An analysis of traveler need for and willingness to purchase airline dynamic packaging: A Korean case study

Journal of Air Transport Management 82 (2020) 101735

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An analysis of traveler need for and willingness to purchase airline dynamic packaging: A Korean case study Woon-Kyung Song, Hyun Cheol Lee * School of Business, Korea Aerospace University, 76 Hanggongdaehak-ro, Deokyang-gu, Goyang-si, 10540, South Korea

A R T I C L E I N F O

A B S T R A C T

Keywords: Airline profitability Airline retail Ancillary revenue Commission-based ancillary Dynamic packaging

This study analyzes (1) the need among air travelers for commission-based ancillary products and services from airline websites via dynamic packaging and (2) the willingness to purchase them. For this purpose, a survey is conducted with 2030 airline customers in Korea. This study aims to provide insights into Korean traveler preference to enable airlines serving Korean customers to formulate and implement successful business strategies that incorporate dynamic packaging into airline websites to expand ancillary revenues. The results confirm that Korean travelers demonstrate the need for and willingness to purchase commission-based ancillaries when purchasing tickets from airlines. On average, commission-based ancillary products are positively received by respondents. Airport transfers (e.g. rail and shuttle services), foreign currency exchange offers, and travel in­ surance are the most popular. Female travelers, travelers in their 20s, and frequent travelers (10 þ times a year) report a significantly higher need for and willingness to purchase a set of commission-based ancillaries with flights from airline websites. Willingness to purchase third-party products from airlines is higher than in previous studies, and the preference rankings also differ. This study supports the viability of commission-based ancillary offerings from airline websites targeting Korean travelers. It shows the potential for airlines to successfully upsell and cross-sell via dynamic packaging strategies, one of the first steps toward becoming competitive travel retailers.

1. Introduction Until very recently, the airline industry has struggled to provide required returns to investors. A decade of crises and external pressures on the industry, including natural disasters, terror attacks, political instability, financial crises, and volatile oil prices, have hurt the indus­ try’s profitability (IATA, 2011). There are other factors that have exacerbated some of the problems the industry is facing. The capital-intensive nature of airline operations requires high operating leverage, fare competition has intensified due to the entry of low-cost airlines, and increasingly transparent online fare quotes have hurt profit margins. Despite these obstacles, positive signs appeared in 2015. For the first time, airline investors were rewarded with higher returns relative to the cost of capital. Profitability improved as airlines endeavored to (1) achieve high load factors while keeping the breakeven low, (2) raise aircraft utilization rates, and (3) focus on boosting ancil­ lary revenues (IATA, 2016, 2017a). The airline industry recorded a $34.5 billion net profit on $754 billion in revenues in 2017, and strong profitability is forecasted to continue in the future (IATA, 2017b).

Warnock-Smith et al. (2017) attributed the improved financial perfor­ mance to ancillary revenues. They cited a study presented at the 2014 IATA World Passenger Symposium, which showed a positive correlation between carrier operating margins and the proportion of their overall revenue specifically earned from selling ancillaries. Indeed, ancillary revenues constitute the fastest growing revenue category (CAPA, 2014). IdeaWorks estimated 2017 ancillary revenues to be $82.2 billion, more than 10% of the overall industry’s estimated total revenue (Reed, 2017). Increasing ancillaries accounted for unprecedented profits for US air­ lines, where the five largest US carriers generated more than half of the industry’s profits (CAPA, 2018; IATA, 2017b). Ancillary revenues usually refer to revenues generated from nonticket sources. A broadly accepted definition of ancillaries in the airline industry is that employed by IdeaWorks, who asserts that ancil­ laries are “revenue beyond the sales of tickets that is generated by direct sales to passengers, or indirectly as a part of the travel experience.” Airline an­ cillaries are categorized into 1) a la carte products and 2) third-party products. A la carte products include unbundled flight products such as onboard food and beverages, checked baggage and excess baggage

* Corresponding author. E-mail addresses: [email protected] (W.-K. Song), [email protected] (H.C. Lee). https://doi.org/10.1016/j.jairtraman.2019.101735 Received 17 October 2018; Received in revised form 6 October 2019; Accepted 7 October 2019 Available online 15 October 2019 0969-6997/© 2019 Elsevier Ltd. All rights reserved.

W.-K. Song and H.C. Lee

Journal of Air Transport Management 82 (2020) 101735

Airlines, SunExpress, Swiss, Tap Portugal, Transvania, TUIfly.com, and Veuling are directly or indirectly utilizing Peakwork’s dynamic pack­ aging system. It should be noted that airline dynamic packaging is most actively offered by European airlines. Starting in 2017, Ryanair began offering dynamic packaging in the UK, Ireland, Germany, and Spain, while Easyjet’s dynamic packaging has only been available in Germany (FVW, 2017). Dynamic packaging has become so prevalent in Europe that it was even blamed for the demise of the charter airline business in short-haul markets on the continent (O’Connell and Bouquet, 2015). The US has also seen an increasing customer preference for dynamic packaging. A few airlines, including Allegiant, have managed to exploit dynamic packaging opportunities (De Wit and Zuidberg, 2012). How­ ever, US airlines have a limited ability to cross-sell (i.e. the selling of complementary products to an existing airline customer) or upsell (i.e. the marketing of higher-end complementary products to an existing airline customer) during the primary airline booking process. Packages, static or dynamic, have had better selling success in Europe because the US package market is more fragmented and less vertically integrated than the European market. Moreover, many US airlines have outsourced their holiday packaging process to third-party suppliers. This has pre­ vented US airlines from gaining valuable insight into customer mar­ keting data, behavior, and preferences. Still, there is no doubt that airlines can seize opportunities to implement dynamic packaging as an additional revenue generator during the current ongoing transition to online packaging (Rose, 2011). Therefore, airlines have been investing in IT systems to gather information about their customers and their preferences to increase sales through direct channels such as websites (SITA, 2013). Despite the business potential and utility of packaging travel prod­ ucts and services on airline websites, many airlines serving Korean travelers have yet to actively capitalize on the idea. In particular, there is a definite lack of dynamic packaging in Korean airlines. This is partly explained in that Asian airlines were initially slow to adopt and develop the LCC business model (O’Connell and Williams, 2005), and they therefore had less time to strategically focus on ancillary revenue. Prior survey results indicated that Korean passengers were less likely to use technology for their airline and travel product purchases despite the country’s advanced technology penetration (SITA, 2016). This may have been because dynamic packaging was not offered by airlines serving Korean customers including airlines in Korea. If the airlines continue to avoid jumping into the dynamic packaging game, they will soon lose their competitiveness, experience smaller operating margins, face decreasing customer loyalty, create fewer partnerships, and miss op­ portunities to establish channels to digest distressed inventory without negatively influencing their brand. Based on a survey of 2030 airline customers in Korea, this paper aims to study the need of Korean international air travelers for commissionbased ancillaries on airline websites via dynamic packaging, as well as their willingness to purchase such ancillaries. It then attempts to provide further information about customer preferences to airlines catering to Korean travelers to help them improve their business strategies.

