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Ancillary revenue is now a virtual necessity for airlines seeking financial success

Jay Sorensen

President of the IdeaWorks Company and author of the Amadeus Yearbook of Ancillary Revenue

Ancillary revenue has become a crucial factor in fiscal viability for airlines all over the world. Few airlines ignore this phenomenon entirely, and more each year rely on it heavily.

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At US-based Spirit Airlines, a la carte fees and other ancillary revenue activities now yield 33 percent of total revenue. The combined behemoth of United Continental garners ancillary revenue in excess of $5 billion a year. On a per customer basis, few carriers exceed AirAsia X at nearly $40 per passenger. Ancillary revenue has become popular with airlines and investors alike.

And despite everything you hear, it’s also good for consumers.

A couple of years ago, I flew a major network airline on a multi-stop trip from Barcelona to Istanbul. It was my first trip on the airline and I was curious about the carrier’s brand promise to deliver culturally inspired service.

During seven hours of travel my culinary experience was limited to table wine poured into a flimsy plastic cup and a bag of crackers; nothing else was available . . . even for a fee.

Like most airlines, the free amenities in the economy cabin had been cost-cut to virtual nothingness.

But on EasyJet, one of Europe’s largest low cost carriers, passengers may choose from an a la carte menu of more than 80 items, to include pizza margherita and panini mozzarella. Opening my wallet on EasyJet would’ve been preferable to going hungry on the bundled product.

The contrast reflects the new shape of today’s airline industry.

Ancillary revenue methods allow consumers to add convenience, comfort, and value to the travel experience.

The challenge for any airline is to choose which commission-based, a la carte, and frequent flier features best align with the promises, explicit and implicit, an airline makes to consumers, employees, and investors.

It is neither evil nor angelic. It’s simply a way to sell specific features to customers who choose them ─ and thereby boost the lifeblood of any business, its sales.

Have a look at the press release announcing the Review of Ancillary Revenue Results for 2011 by IdeaWorks .