Airline ancillary revenue continues to grow but traditional channels are the key to future performance

While low-cost carriers have spearheaded the ancillary revenue revolution (notably, Spirit Airlines attributed around a third of its total revenue in 2011 to the sale of optional extras), many traditional airlines are now prioritising ancillary services too – and reaping the financial rewards. The value of ancillary revenue disclosed by airlines in 2011 is more than €3 billion greater than in 2010.

As we would expect, global giants – United/Continental, Delta, and American – head the list of top 10 airlines for ancillary revenue.  Southwest is also performing well, having climbed up to 5^th place. Southwest is in fact a new entry in the top ten list; its ancillary service innovations include the EarlyBird option – early boarding for around €8 – which brought the airline €114 million in 2011.

Channel paradox

Ancillary service sales run conversely to the general sale of tickets from a channel perspective. Airlines have long sought to ‘balance distribution’, typically moving from a high in-direct base in the last decade to more of an even split with their own direct websites. The benefits were seen as higher volume, in certain circumstances lower cost and direct customer interaction. The reverse is true with ancillary sales. Airlines have begun with a high base of ancillary offers on their websites but only limited implementation in the hugely important travel agency channel.

The fact that 50% of airline sales are made in-directly means a huge portion of ancillary revenue isn’t being collected today that could be with a multichannel approach. Some savvy airlines have spotted and acted on this opportunity, realising that it makes sense to represent your product fully, everywhere the customer interacts with or buys your brand.

If we want to see the ancillary revenue number rise in the future addressing the channel imbalance is one of the first areas that warrants attention.

Progress underway

Some airlines are already in full swing, in addition to Corsair that we launched in 2010 through travel agencies in France, 5 other airlines are using Amadeus Airline Ancillary Services to sell their optional services in 15 markets today.

In total, 46 airlines have signed up to the Amadeus Ancillary Services Solution and 21 airlines have signed up to distribute ancillary services to travel agents and we expect to launch 8 new travel agency markets by the end of 2012.

Making indirect ancillary sales work

What we keep hearing from the marketplace is ‘’keep it simple and consistent’’. Travel agents want an easy solution to sell optional services both quickly and efficiently. Agents appreciate the ability to book anything their customer needs in one system using standard formats which they are used to handling, productivity is the key.

The lesson from our initial ancillary services customers is that simple products with features that are similar to the ones they sell on their website work best through the indirect channels and drive the most incremental revenue.

Amadeus is committed to helping airlines continue the growth of ancillary services according to their own business strategies. Our technology offer is designed so airlines can differentiate their brand and upsell whilst making extra services simple for travel agencies to book. Travel agents are keen to offer their customers additional options to enhance loyalty and there is a huge opportunity for airlines that can work with agents in the way they need.

For more information on the impact ancillary revenue is having for carriers please see the press release announcing the Review of Ancillary Revenue Results for 2011 by IdeaWorks.