fees, assigned seats and seating preferences, priority check-in and early boarding privileges, wireless internet access, and many other paid op­ tions not listed (IdeaWorks). Punitive charges such as itinerary change fees, cancellation fees, credit card processing fees, and no-show pen­ alties are also included in the group of a la carte products (Warnock-­ Smith et al., 2017). Third-party products include commission-based ancillaries, including commissions received from hotels, car rentals, travel insurance offers, foreign currency exchanges, and tourism pack­ ages sold on the airline’s websites. Frequent flier programs offering mileage points to program members in exchange for products or services offered through business affiliates or partnerships also fall into third-party products category. Another more recent trend in this cate­ gory is the occurrence of advertising sales from placements in the aircraft (e.g. in overhead bins, seat backs, trays, or in-flight magazines) or on boarding passes (IdeaWorks 2018, Warnock-Smith et al., 2017). A la carte ancillaries involving unbundling (i.e. the practice of charging separately for products/services that have been traditionally included in the fare price) have been a current focus for both practi­ tioners and researchers. Airline profitability turnaround has been attributed to a paradigm shift in fare pricing that originated in low-cost carriers (LCCs) and spread to full-service carriers (FSCs). Along with commission-based ancillaries, dynamic packaging has started attracting attention due to its vast potential to restructure airline revenue models in different ways (O’Connell, 2011). Dynamic packaging refers to conveniently booking complete travel packages that include any combination of flights, accommodation, airport transfers, or tourist experiences with one click (Finntastic Mar­ keting, 2005). It is referred to as dynamic because inventory, travel components, and pricing are dynamically determined online in real-time (O’Connell, 2011). It also allows for cheaper prices because opaque package pricing enables companies to pass on more discounts to cus­ tomers. When it first drew attention in the mid-2000s, dynamic pack­ aging was expected to change the way travel agents and travel operators did business (Genesys, 2005). However, airlines themselves quickly saw clear opportunities and benefits of using dynamic packaging. The SITA/Air Transport World (ATW) Passenger Self-service survey high­ lighted a dramatic increase in the percentage of passengers using airline websites to book or purchase ancillary services (Rose, 2011). In the third Annual World Low Cost Airlines Congress, participants discussed dy­ namic packaging as a way to increase their ancillary revenue, citing Ryanair’s increased conversion rate after offering dynamic packaging (Compart, 2006). Ryanair reportedly recorded increasing ancillary revenue, primarily from hotel bookings, car hires, and travel insurance sales (Compart, 2006; O’Connell, 2011). The airline’s dynamic pack­ aging at that time constituted bolt-on hyperlinks on their website. It was less integrated compared to the current way dynamic packaging is structured; it outsourced through external links like Booking.com for the hotel reservation process, and to Hertz for car hires (O’Connell and Bouquet, 2015). British Airways launched a more integrated dynamic packaging system online in 2009. It offered simple and easy packaging for flight, hotel, car rental, and tourist experiences (from cultural sightseeing to adventures), including thousands of options at better prices (British Airway, 2009). Ryanair launched a similar holiday packaging service in 2016 in an attempt to become ‘the Amazon of air travel’ with its 119 million annual passengers (Conghaile, 2016). Nowadays, airlines strive to become true online retailers (Rose, 2011). This has been dubbed the airline retail revolution (Open­ JawTech, 2017). Airlines are incorporating complementary product offers into their websites’ ticket booking process seamlessly in one transaction. This has been well-received by customers because it feels natural as a part of the planning process (Rose, 2011). The new direction and revenue models have been made possible by new online travel data technology solutions and outsourcing to vendors such as Peakwork, Distribution Travel, and OpenJawTech. According to Peakwork (2017), Air France, Austrian Airlines, Condor, Corendon Airlines, Easyjet, Edelweiss, Emirates, Eurowings, Germania, KLM, Lufthansa, SkyWork

2. Literature review There have been several studies regarding ancillary revenue as it has become more widespread in the industry and a more important factor contributing to airline profitability. Because ancillary products and services were aggressively offered first by LCCs as a part of their business strategy, ancillary revenue was frequently incorporated into discussions on LCC business models. Ancillary revenue as a percentage of overall company revenue has been higher for LCCs (De Wit and Zuidberg, 2012). The success of LCCs has been attributed to ancillary revenues resulting from fare unbundling and simplification (Graham and Shaw, 2008; Doganis, 2010). Ancillary revenue resulting from the unbundling of their core transportation products was also shown to be critical in the profitability of low-cost, long-haul flights (Francis et al., 2007; Daft and 2

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Journal of Air Transport Management 82 (2020) 101735

Albers, 2012; De Poret et al., 2015). Daft and Albers (2012) anticipated higher demand and prices for ancillary services for long-haul LCC flights compared to the traditional LCC routes, considering their longer flight times and the higher likelihood that the long-haul destinations would be socially and culturally different (making packaged travel services more attractive to inexperienced travelers). De Wit and Zuidberg (2012) emphasized increasing ancillary revenue as a solution to the LCCs’ organic growth limits. Because LCCs have become dominant players in air travel, especially in Europe (Dobruszkes, 2013), a trend was observed in which FSC and LCC business models converged (Daft and Albers, 2013, 2015). Presently, FSCs are raising ancillary revenue to improve profitability while, at the same time, LCCs are adapting by offering fare bundling to target upmarket customers (Klophaus et al., 2012; Fageda et al., 2015). Many of the literature on ancillaries has focused on the unbundling of air fares and air services. Garrow et al. (2012) reviewed the rapid de-bundling trends in the US airline market. They anticipated that new ancillary fees would continue to be introduced but also warned about the potential for customer backlash and US regulatory intervention. Regarding the price of unbundled ancillaries, Waguespack and Curtis (2013) found no evidence of perceived price unfairness among existing and potential customers. Wittmer and Rowley (2014) found that econ­ omy class passengers were willing to purchase value-adding supple­ mentary services and argued that FSCs should create new supplementary services available for an additional charge instead of unbundling existing services. A few studies have looked at dynamic packaging, but most have focused on technological applications. Zach et al. (2008) studied tourism-driven networks to provide insights and implications for tech­ nology design in dynamic packaging systems. Akoumianakis et al. (2011) introduced the concept of cross-organizational virtual partner­ ships to better develop dynamic packaging systems. Ayazlar (2014) investigated the existing dynamic packaging applications of online travel agencies and found that they featured specifications that focused on choice, customization, and flexibility. In another study, O’Connell and Bouquet (2015) analyzed tourist willingness to purchase travel-related products on airline websites and found positive results. The Accenture Amadeus Alliance (2017) recognized dynamic packaging as an important growing trend in airline ancillaries. They pointed out the importance of ancillary merchandising in airline revenues, and how the optimal mix of ancillaries based on customer data would bring in subsequent travel-related business to airline websites. The present study is most similar to O’Connell and Warnock-Smith (2013) and Warnock-Smith et al. (2017). O’Connell and Warnock-Smith (2013) investigated traveler preferences and their acceptance levels of ancillary products and services. They found that travelers were most willing to pay for airport car parking from commission-based ancillaries and additional checked baggage fees from a la carte ancillaries. Still, they concluded that travelers had a low up­ take for ancillary products and services, and the uptake was even lower for commission-based ancillaries. Warnock-Smith et al. (2017) expanded on O’Connell and Warnock-Smith (2013)’s study by investi­ gating passenger willingness to pay and incorporating the analysis of different acceptable price points. The authors found a significantly different willingness to pay for each ancillary service, and the willing­ ness depended on variables such as carrier type, length of flight, and purpose of travel. They also showed that travelers were less willing to pay for commission-based ancillaries than other unbundled products that were perceived as necessities. The results of both studies showed that commission-based ancillaries were less well-received by travelers. This study attempts to determine whether there exists a need among Korean air travelers for commission-based ancillaries within a dynamic packaging system, and whether there is a willingness to purchase for such ancillaries. The concepts of need and willingness to purchase were first separated in the study by O’Connell and Warnock-Smith (2013), who investigated the traveler preferences and acceptance levels of

