Ancillary revenue - coming soon, around the world

"Isn't this just a passing trend?"

I heard that question a lot during the early phase of the ancillary revenue revolution, just a few short years ago. Journalists were looking for a red-flag topic; skeptics considered a la carte fees a huge business mistake.

My answer is: 32.5 billion dollars can't be wrong.

That's my latest estimate of the revenue provided by ancillary fees and activities among major airlines around the world.  The phenomenon has spread across the globe, into every airline sector, and into every aspect of air travel.

So today the questions have changed.  Members of the media want to know what revenue innovation will occur next.  Airline CEOs want to know, “How can we use an a la carte strategy to capture more revenue?”

Low cost carriers have always been aggressive practitioners of the ancillary revenue art.  So undoubtedly many airline passengers already pay these fees.  The oil price spike of 2008 incited many of the world’s largest airlines to join the revolution.  United, American, and Delta -- all stalwart legacy alliance members -- filed new baggage fees for travel within the US, across the Atlantic, and to a growing list of destinations all over the globe.

There’s a domino effect associated with that.  The close ties created by joint ventures, codeshares, and global alliances encourage product integration.  It’s not easy for consumers when polices and prices vary under the common umbrella of a Star, Oneworld, or SkyTeam alliance.  The bag fees filed by one major partner slowly become the law of the land as partners seek a seamless travel experience.  And the billions in revenue that result represent a happy benefit in an industry still on the hunt for better profits.

I often encourage airlines to lead the way and not wait for the inevitable arrival of bag fees.  Moving early and carefully allows an airline to establish its own direction, methods, and message.  Rather than view this new world as fee-based, I recommend a service-based perspective.  For example, Alaska Airlines added a baggage fee -- with a meaningful payout if the carrier fails to deliver on time.  Delta Air Lines added Fed-Ex style bag tracking to its baggage service.

Consumers readily pay fees if they feel value has been added.  In service industries, offering better value has always been the key to increasing revenue.  This revolution is here to stay.

How sure am I?  32.5 billion dollars sure.

Update: See more information from the Amadeus worldwide estimate of ancillary revenue.