A REVIEW OF RECENT TRENDS IN AIRLINE ANCILLARY REVENUES

A REVIEW OF RECENT TRENDS IN AIRLINE ANCILLARY REVENUES

 

Abstract: Airline ancillary revenue which refers to non-ticket revenue sold directly to passengers or indirectly as part of their travel experience, has become a mandatory component for the revenue mix of all airlines as well as a key reason for the improved fi nancial performance of the airline industry in the recent years. It is  generated by a large amount of activities that include „a la carte” services such as fees for checked bags, frequent fl ying miles to airline partners, miscellaneous sources like advertising and commission-based products such as infl ight retail, and car rentals - virtually any service added to the core transportation service. Contribution of ancillary services to the total revenue streams of airlines has been increasing substantially over the past decade. In 2007, the top ten airlines, as rated by total ancillary revenue, generated $2.1 billion, while ten years later, the top ten airline total has reached $29.7 billion. Th e paper explores the recent growth and trends in  incillary revenue in the airline industry, particularly within in the last ten years and identifi es signifi cant diff erences in ancillary sources with regard to carrier type. Low-cost carriers pioneered the practice of charging for supplementary services that were previously provided free of charge by seeking revenue from checked bags,  assigned seats and extra leg room seating. Traditional airlines moved from all-inclusive booking arrangement and started to adopt add-on bundling practice when selling fl ight tickets taking advantage of low headline price. Th eir ancillary revenue mostly comes from the use of frequent fl yer program, a mix of baggage fees and premium seats. Top airlines in overall ancillary revenue performance measured as total revenue, a percent of revenue, or on a per passenger basis are determined in the paper and new trends in creating ancillaries are elaborated. In order to improve profi t performance, the airline revenue management and distribution systems should consider total revenue from  each passenger, by linking his ticket value and his ancillary revenue potential.

 

Key words: ancillary services, ancillary revenues, unbundling, airline profi tability, low-cost airlines, legacy airlines