airline ancillaries. They assumed that acceptability decreased with opportunistic ancillary sales and preference increased with greater value to passengers compared to ancillary costs. To interpret the results more intuitively, we used need instead of acceptability and willingness to purchase in place of preference. We also focus on examining Korean customers whose preferred airlines’ ancillary practices are generally lagging behind the competition. There has been previous literature examining the effects of airline alliance services on passenger percep­ tion, demand, and purchasing behavior in Korea (Suh and Kang, 2008). However, Suh and Kang (2008) focused on strategic alliances and partnerships for marketing purposes. This study focuses more on trav­ eler needs that don’t relate to actual flights or fares, but rather to customer demand for, and willingness to purchase ancillary products and services that are cross-sold or up-sold on airline websites via dy­ namic packaging. Through this process, we garner insights into how to formulate and implement successful ancillary business strategies for airlines catering to Korean customers that are not currently taking full advantage of their business potential. 3. Methodology The data was collected by Research 21, a Korean research company specializing in data collection, upon request from the Institute of Busi­ ness Research at Korea Aerospace University in February 2016. The research company sent email invitations for an online survey to a panel of 3500 individuals recruited from representative probability samples of the Korean population. Panel participants were asked to participate only if they had international air travel experience. 2030 responses were obtained, giving a response rate of 58%. In studying traveler preferences and opinions, using an online survey was deemed the most appropriate method (Evans and Mathur, 2005; O’Connell and Warnock-Smith, 2013). The online survey method’s strength was its access to, and use of, comprehensive large data samples. Previous literature has used surveys of aviation experts based on their air travel experience, applying a simplified, minimal convenience sampling approach. For example, O’Connell and Warnock-Smith (2013) used samples of 170 aviation professionals, and Warnock-Smith et al. (2017) used 159 samples selected from a group of aviation conference attendees. Previous surveys have gained the collective wisdom and experience of experts in the field, but the survey used in this study was designed specifically to collect data from the actual Korean air passenger population. The demographic profiles of respondents (Table 1) and the travel-related characteristics of respondents (Table 2) are presented below. The sample contained slightly more males than females, with 1185 male respondents (58.4%) compared to 845 (41.6%) female re­ spondents. In terms of age, 67% of the respondents were in their 30s and 40s, and among the overall respondents, the largest group (35.7%) were in their 40s. About half of the respondents reported an annual income between KRW 30 mil and 59.9 mil. 51.1% of respondents were either office workers or engineers. In terms of travel frequency, 43.4% of re­ spondents said they traveled internationally via air once or twice a year. 79.3%of the respondents answered that they traveled for leisure. Asia (78.8%), especially Japan and China (41.6%), turned out to be the most frequently-visited outbound destinations among the respondents. Compared to the Korean outbound traveler statistics provided by the 2016 Korea National Tourism Survey from the Korea Culture and Tourism Institute, this sample was adequate at representing the de­ mographic and travel-related characteristics of Korean outbound trav­ elers, but with some limitations. In 2016, Koreans traveling abroad were slightly more male (51.1%) than female (48.9%). Of Korean outbound travelers, 21.1% were in their 30s and 19.9% were in their 40s. The average travel frequency was 1.36 times a year. 83.4% traveled for leisure. Approximately 85% went to Asian countries, including Japan and China (45%) (Korea Culture and Tourism Institute, 2016). The Korean outbound travel trend of traveling to Asian countries for leisure (Sejong University Tourism Industry Research Lab and Consumer 3

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Journal of Air Transport Management 82 (2020) 101735

The survey questions were specifically tailored to better understand the customer need for and willingness to purchase commission-based ancillaries during the ticket buying process from airline websites. These ancillaries include car rentals, travel insurance, hotels, airport car parking, airport transfers (such as rail and shuttle services), foreign currency exchange, tourist attractions, travel amenities and necessities (such as travel bag and voltage converter), and baggage delivery ser­ vices. Initially, all of the commission-based products and services found in previous literature (Rose, 2011; O’Connell and Warnock-Smith, 2013; Warnock-Smith et al., 2017) were considered for inclusion in the survey. Upon consulting airline executives, duty free was dropped from the final set. Duty free is a commission-based ancillary that Korean travelers are already using to a profound extent, and airlines in Korea are actively implementing it into their strategies. In 2007, Korean Air was in the top 10 airlines in terms of generating ancillary revenues (Warnock-Smith et al., 2017), mainly from its duty free commissions. The survey also included questions regarding prior purchasing experiences of commission-based ancillaries and what motivated these purchases. None of the questions were open-ended, and they were simplified to avoid any ambiguity or confusion. A translated copy of the survey questionnaire can be found in the appendix. For the data analysis, we first examined the need of Korean air travelers for commission-based ancillaries available for ticket buyers and the willingness to purchase them on airline websites. As in O’Connell and Warnock-Smith (2013), the disaggregate-level results for the demographic and travel-related characteristics of the respondents were analyzed to determine whether the characteristics had an impact on need and willingness. We then focused on the differences between the respondents’ answers regarding need and willingness.

Table 1 Demographic profile of respondents (N ¼ 2030). Characteristics

Number of Respondents

Frequency (%)

Gender Male Female

1185 845

58.4 41.6

Age 20-29 30-39 40-49 50 and over

289 641 725 375

14.2 31.6 35.7 18.5

Annual Income Less than KRW 20 mil KRW 20 mil-29.9 mil KRW 30 mil-39.9 mil KRW 40 mil-49.9 mil KRW 50 mil-59.9 mil KRW 60 mil-69.9 mil KRW 70 mil-79.9 mil KRW 80 mil-89.9 mil KRW 90 mil-99.9 mil KRW 100 mil or more

170 319 477 294 249 203 124 75 61 58

8.4 15.7 23.5 14.5 12.3 10.0 6.1 3.7 3.0 2.9

Occupation Government or Military Entrepreneur or Manager Office worker or Engineer Sales or Service Professional Production or Skilled worker Self-employed Student Housewife Retired Unemployed Other

