Airlines worldwide generated more than $10.25 billion in ancillary revenue in 2008, a figure we suspect has both airlines and airline travel affiliates smiling.  Based on a thorough analysis of  financial statements from 92 airlines, brand consultancy IdeaWorks says airlines are increasingly looking to revenue generated form unbundled services to offset deteriorating average ticket prices and yields…and this strategy clearly is working.

In their just released second edition of the Ancillary Revenue and A La Carte Guide, IdeaWorks and the survey’s sponsor, travel software developer ezRez Software, whose ‘plug and play’ software enables airlines to integrate hotels, rental cars, trip activities and insurance in the travel supplier’s online booking path, note that revenue associated with ancillary fees paid by passengers in conjunction with their airline ticket purchases in 2008 increased by a whopping 345% compared with 2006.

Ancillary revenue is the ‘catch-all’ phrase which the airlines use to characterize the incremental revenue generated from fees associated with checked baggage, premium seating, meals, in-flight entertainment, frequent flyer and a host of other traditionally ‘free’ services that travelers are now expected to pay for.

Examples of successful airline ancillary revenue schemes cited in the Ancillary Revenue and A La Carte Guide include:

  • United generates an average of $5.81 per domestic passenger from checked-bag charges
  • Southwest sells about four Business Select tickets per flight on average, contributing approximately $75 million in incremental revenue in 2008
  • AirAsia X, a Malaysia-based low-cost airline, realizes $2.75 million per year from the sale of pre-ordered meals

Additionally, IdeaWorks and ezRez point out that the 5 top airlines – American Airlines, United, Delta, Ryan Air and Qantas – collectively accounted for more than 60% of the total industry tally – approximately $6.4 billion.

TravelDividends would like to point out that two of the above referenced carriers – Delta and Qantas – sell through travel affiliates, and based on our review of their travel affiliate programs, each airline shares some of the revenue generated from its ancillary program with their travel affiliate partners.

TravelDividends also believes that airlines will continue to add more service fees and ‘a la carte’ pricing schemes; this is the future of the airline industry (for example, within days of the release of the IdeaWorks report, United announced that they will be implementing a $50 fee for a second checked bag on flights between the U.S. and Europe; the fee applies to economy tickets purchased on or after Sept. 30 for travel starting Dec. 15).

Travel affiliates who sell Delta and Qantas as well other airlines that offer travel affiliate programs stand to reap some of the revenue inflows from their ancillary charges both today and in the long-term.  We hope those of our readers who are travel affiliates are in this group.

What’s your view on ancillary programs, and what experience have you had with these types of programs?  Let us know…leave a comment or drop us an email; we look forward to hearing from you!

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