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The airline industry has developed several ancillary products and services to maximise revenue. The revenue generated from airline ancillaries or “extra” products has now become an integral part of any airline’s business model.
Read on to know the types of ancillaries that airlines offer and the revenue generated from them.
Airline ancillaries are revenue generation sources that differ from ticketing revenue. Services like food and beverages, bag check-ins, better seats, early boarding benefits, and other a-la-carte features not included in the ticket price are examples of ancillaries. There might also be commission-based products like accommodations and car rentals.
Collection of ancillary revenue allows airlines to upsell a product in the form of a better choice of seating (aisle seats, for example) or cross-sell its primary product (airline ticket) with complimentary items like food and beverages. These factors help airlines to increase their revenue by fulfilling customer expectations or making their experience more rewarding.
Airline companies worldwide consider ancillary products and services as a primary source of revenue generation. With annual revenue of around Rs. 4 lakh crores (as of 2019), ancillary products help airlines make more profit than what is generated from sale of tickets.
Ancillary products include products and services that are not included in the ticket price. They can broadly be classified into three primary divisions.
These include products that are directly connected to a flight experience. Typically, with lower competitive ticket pricing, airlines choose to make money from baggage, seat selection, flight modifications, booking charges and priority products, etc. Here are some of the examples:
Baggage charges can include charges on carry-on bags, checked bags, size specifications or oversized bags, sports or music equipment, etc. In addition, it may consist of timed bag drop or return expenses, lost bag insurance, etc. Charges for each of these services are different for different airlines.
Getting your own choice of seats is chargeable, and airlines consider seat selection an important ancillary product. Thus, you must pay separately for business class, first class, front row, or additional legroom space. Airlines also charge additional fees for extra seats, special seats for oversized passengers, etc.
Imagine facing an emergency that requires you to cancel your flight and reschedule it to a future date. Or, you may choose to cancel a flight or change personal information on the reservation. Such changes in booking may require additional charges that have to be paid by the traveller.
Customers incur additional booking fees for flight reservations with a service provider. Other options like online or group booking also call for additional charges. In addition, other expenses like priority boarding, priority security, priority bag drop or check-ins also add to the flight’s ancillary revenue. Customers also pay for lounge access, paper invoices, infant charges, or on-time arrival guarantees.
These include charges on products and services not directly connected to transportation. This may include services like airport pick-up and drop facilities, hotel reservations, cab reservations, etc. Many online travel agencies collaborate with airlines to offer these services. In addition, services like trip insurance, inflight entertainment and advertising are partnership programs that can help airlines earn more money.
Airlines may present customers with rewards for frequent reservations that allow them to earn loyalty bonuses. Co-branded credit cards and mile accelerator programs reward customers based on the frequency of their trips.
Airlines’ ancillary revenue can be generated from several airline products/service types.
A-la-carte: Certain products and services meant to improve the flight experience are introduced by airlines, although they are simple add-ons that add value to the primary product, flight tickets. These include products and services like small meals, beverages, duty-free products like chocolate, baggage, priority boarding, seat upgrades, free Wi-Fi, etc.
Commission-based products: Third-party products fetch commission for the airlines depending on the number of sales. These are primarily promoted during the booking process. Calculating the airline’s ancillary fees from these products requires efficient data analysis. These include products and services like hotel or cab bookings, flight insurance, nearby tour packages, foreign currency exchange, etc.
Third-party advertising: Ancillary revenue management through advertising is lucrative and convenient. Many budget airlines allow rampant advertising on seatbacks, tray tables, boarding passes, or social media. Third-party companies can also advertise their brand on in-flight infotainment systems or magazines.
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