56 92 1037 89 168 59 168 86 189 19 37 30

2.8 4.5 51.1 4.4 8.3 2.9 8.3 4.2 9.3 0.9 1.8 1.5

4. Results and discussion Six hundred and four (29.8%) respondents answered that they had previously purchased commission-based ancillary products (e.g. airtel and aircartel) from airlines. This number is noticeably lower than that found in the results from the 2010 SITA/ATW 2010 passenger self-service survey. The SITA/ATW survey reported that more passen­ gers were using airline websites for car rentals (35%), travel insurance (29%), hotels (37%), and airport transfers (14%, respectively). This is also not in line with the 2014 Frost & Sullivan/Amadeus 2014 study that asserted that 79% of travelers preferred to buy ancillaries directly from airlines. Air travelers with higher annual incomes, frequent air travelers who travel more than three times a year, business travelers, and trav­ elers visiting long-distance destinations such as Europe and North America tended to have more experience in purchasing ancillaries, as seen in Table 3. Respondents who answered that they had previously purchased commission-based ancillaries from airlines indicated convenience (i.e. remove the need to visit other websites, 65.6%) as the primary reason, followed by economy (i.e. cheap price or extra mileage benefits, 30.8%) and reliability (i.e. trustworthiness of airline partnerships, 3.6%), as presented in Table 4. Compared to the average, respondents in their 20s cited economy more, respondents over 50 mentioned convenience more. Interestingly, respondents who travel more than 10 times a year placed a higher-than-average value on economy and reliability. From the results, it can be inferred that Korean travelers are not yet fully or actively using airline websites for commission-based ancillaries. This indicates that there is plenty of room for growth in the market, and there is potential for airlines serving Korean customers including Korean airlines to adapt and innovate by developing and incorporating dynamic packaging into their websites to boost ancillary revenue. Korean international air travelers’ need for and willingness to pur­ chase various commission-based ancillaries with flights on airline websites were surveyed. Respondents were first asked whether they thought commission-based ancillary products needed to be offered with flight tickets on airline websites on a scale of 1 (not necessary at all) to 5

Table 2 Travel-related characteristics of respondents (N ¼ 2030). Characteristics

Number of Respondents

Frequency (%)

Number of Air Travel per year (International Round-trip Basis) Less than 1 695 1-2 881 3-4 285 5-9 116 10 or more 53

34.2 43.4 14 5.7 2.6

Purpose of Travel Leisure Business Visiting friends/relatives Other

79.3 16.7 3.7 0.3

1610 339 75 6

Most Frequently-visited Destinations Japan or China 844 Southeast Asia 755 Europe 225 North America 165 Oceania 28 Middle East or Africa 13

41.6 37.2 11.1 8.1 1.4 0.6

Insight, 2018) was well captured in the sample. However, the age de­ mographics of Korean outbound travelers were not represented properly in the collected sample. Travelers in their 30s and 40s were over­ represented, while those over 50 years of age were underrepresented. Six of the respondents were in their 70s, including the oldest at 78 years of age, and 37 respondents were in their 60s. The underrepresentation of the over-50 age group, accounting for 18.5% in the sample but 27.5% of actual Korean outbound travelers, could be attributed to the online survey method. 4

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Journal of Air Transport Management 82 (2020) 101735

Table 3 Previous experience in purchasing commission-based ancillaries (N ¼ 2030). Experience (%)

No Experience (%)

Total

29.8

70.2

Gender Male (n ¼ 1185) Female (n ¼ 845)

31.5 27.3

Age 20–29 (n ¼ 289) 30–39 (n ¼ 641) 40–49 (n ¼ 725) 50 and over (n ¼ 375)

Table 4 Reason for previous commission-based ancillary purchases (N ¼ 604). Economy (%)

Convenience (%)

Reliability (%)

Total

30.8

65.6

3.6

68.5 72.7

Gender Male (n ¼ 373) Female (n ¼ 231)

27.6 35.9

68.1 61.5

4.3 2.6

25.3 28.9 32.7 29.1

74.7 71.1 67.3 70.9

Annual Income Less than KRW 20 mil (n ¼ 170) KRW 20 mil-29.9 mil (n ¼ 319) KRW 30 mil-39.9 mil (n ¼ 477) KRW 40 mil-49.9 mil (n ¼ 294) KRW 50 mil-59.9 mil (n ¼ 249) KRW 60 mil-69.9 mil (n ¼ 203) KRW 70 mil-79.9 mil (n ¼ 124) KRW 80 mil-89.9 mil (n ¼ 75) KRW 90 mil-99.9 mil (n ¼ 61) KRW 100 mil or more (n ¼ 58)

Age 20–29 (n ¼ 73) 30–39 (n ¼ 185) 40–49 (n ¼ 237) 50 and over (n ¼ 109)

37.0 32.4 31.2 22.9

57.5 66.5 65.0 70.6

5.5 1.1 3.8 6.5

22.4 26.6 23.9 26.2 36.5 32.0 38.7 46.7 31.1 55.2

77.6 73.4 76.1 73.8 63.5 68.0 61.3 53.3 68.9 44.8

28.9

65.8

5.3

38.8

55.3

5.9

32.5

64.9

2.6

31.2

63.6

5.2

26.4

69.2

4.4

Number of Air Travel per year Less than 1 (n ¼ 695) 1–2 (n ¼ 881) 3–4 (n ¼ 285) 5–9 (n ¼ 116) 10 or more (n ¼ 53)

15.5 29.3 45.3 58.6 77.4

84.5 70.7 54.7 41.4 22.6

30.8

67.7

1.5

25.0

75.0

0.0

28.6

68.6

2.8

31.6

68.4

0.0

28.2 38.6 24.0 16.7

71.8 61.4 76.0 83.3

28.1

65.6

6.3

29.1 27.4 34.7 35.8 28.6 46.2

70.9 72.6 65.3 64.2 71.4 53.8

Annual Income Less than KRW 20 mil (n ¼ 38) KRW 20 mil-29.9 mil (n ¼ 85) KRW 30 mil-39.9 mil (n ¼ 114) KRW 40 mil-49.9 mil (n ¼ 77) KRW 50 mil-59.9 mil (n ¼ 91) KRW 60 mil-69.9 mil (n ¼ 65) KRW 70 mil-79.9 mil (n ¼ 48) KRW 80 mil-89.9 mil (n ¼ 35) KRW 90 mil-99.9 mil (n ¼ 19) KRW 100 mil or more (n ¼ 32) Number of Air Travel per year Less than 1 (n ¼ 108) 1–2 (n ¼ 258) 3–4 (n ¼ 129) 5–9 (n ¼ 68) 10 or more (n ¼ 41)

27.8 31.4 32.6 25.0 39.0

69.4 64.7 65.9 72.1 48.8

2.8 3.9 1.5 2.9 12.2

32.2 27.5 22.2

64.8 67.9 72.2

3.0 4.6 5.6

0.0

0.0

100.0

63.8 65.2 71.8 69.5 62.5 33.3

3.7 2.9 3.8 6.8 0.0 0.0

Purpose of Travel Leisure (n ¼ 1610) Business (n ¼ 339) Visiting friends and relatives (n ¼ 75) Other (n ¼ 6) Most Frequently-visited Destination Japan or China (n ¼ 844) Southeast Asia (n ¼ 755) Europe (n ¼ 225) North America (n ¼ 165) Oceania (n ¼ 28) Middle East or Africa (n ¼ 13)

Purpose of Travel Leisure (n ¼ 454) Business (n ¼ 131) Visiting friends and relatives (n ¼ 18) Other (n ¼ 1)

(absolutely necessary). Table 5 summarizes the average ratings for the need of each ancillary, the standard deviation, and the percent of re­ spondents that said the service was necessary/unnecessary in their re­ sponses. The statistical test value in Table 5 was derived from the oneway ANOVA test to determine whether there was a significant differ­ ence in ratings. The null hypothesis (H0 : μ1 ¼ μ2 ¼ ⋯ ¼ μk ) was that all average ratings were identical, and the alternative hypothesis was that at least one average rating was different. Throughout the paper, we tested this set of hypotheses with a standard criterion of p-value < 0.05. Overall, Korean travelers indicated that they felt the need for commission-based ancillaries as part of their online purchasing of airline services, the average ratings were all greater than 3 (neutral). Among the commission-based ancillaries in the survey, the number of re­ spondents who indicated each service as necessary was clearly greater than the number of respondents who answered otherwise. Respondents indicated a higher need for airport transfers, foreign currency exchange, and travel insurance. The statistical test result indicated that there was a statistical difference in average ratings between the types of ancillaries rejecting the null that all average ratings were the same. Table 6 summarizes the disaggregated need survey results by the demographic and travel-related characteristics. The statistical test values in Table 6 were derived from the one-way ANOVA tests to determine whether there was a significant difference in ratings between the groups with different demographic or travel-related characteristics.

