ancillary offering of another airline without having first an understanding of its own value gaps and hence feasible opportunities.
Understanding the market is crucial, and starting with small steps to test what works and what doesn't would be a good approach. Identifying competence gaps, and finding partners that complement your capability is also important.
Ai: What would you term as the next biggest development in the arena of ancillary revenue generation?
As ancillaries move from air to non air travel related products, airlines will increasingly need to collaborate with other partners, and be flexible enough to un-bundle and re-bundle their resources. In light of this trend, I think the next biggest development would perhaps be extensive value co-production networks competing against one another.
Note: The above remarks are Mitsumasu’s personal views and do not reflect that of Japan Airlines.
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