Why Ancillary Revenue Is Crucial for Airlines
To date, the global airline ancillary revenue is set to exceed USD$100 billion. If we were to track it for the last ten years, the said revenue has increased fivefold. Airline operations and marketing strategy play a big impact on this.
But first, let’s define ancillary revenues most simply and clearly. It includes every little extra that a passenger pays including its seat selection, the extra baggage allowance, the extra legroom, and those mealtime snacks on board. Other aspects also contribute to this such as the frequent flyer schemes, travel insurers, cobranded credits, and even hotel partners.
In the aviation industry, the ancillary revenue is further divided into two categories namely a la carte revenue, and frequent flyer and commission-based revenue. Those you pay as the trolley comes down the aircraft’s aisle and the add-ons you buy top of the base fare includes on the a la carte revenue. This year, out of the USD$100 billion expected to flow into the airline’s coffers, almost 69% came from the a la carte activity and the remaining is from the frequent flyer and commission-based revenue. The given proportion does not vary across regions and even airline type.
As per the reliable data released in Forbes, the five biggest US carriers will surely generate over USD$29 billion in terms of ancillary revenue this year. Travelers are more than aware and accepted the reality of this but it doesn’t mean that they like it. The IATA provides an estimate of USD$899 billion which will be spent on airfares in 2019. With that, the ancillary revenue will then account for 12.2% of global airline revenue, this is equivalent to USD$23.91 per passenger.
The aviation industry is now shifting from the all-inclusive bundled fares to base fares wherein the passengers are given a free will to add the desired services. Such a trend isn’t just restricted to low-cost carriers. This is also seen on full-service airlines like British Airways. Even seat selection here in no longer free. This also poses an issue in the premium cabins where several airlines begin experimenting with unbundled fares in the business class.
We all know that the aviation industry is also susceptible to economic downturns, high operating costs, and even downward pressure on fares. They continue to expand the stream where they can gain revenue to hedge against this. To conclude this, ancillary revenue is needed in transforming how the airline industry operates. As you will notice, the ancillary revenue keeps rising despite the economic and operating challenges.