Most Frequently-visited Destination Japan or China (n ¼ 246) 32.5 Southeast Asia (n ¼ 207) 31.9 Europe (n ¼ 78) 24.4 North America (n ¼ 59) 23.7 Oceania (n ¼ 8) 37.5 Middle East or Africa (n ¼ 6) 66.7

The results indicated that there were some significant differences in ratings depending on the respondents’ demographic and travel-related characteristics. Female respondents were more positive toward the need for commission-based ancillaries optional to ticket buyers from airlines. Ratings from female respondents were higher (except for car rentals) and the differences were generally significant. The higher need for foreign currency exchange, tourist attractions, travel amenities and necessities, and baggage delivery ancillaries were confirmed for re­ spondents in their 20s. This is interesting because travel amenities and necessities and baggage delivery were two of the least popular commission-based ancillaries. Those 50 and over showed a significantly higher need for travel insurance. Respondents in the higher annual in­ come group showed a lower need for foreign currency exchange and tourist attractions. This may have been due to the availability of more favorable exchange rates at their banks, as well as the probability that 5

W.-K. Song and H.C. Lee

Journal of Air Transport Management 82 (2020) 101735

compared to the need survey. The paired sample t-tests were conducted to test whether there was a significant difference in traveler need and willingness to purchase ratings. The results are presented in Table 8. For popular commission-based ancillaries (airport transfers and foreign currency exchange), there was no statistical difference in the need and willingness to purchase ratings. But for less favored commission-based ancillaries (airport car parking, travel amenities and necessities, and baggage delivery), there confirmed statistically lower willingness to purchase ratings compared to the need ratings. Table 9 summarizes the survey results for the disaggregated will­ ingness to purchase as per demographic and travel-related characteris­ tics. The statistical test values in Table 9 were derived from the one-way ANOVA tests to determine whether there was a significant difference in ratings between the groups with different demographic or travel-related characteristics. The results indicated that there were some significant differences in ratings according to the respondents’ demographic and travel-related characteristics. Still, the female respondents showed a greater willingness to purchase commission-based ancillaries with flight tickets from airlines. Ratings from the female respondents were higher (except for car rental and airport car parking), but the significance in differences dropped slightly compared to the need survey results. It was confirmed that there were different preferences in commission-based ancillary types by age group. Respondents in their 20s were signifi­ cantly more willing to purchase commission-based ancillaries such as hotels, airport transfers, foreign currency exchange, tourist attractions, travel amenities and necessities, and baggage delivery from airlines compared to other age groups. They were also significantly less willing (but not unwilling) to purchase car rentals and airport car parking. This does not necessarily mean that the respondents in their 20s preferred outlets other than airline websites for car rentals and airport car parking. Rather, the results can be interpreted that travelers in their 20s prefer public transportation to renting a car while traveling due to economic reasons. In fact, 37% of the respondents in their 20s indicated economy as the reason they had purchased commission-based ancillary products or services from airlines in the past (refer to Table 4). This age group was also more likely to take airport transfers to the airport, which would explain why they were less willing to purchase airport car parking. Respondents in their 30s generally showed lower willingness to pur­ chase commission-based ancillaries from airline websites. Respondents in the higher annual income group showed a lower willingness to pur­ chase tourist attractions. Respondents who travel via air 10 or more times a year reported a significantly higher willingness to purchase commission-based ancillary products and services, with an average score of 3.95 (close to 4, indicating a willingness to purchase commission-based ancillaries from airlines). Note that 77.4% of the re­ spondents who travel by air more than 10 times a year had already purchased ancillaries from airlines (refer to Table 3). Business travelers showed a significantly lower willingness to purchase travel insurance, tourist attractions, and travel amenities and necessities. Again, these results could be interpreted as indicative that this group would not have needed to buy such ancillaries themselves. Travel insurance is often covered by companies, business travelers are less likely to seek out tourist attractions, and travel amenities and necessities are likely to already be equipped for repeat travelers. Most frequently-visited desti­ nations, which can approximate flight distance and time, had no influ­ ence on the willingness to purchase commission-based ancillaries from airlines. Compared to the results from the previous study on customer

Table 5 Need for commission-based ancillaries from airlines between the types of ancillaries.

Car rentals (RNTL) Travel insurance (INSR) Hotels (HTL) Airport car parking (PARK) Airport transfers (TRSF) Foreign currency exchange (FRX) Tourist attractions (ATTR) Travel amenities and necessities (AMNT) Baggage delivery (BAG)

Average Rating (1–5)

Standard Deviation

% of respondents who indicated ancillaries as unnecessary (answered 1 and 2)

% of respondents who indicated ancillaries as necessary (answered 4 and 5)

3.38

0.90

14.19

46.80

3.84

0.89

6.65

69.16

3.55 3.40

0.83 0.92

9.06 14.09

55.02 46.70

3.87

0.87

5.62

69.75

3.85

0.92

6.90

68.18

3.64

0.93

9.90

58.18

3.27

0.91

16.50

37.64

3.43

0.87

10.99

45.76

F-statistics (p-value) 133.29 (<0.01).

those travelers would have already been to major tourist attractions. Respondents who travel internationally 10 or more times a year reported a higher need for all ancillary products and services, with an average score of 3.9 (close to 4 indicating commission-based ancillaries offering from airlines are necessary). The respondents’ purpose of travel and most frequently-visited destinations had little influence on the results, although business travelers did convey a lower need for tourist attractions. The respondents were subsequently asked whether they were willing to purchase commission-based ancillaries from airlines if offered on their websites during the ticket sales process on a scale of 1 (not willing at all) to 5 (absolutely willing). Table 7 summarizes the average ratings for the willingness to purchase each ancillary, the standard deviation rating, and the percent of respondents that answered that they were willing/unwilling to purchase the product. The statistical test value in Table 7 was derived from the one-way ANOVA test to determine whether there was a significant difference in ratings between the types of ancillaries. The survey results suggested that Korean travelers were generally willing to purchase commission-based ancillaries with flights from air­ lines; the average ratings were all greater than 3 (neutral). Respondents showed a higher willingness to purchase airport transfers, foreign cur­ rency exchange, and travel insurance, which coincided with the need results. For every ancillary, the number of respondents who indicated that they were willing to purchase the service was greater than the number of respondents who indicated that they were not willing. Travel amenities and necessities, airport car parking, and baggage delivery were the least popular commission-based ancillaries. The statistical test result indicated that there was a statistical difference in average ratings between the types of ancillaries, rejecting the null hypothesis that all average ratings were identical. The average willingness to purchase rating was significantly lower 6

