Mobile channel to emerge as a significant platform for ancillary services sales
Airline ancillary revenue is expected to touch $22.6 billion or €18.4 billion this year, as indicated by the preliminary results of the 2010 Amadeus Guide to Ancillary Revenue by IdeaWorks.
Published: 15 Oct 2010
Airline ancillary revenue is expected to touch $22.6 billion or €18.4 billion this year, as indicated by the preliminary results of the 2010 Amadeus Guide to Ancillary Revenue by IdeaWorks.
The €18.4 billion-mark, while significant, is still less than 5% of the operating revenue generated by the airlines in this study.
Philippe Chérèque, executive vice president commercial, Amadeus, said, “We expect to see ancillary revenues grow significantly as airlines are only now beginning use the high-yield travel agency channel to sell their range of ancillary services.”
Caution
Chérèque cautioned: “As ancillary services represent an ever-larger proportion of revenue, and add more and more layers of complexity to the airline offer, it is vital that airlines consider the end-to-end process of selling, fulfilling and delivering ancillary services. This is difficult even when things are going smoothly. But when a flight is cancelled due to bad weather, an airline has to re-accommodate a plane full of passengers, each with their own combination of assigned seats, in-flight entertainment, additional bags and preferred meals. Successfully translating ancillary revenue into additional profit rests on an airline’s ability to manage such situations efficiently.”
“Looking to the future, we expect the mobile channel to emerge as a significant platform for ancillary services sales as it offers the ability for airlines and travel agencies to push context-sensitive offers to clients,” Chérèque added. “Travellers arriving early at the airport might be offered an hour in the Premium Lounge, for example. For a price, of course …”
Earlier this year IdeaWorks tabulated the ancillary revenue disclosures made by 46 airlines. The results reveal natural groupings based upon a carrier’s ability to generate ancillary revenue. The “percent of revenue” results associated with four defined categories were then applied to a worldwide list of operating revenue disclosed by 150 airlines. The following describes the four categories:
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- Ancillary Revenue Champs. These carriers generate the highest activity as a percent of operating revenue. The average assigned to this group was 19.4 percent. Examples include Allegiant, Flybe, Ryanair, Spirit and Tiger Airways.
- Major U.S. Airlines. U.S.-based majors generate strong ancillary revenue through a combination of frequent flier revenue and baggage fees. The average assigned to this group was 7.2 percent. Examples include American, Delta and United.
- Low Cost Carriers. LCCs throughout the world typically rely upon a mix of à la carte fees to generate good levels of ancillary revenue. The average assigned to this group was 5.4 percent. Examples include AirArabia, Air Berlin, Spicejet, Spring Airlines, Virgin America and Westjet.
- Traditional Airlines. This category represents a catch-all for the largest number of carriers. Ancillary revenue activity may consist of fees associated with excess or heavy baggage and limited partner activity for a frequent flier program. The average assigned to this group was 2.9 percent. Examples include Asiana, British Airways, Egyptair, LAN, Scandinavian, and Silkair.
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- Ancillary Revenue Champs. These carriers generate the highest activity as a percent of operating revenue. The average assigned to this group was 19.4 percent. Examples include Allegiant, Flybe, Ryanair, Spirit and Tiger Airways.
- Major U.S. Airlines. U.S.-based majors generate strong ancillary revenue through a combination of frequent flier revenue and baggage fees. The average assigned to this group was 7.2 percent. Examples include American, Delta and United.
- Low Cost Carriers. LCCs throughout the world typically rely upon a mix of à la carte fees to generate good levels of ancillary revenue. The average assigned to this group was 5.4 percent. Examples include AirArabia, Air Berlin, Spicejet, Spring Airlines, Virgin America and Westjet.
- Traditional Airlines. This category represents a catch-all for the largest number of carriers. Ancillary revenue activity may consist of fees associated with excess or heavy baggage and limited partner activity for a frequent flier program. The average assigned to this group was 2.9 percent. Examples include Asiana, British Airways, Egyptair, LAN, Scandinavian, and Silkair.
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The following are examples of the information and best practices described in the Guide:
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- AirAsia X disclosed ancillary revenue in excess of €17 per passenger with its online à la carte booking activity; more than 80 percent of passengers pre-paid baggage fees.
- Continental implemented flexible pricing for extra legroom seating; higher demand increases the price offered to consumers.
- easyJet offers unlimited early boarding benefits for 12 months through its easyJet Plus membership card.
- KLM is testing premium pre-order à la carte meal options for €10 on 8 long haul routes from Amsterdam such as Calgary, Dubai and Sao Paulo.
- Ryanair now sells carry-on compliant luggage from Samsonite on its website.
- Vueling Airlines uses frequent flier bonus points to encourage consumers to book hotel accommodations at its website.
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- AirAsia X disclosed ancillary revenue in excess of €17 per passenger with its online à la carte booking activity; more than 80 percent of passengers pre-paid baggage fees.
- Continental implemented flexible pricing for extra legroom seating; higher demand increases the price offered to consumers.
- easyJet offers unlimited early boarding benefits for 12 months through its easyJet Plus membership card.
- KLM is testing premium pre-order à la carte meal options for €10 on 8 long haul routes from Amsterdam such as Calgary, Dubai and Sao Paulo.
- Ryanair now sells carry-on compliant luggage from Samsonite on its website.
- Vueling Airlines uses frequent flier bonus points to encourage consumers to book hotel accommodations at its website.