W.-K. Song and H.C. Lee

Journal of Air Transport Management 82 (2020) 101735

Table 6 Disaggregated need survey results by demographic and travel-related characteristics. Gender Male (n ¼ 1185) Female (n ¼ 845) F-statistics (p-value)

Age 20–29 (n ¼ 289) 30–39 (n ¼ 641) 40–49 (n ¼ 725) 50 and over (n ¼ 375) F-statistics (p-value)

Annual Income Less than KRW20mil (n ¼ 170) KRW20mil-29.9mil (n ¼ 319) KRW30mil-39.9mil (n ¼ 477) KRW40mil-49.9mil (n ¼ 294) KRW50mil-59.9mil (n ¼ 249) KRW60mil-69.9mil (n ¼ 203) KRW70mil-79.9mil (n ¼ 124) KRW80mil-89.9mil (n ¼ 75) KRW90mil-99.9mil (n ¼ 61) KRW100mil or more (n ¼ 58) F-statistics (p-value)

Number of Air Travel per year Less than 1 (n ¼ 695) 1–2 (n ¼ 881) 3–4 (n ¼ 285) 5–9 (n ¼ 116) 10 or more (n ¼ 53) F-statistics (p-value)

Purpose of Travel Leisure (n ¼ 1610) Business (n ¼ 339) Visiting friends and relatives (n ¼ 75) Other (n ¼ 6) F-statistics (p-value)

RNTL

INSR

HTL

PARK

TRSF

FRX

ATTR

AMNT

BAG

3.39 3.36

3.81 3.89

3.55 3.56

3.38 3.44

3.80 3.96

3.79 3.93

3.55 3.78

3.23 3.32

3.39 3.50

0.59 (0.44)

4.08 (0.04)

0.04 (0.84)

2.13 (0.14)

15.41 ( < 0.01)

10.79 ( < 0.01)

30.98 ( < 0.01)

4.51 (0.03)

8.20 ( < 0.01)

3.36 3.29 3.45 3.39

3.90 3.75 3.83 3.98

3.58 3.53 3.56 3.55

3.31 3.38 3.46 3.41

3.97 3.83 3.83 3.91

4.01 3.80 3.82 3.85

3.91 3.59 3.59 3.63

3.41 3.20 3.25 3.29

3.58 3.40 3.39 3.45

4.02 ( < 0.01)

5.67 ( < 0.01)

0.33 (0.80)

1.99 (0.11)

2.28 (0.08)

3.94 ( < 0.01)

9.63 ( < 0.01)

3.64 (0.01)

3.96 ( < 0.01)

3.34

3.81

3.49

3.39

3.87

3.94

3.76

3.37

3.46

3.36

3.89

3.61

3.36

3.93

3.95

3.77

3.36

3.52

3.29

3.81

3.52

3.39

3.86

3.86

3.68

3.20

3.41

3.48

3.93

3.55

3.41

3.87

3.90

3.60

3.22

3.43

3.36

3.72

3.46

3.33

3.82

3.78

3.54

3.23

3.33

3.39

3.86

3.55

3.48

3.85

3.75

3.48

3.26

3,46

3.45

3.87

3.65

3.47

3.85

3.74

3.63

3.29

3.43

3.46 3.48 3.31

3.88 4.05 3.67

3.66 3.61 3.69

3.48 3.36 3.48

3.88 3.92 3.76

3.77 3.80 3.66

3.59 3.62 3.48

3.26 3.31 3.38

3.44 3.41 3.43

1.52 (0.13)

1.65 (0.10)

1.70 (0.08)

0.78 (0.64)

0.42 (0.92)

2.01 (0.03)

2.43 ( < 0.01)

1.18 (0.31)

0.88 (0.54)

3.39 3.34 3.38 3.40 3.87

3.90 3.81 3.78 3.84 3.94

3.48 3.56 3.61 3.62 3.91

3.41 3.34 3.45 3.49 3.94

3.87 3.87 3.84 3.75 4.09

3.90 3.83 3.75 3.84 4.04

3.64 3.64 3.55 3.73 3.92

3.24 3.23 3.32 3.34 3.75

3.40 3.42 3.47 3.49 3.74

4.44 ( < 0.01)

1.43 (0.22)

4.19 ( < 0.01)

6.11 ( < 0.01)

1.52 (0.20)

2.08 (0.08)

2.14 (0.07)

4.75 (0.01)

2.22 (0.06)

3.37 3.39 3.45

3.86 3.76 3.83

3.57 3.49 3.41

3.44 3.27 3.33

3.88 3.81 3.93

3.86 3.76 3.91

3.68 3.46 3.68

3.27 3.22 3.41

3.44 3.37 3.60

3.33

4.00

3.17

3.00

3.67

4.17

4.00

2.83

3.83

0.22 (0.89)

1.41 (0.24)

2.02 (0.11)

3.62 (0.01)

0.71 (0.55)

1.49 (0.21)

5.58 ( < 0.01)

1.36 (0.25)

1.89 (0.13)

3.82 3.89 3.83 3.84 3.79 3.46

3.54 3.55 3.57 3.56 3.79 3.23

3.35 3.46 3.37 3.45 3.54 3.38

3.88 3.87 3.80 3.80 4.14 4.00

3.84 3.84 3.86 3.90 4.07 3.62

3.64 3.63 3.67 3.72 3.61 3.38

3.27 3.22 3.32 3.32 3.36 3.31

3.44 3.40 3.48 3.47 3.61 3.38

1.05 (0.38)

0.87 (0.50)

1.39 (0.23)

1.10 (0.36)

0.66 (0.65)

0.53 (0.76)

0.71 (0.62)

0.61 (0.70)

Most Frequently-visited Destination Japan or China (n ¼ 844) 3.34 Southeast Asia (n ¼ 755) 3.39 Europe (n ¼ 225) 3.40 North America (n ¼ 165) 3.50 Oceania (n ¼ 28) 3.32 Middle East or Africa 3.31 (n ¼ 13) F-statistics (p-value)

0.93 (0.46)

7

W.-K. Song and H.C. Lee

Journal of Air Transport Management 82 (2020) 101735

demand for commission-based ancillary services by O’Connell and Warnock-Smith (2013),1 the results from this study indicated that Korean travelers had a higher willingness to purchase third-party products from airlines. In O’Connell and Warnock-Smith (2013), many respondents answered that they were not willing to purchase commission-based ancillaries from airlines, and the average willingness to purchase ratings trended slightly toward negative. The preference rankings for the commission-based ancillaries also differed. In the O’Connell and Warnock-Smith (2013) study, travel insurance was re­ ported as the most popular commission-based ancillary product, fol­ lowed by accommodations and airport parking. On average, respondents were not willing to purchase surface transportation or attractions from airlines. In our study, willingness to purchase airport transfers (i.e. surface transportation) ranked highest, followed by foreign currency exchange, travel insurance, and tourists attractions (i.e., attractions). Also, even unpopular commission-based ancillary products such as travel amenities and necessities received positive willingness to pur­ chase ratings from respondents. With significantly different average need rating of 3.58 and average willingness to purchase rating of 3.53 (refer to Table 8), we attempted to analyze the viability of ancillary products and services. Fig. 1 captures the viability grouping of ancillary products and services based on trav­ eler need and willingness to purchase. The group in the top right quadrant in Fig. 1 includes ancillaries that demonstrated higher than average traveler need combined with a higher than average willingness to purchase, airport transfers, foreign currency exchange, travel insur­ ance, and tourist attractions. This is the group of ancillaries that should be prioritized and implemented first on airline websites to cater to the traveler demand confirmed in this study. The second quadrant group includes hotels. The second quadrant results show a higher than average rating for willingness to purchase but a lower than average traveler need rating for the same service. The lower than average need rating for hotel and accommodation services on airline websites is understandable because there are already many well-established competitive websites that specialize in booking accommodation. The results could be inter­ preted that even though travelers comparatively feel less strongly about the need for accommodation booking services as part of the online flight booking process, if this ancillary were offered on the airline website, they would be relatively more willing to use it. This demonstrates a high potential for expanding dynamic packaging products. The third quadrant group contains products and services that had lower than average ratings for both traveler need and willingness to purchase in the survey. It is important to note that although the ancil­ laries in this group received lower ratings, the numbers were still greater than 3 (neutral); implying a positive need and willingness to purchase. Car rentals, baggage delivery, and airport car parking were less favored commission-based ancillaries, although they were still positively received by travelers. These results are unexpected because car rentals were considered a key service offered in dynamic packaging (Compart, 2006; O’Connell, 2011). This inconsistency could be explained by the fact that 78.8% of the respondents answered that they frequently visited Japan, China, or Southeast Asia, where tourists do not usually rent a car during their stay. To support this explanation, the ratings for both the need for and willingness to purchase for car rentals by respondents who traveled most frequently to Europe and North America were higher though not statistically significant (refer to Tables 6 and 9). Our results also differed from O’Connell and Warnock-Smith (2013)’s results

Table 7 Willingness to purchase commission-based ancillaries from airline.

Car rentals (RNTL) Travel insurance (INSR) Hotels (HTL) Airport car parking (PARK) Airport transfers (TRSF) Foreign currency exchange (FRX) Tourist attractions (ATTR) Travel amenities and necessities (AMNT) Baggage delivery (BAG)

Average Rating (1–5)

Standard Deviation

% answered that unwilling to purchase (answered 1 and 2)

% answered that willing to purchase (answered 4 and 5)

3.36

0.99

17.00

48.47

3.76

0.95

8.77

65.12

3.54 3.27

0.90 1.01

9.56 19.60

53.00 41.87

3.83

0.92

7.29

67.73

3.81

0.96

8.37

65.42

3.68

0.95

9.66

60.30

3.19

0.96

19.75

35.67

3.36

0.94

14.19

42.71

F-statistics (p-value) 136.25 (<0.01). Table 8 Difference in traveler need and willingness to purchase ratings.

Car rentals (RNTL) Travel insurance (INSR) Hotels (HTL) Airport car parking (PARK) Airport transfers (TRSF) Foreign currency exchange (FRX) Tourist attractions (ATTR) Travel amenities and necessities (AMNT) Baggage delivery (BAG) Average

Average Needs Ratings

Average Willingness to Purchase ratings

Difference

T-statistics (p-value)

3.38

3.36

0.02

0.46 (0.64)

3.84

3.76

0.08

3.55 3.40

3.54 3.27

0.01 0.13

2.82 ( < 0.01) 0.49 (0.62) 4.30 ( < 0.01)

3.87

3.83

0.04

1.14 (0.25)

3.85

3.81

0.04

1.32 (0.19)

3.64

3.68

3.27

3.19

0.08

2.71 ( < 0.01)

3.43

3.36

0.07

2.70 ( < 0.01)

3.58

3.53

0.05

4.79 ( < 0.01)

0.04

1.27 (0.20)

1 O’Connell and Warnock-Smith (2013) used different scaling system of 1 (very willing) to 6 (not at all willing). 2 The correlation coefficient between the average need ratings and the average willingness to purchase ratings (n ¼ 18) was 0.98 (p-value: <0.01); the correlation coefficient between the need ratings and the willingness to purchase ratings (n ¼ 36,540, two 2030 observations for each ancillary) was 0.72 (<0.01).

8

W.-K. Song and H.C. Lee

Journal of Air Transport Management 82 (2020) 101735

Table 9 Disaggregated willingness to purchase survey results by demographic and travel-related characteristics. Gender Male (n ¼ 1185) Female (n ¼ 845) F-statistics (p-value)

Age 20–29 (n ¼ 289) 30–39 (n ¼ 641) 40–49 (n ¼ 725) 50 and over (n ¼ 375) F-statistics (p-value)

Annual Income Less than KRW20mil (n ¼ 170) KRW20mil-29.9mil (n ¼ 319) KRW30mil-39.9mil (n ¼ 477) KRW40mil-49.9mil (n ¼ 294) KRW50mil-59.9mil (n ¼ 249) KRW60mil-69.9mil (n ¼ 203) KRW70mil-79.9mil (n ¼ 124) KRW80mil-89.9mil (n ¼ 75) KRW90mil-99.9mil (n ¼ 61) KRW100mil or more (n ¼ 58) F-statistics (p-value)

Number of Air Travel per year Less than 1 (n ¼ 695) 1–2 (n ¼ 881) 3–4 (n ¼ 285) 5–9 (n ¼ 116) 10 or more (n ¼ 53) F-statistics (p-value)

Purpose of Travel Leisure (n ¼ 1610) Business (n ¼ 339) Visiting friends and relatives (n ¼ 75) Other (n ¼ 6) F-statistics (p-value)

RNTL

INSR

HTL

PARK

TRSF

FRX

ATTR

AMNT

BAG

3.39 3.33

3.74 3.79

3.53 3.54

3.28 3.26

3.75 3.95

3.75 3.89

3.58 3.82

3.17 3.21

3.28 3.46

2.11 (0.15)

1.46 (0.23)

0.06 (0.80)

0.19 (0.66)

24.87 ( < 0.01)

10.59 ( < 0.01)

33.49 ( < 0.01)

0.78 (0.38)

18.79 ( < 0.01)

3.24 3.28 3.46 3.41

3.80 3.69 3.77 3.84

3.62 3.45 3.58 3.55

3.07 3.29 3.33 3.30

3.97 3.78 3.80 3.89

4.01 3.71 3.78 3.86

3.96 3.62 3.61 3.71

3.34 3.11 3.16 3.25

3.51 3.29 3.31 3.43

5.80 ( < 0.01)

2.35 (0.07)

3.37 (0.02)

4.79 ( < 0.01)

3.65 (0.01)

6.79 ( < 0.01)

10.63 ( < 0.01)

4.68 ( < 0.01)

5.10 ( < 0.01)

3.24

3.65

3.52

3.26

3.85

3.88

3.84

3.36

3.44

3.28

3.76

3.59

3.24

3.89

3.86

3.77

3.27

3.46

3.30

3.76

3.48

3.22

3.82

3.84

3.72

3.10

3.29

3.40

3.82

3.53

3.28

3.85

3.83

3.65

3.13

3.34

3.42

3.65

3.47

3.29

3.78

3.76

3.59

3.17

3.28

3.40

3.81

3.55

3.22

3.83

3.75

3.51

3.15

3.34

3.52

3.83

3.64

3.42

3.81

3.73

3.65

3.23

3.38

3.47 3.44 3.40

3.86 3.90 3.74

3.61 3.60 3.69

3.46 3.41 3.47

3.80 3.80 3.76

3.73 3.70 3.66

3.58 3.56 3.48

3.20 3.20 3.28

3.40 3.34 3.47

2.08 (0.03)

1.36 (0.20)

1.31 (0.22)

2.04 (0.03)

36 (0.95)

0.98 (0.45)

2.55 ( < 0.01)

1.59 (0.11)

1.14 (0.33)

3.35 3.30 3.41 3.52 3.89

3.79 3.75 3.71 3.76 3.91

3.47 3.53 3.56 3.74 3.98

3.24 3.21 3.39 3.41 3.87

3.81 3.85 3.79 3.83 4.19

3.84 3.80 3.68 3.93 4.02

3.69 3.70 3.56 3.67 3.94

3.15 3.14 3.23 3.34 3.91

3.31 3.33 3.39 3.49 3.85

5.52 ( < 0.01)

0.82 (0.51)

5.89 ( < 0.01)

7.32 ( < 0.01)

2.42 (0.05)

2.47 (0.04)

2.31 (0.06)

9.27 ( < 0.01)

4.84 ( < 0.01)

3.36 3.37 3.36

3.79 3.63 3.85

3.56 3.43 3.56

3.28 3.24 3.41

3.84 3.81 3.87

3.83 3.71 3.91

3.73 3.45 3.68

3.20 3.09 3.41

3.37 3.26 3.48

2.67

3.83

3.33

3.17

3.67

4.00

3.83

3.50

3.67

1.01 (0.38)

2.92 (0.03)

1.98 (0.11)

0.64 (0.59)

0.16 (0.92)

1.81 (0.14)

8.09 ( < 0.01)

2.79 (0.04)

1.85 (0.14)

3.73 3.82 3.69 3.79 3.86 3.38

3.50 3.56 3.56 3.59 3.75 3.31

3.23 3.29 3.25 3.40 3.50 3.08

3.86 3.77 3.88 3.85 4.04 3.92

3.81 3.79 3.84 3.84 4.00 3.46

3.66 3.69 3.76 3.67 3.64 3.23

3.18 3.17 3.24 3.23 3.18 3.08

3.34 3.33 3.45 3.43 3.32 3.23

1.59 (0.16)

0.90 (0.48)

1.22 (0.30)

1.22 (0.29)

0.72 (0.60)

1.03 (0.40)

0.28 (0.92)

0.89 (0.48)

Most Frequently-visited Destination Japan or China (n ¼ 844) 3.33 Southeast Asia (n ¼ 755) 3.38 Europe (n ¼ 225) 3.40 North America (n ¼ 165) 3.44 Oceania (n ¼ 28) 3.18 Middle East or Africa 3.15 (n ¼ 13) F-statistics (p-value)

0.83 (0.53)

showing that airport parking was preferred by travelers but surface transport less so. Our survey results indicated that airport transfers were most popular commission-based ancillaries but airport car parking was one of the least popular. The differences could be explained by Korean traveler behavior and characteristics that the preference for airport

parking in O’Connell and Warnock-Smith (2013) was being replaced by the preference of airport transfers among Korean travelers. This could be because of more convenient airport transfer systems and/or more expensive airport parking rates in Korea. Travel amenities and neces­ sities offered on the airline websites were the least favored ancillaries in 9

W.-K. Song and H.C. Lee

Journal of Air Transport Management 82 (2020) 101735

Fig. 1. Need and willingness to purchase commission-based ancillaries from airline websites.2

the survey. This reflects the fact that demand for travel amenities and necessities is low for repeat travelers. Those items are not frequently purchased beforehand when the trip is being planned and packaged.

significantly higher need for and willingness to purchase a set of ancil­ lary products and services. However, respondents’ most frequentlyvisited destinations, which could be interpreted as flight distance and time, generally did not influence the results. This study supports the viability of ancillary offerings from airline websites targeting Korean travelers. The results show a high potential for successful upselling and cross-selling strategies via dynamic pack­ aging. Despite lower than average survey ratings for the need of hotel ancillaries on airline websites, there was higher than average willing­ ness to purchase if the service were offered. The results imply that, with carefully designed incentives, promotions, and discounts, airlines tar­ geting Korean travelers can become true online retailers. Airlines have distinct advantages and strong leverage in the travel retail market; their websites are large storefronts that travelers first peer into when planning a trip. By focusing on, understanding, and fulfilling customer needs to provide value-added experiences to customers, airlines catering to Korean customers can become real “retailers with wings” (Open­ JawTech, 2017). The limitations of this study are as follows. First, the sample data did not represent Korean outbound travelers properly in terms of the age demographics. The sample overrepresented those in their 30s and 40s and underrepresented those 50 and over. This could have increased the overall ratings because it is believed that younger generations are more tech-savvy and comfortable with shopping online, and they are hence more positive regarding purchasing commission-based ancillaries from airline websites. In actuality, the results found that the average ratings from those in their 30s were lower than those 50 and over (refer to Tables 6 and 9). We should be more concerned of the downward impact of the sample data on the ratings. Also, this study’s implications are limited to airlines serving Korean travelers because it is a Korean case study based on survey data of 2030 Korean air travel customers. How­ ever, this study also shows that acceptance level of and preference for each ancillary product could be country-specific, which would be useful to all airlines in developing regional ancillary revenue strategies. In addition, actual price questions, which would shed light on dynamic pricing and provide more information regarding the viability of dynamic packaging in Korea, were not asked along with the willingness to

5. Conclusion This study analyzed traveler need for and willingness to purchase ancillaries from airline websites via dynamic packaging based on a survey of 2030 airline customers in Korea. Increased ancillary revenue has played an important role in the recent success of the airline industry. In an effort to expand ancillary offerings and ultimately become air travel retailers, airlines have been scrambling to incorporate dynamic packaging into their websites. Dynamic packaging is the simple and easy packaging of flights, hotels, car rentals, and tourist experiences with real-time dynamic inventory and pricing. Despite the global trend in this area, many airlines catering to Korean travelers have been slow to develop and implement dynamic packaging, which could seriously threaten their competitiveness. The study confirms that Korean travelers demonstrated the need for and willingness to purchase ancillaries with flights from airline websites despite having had proportionately less experience purchasing commission-based ancillaries from airlines. Less than 30% of the re­ spondents indicated that they had previously purchased commissionbased ancillaries (e.g. airtel and aircartel) from airlines. Convenience (65.6%) and economy (30.8%) were the main reasons for previous purchases. Every commission-based ancillary was positively received by the respondents. Airport transfers (e.g. rail and shuttle services), foreign currency exchange, and travel insurance had the highest respondent ratings for both the need for and willingness to purchase. Travel ame­ nities and necessities (e.g. travel bag and voltage converter) had the lowest acceptance and preference ratings among Korean travelers. In­ consistencies between the findings in this study and previous studies (i. e. the higher willingness to purchase third-party products from airlines and the relatively inverted rankings of preferred ancillaries) could be attributed to the different travel behaviors and preferences of Koreans. The female respondents, the respondents in their 20s, and the re­ spondents who travel via air 10 or more times a year reported a 10

W.-K. Song and H.C. Lee

Journal of Air Transport Management 82 (2020) 101735

purchase questions in the survey due to issues and challenges in the implementation. This has been left for future research.

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