An ever-growing retail presence of a la carte choices in GDSs is driving ancillary sales higher, says IdeaWorksCompany President Jay Sorensen.

It’s shaping up to be another record-breaking year for ancillary revenues, according to the latest report by aviation and travel business consultancy IdeaWorksCompany, and its sponsor, CarTrawler, the travel and ground transportation platform.

IdeaWorksCompany’s airline ancillary revenue forecast says that fliers will spend $109.5 billion globally by the end of 2019.

That’s an 18 percent jump from 2018’s $92.9 billion worldwide ancillary spending. And as the decade draws to a close, the CarTrawler Worldwide Estimate of Ancillary Revenue represents an almost fivefold increase from its first report in 2010, when fliers around the world spent $22.6 billion on non-booking related items.

On an individual level, ancillary revenue is nearly $24 per passenger for 2019, the report stated.

This latest report from IdeaWorksCompany and CarTrawler updates an earlier estimate from 76 airlines for 2018. Those figures were compiled into a larger list of 160 airlines to provide a fuller global view of ancillary revenue activity. (See Kambr Media’s Infographic of IdeaWorksCompany/CarTrawler’s best performing airlines for a look at individual carriers’ rankings.)

“Global ancillary revenue is projected to pass the $100 billion mark in 2019, marking an almost five-fold increase in the segment’s value since 2010,” said Aileen McCormack, Cartrawler's chief commercial officer in a statement. “This statistic alone underlines the significance of airlines providing a sophisticated array of ancillary products along with a superior customer experience. To put it simply, the airline industry has been transformed and carriers must now adopt a wide-ranging ancillary suite if they are to cater to individual passengers’ needs and thrive in today’s marketplace. Airlines must realize that the customer experience does not end with the flight, and the very best operators in the market are distinguishing themselves from the competition by using intelligent data insights to own the last mile.”

Source: IdeaWorksCompany and CarTrawler

The Power Of Choice

Most ancillaries have tended to rely on a range of fees and sales such as bag check, meals, hotel booking packages, seat selection, priority boarding, the sale of frequent flyer miles, and the airlines’ marketing of co-branded affiliate credit cards.

But it’s the emergence of a la carte services that have pushed ancillary revenues higher, said Jay Sorensen, president of the Product, Partnership and Marketing Practice.

For the most part, it’s the low-cost carriers that have done the most to push the envelope on creative a la carte offerings. Legacy airlines have taken note of LCCs’ strategies and added more unbundled products in a nod to wider initiatives designed to personalize the flying experience for travelers.

“I think the increase is due to global network airlines adopting more ancillary revenue practices, this is especially true for seat assignment fees,” Sorensen told Kambr Media. “I've been surprised how these have been picked up by carriers outside of the U.S.  Other contributing reasons are an ever-growing retail presence of a la carte choices in global distribution systems. 

“Plus, ancillary revenue savvy airlines are becoming more adept at pricing products using variable pricing, and this boosts ancillary revenue,” Sorensen added. “Generally speaking, ancillary activity will likely top out at 50 percent for the most aggressive low-cost carriers.”

How Much Farther Can Ancillaries Fly?

For Mexico’s ultra-low-cost carrier Viva Aerobus, ancillary revenue is particularly important. And the IdeaWorksCompany/CarTrawler report identified the ULCC as one of the “Ancillary Revenue Champs” along with AirAsia Group,, Pegasus, Ryanair, and fellow Mexican ULCC, Volaris.

Viva Aerobus CEO Juan Carlos Zuazua Cosio has noted that 49 percent of the airline’s total revenue per passenger comes charging for additional services beyond the booking.

“We believe we are still a long way from ancillaries’ products and services reaching their full potential in the airline industry,” Zuazua Cosio said. “The biggest pending task is personalization; currently, we are all trying to show all or most of our services to everyone. No matter how neat airlines’ ancillaries funnels might look, if viewed from an e-commerce perspective, we are not making offers as relevant and personal as other players in the retail or entertainment industry.”

Pre-paid loyalty programs and extensions to ground transportation – Viva’s parent is Grupo IMASA, one of Mexico’s largest bus companies – are two ways the airline is driving its ancillaries revenue higher.

Looking at Volaris, that airline's ancillaries right now comprise 36 percent of its total operating revenue, Holger Blankenstein, EVP of Airline & Commercial Operations, told Kambr Media this summer.

"We believe we can get that north of 40 percent, in the medium-term," Blankenstein said regarding ancillaries as a percent of total operating revenue. "Eventually, I would like to see the ticket price be lower than 50 percent of the share of total revenue. That's what thrives in the demand stimulation – that low ticket price. Then the customer can select optional products and services."

Volaris has been exploring three potential sources of development for ancillary revenue growth.

"Number one, is obviously new products," Blankenstein said. "Ideally, we’re exploring products that are not air-travel related, such as commission-based ideas. Packaged deals with hotels, as I mentioned, is one example of that.

"Number two is optimizing the pricing for the ancillary products," he added. "We’re doing a lot of experiments with what the ideal baggage price, the carry-on price, the seat assignment price is. We’re looking by route, by season, by advanced purchase, so fine-tune that. And then the third is taking that experience onto the mobile phone. It’s all about offering the right ancillaries, at the right time. There are ways to drive ancillaries before someone is in the air, say, as they’re on the way to the airport or approaching the gate. That's what we want to do."

An Added Boom In Good Tough Times, A Cushion In Rough Ones

The growth of ancillaries at Delta Air Lines reflects “what we’re doing with premium product – giving people more value rather than relying on the core ticket price,” said CEO Ed Bastian at Skift's Tech Forum in September. “Less than 50 percent of our revenues as a corporation come from the main cabin, which is a first time in our business that we’ve had that much diversity.”

And while ancillaries offer an additional enhancement in good times, a la carte sales also offer a cushion when the economy turns downward.

“If we get into a recession, what will it do to our revenue base?” Bastian said. “Clearly, the main cabin is the most price sensitive revenue that we generate. So, being able to generate a diversified source of revenue is important to the airline.”

To easyJet CEO Johan Lundgren, speaking on a panel at September's World Aviation Festival, “Ancillaries are about asking: is there really a way of customizing your proposition for your customer?”

“No customer wants to pay for things that he or she is not in need of," Lundgren said. "So we look and consider it as a great way of that data will allow us to be even better and come up with something that suits you. That allows us to keep the base price at a really attractive level; but then again you are paying for what you want to do, which means that you will have a customized offering as well. And I think that's what any industry would strive for.”

What's Next For Ancillaries In 2020?

One of the most intellectually interesting aspects of Diggin Travel’s recent exploration of ancillaries in its 2019 Digital Retailing Survey is its pondering of the question: If ancillaries are becoming so essential to airlines’ revenue and notions of digital transformation and new retailing capabilities, should they be called something that isn’t literary defined as “extra” or “supplemental?”

“If airlines want to only be the provider of transport, then by all means stick to the word ‘ancillaries,’” retail analyst Richard Hammond told Diggin Travel. “If airlines believe that all they’re selling is a ticket from A to B, then ancillaries makes sense. But actually, if you are only selling a ticket to go from A to B, that really narrows your ability to influence whether a customer wants to choose you to solve their particular travel challenge or not.”

As IdeaWorksCompany/CarTrawler noted, the Ancillary Revenue Champs generate the highest activity as a percentage of operating revenue.

The percentage of revenue achieved by this group jumped to 36.1 percent from 33.9 percent last year.

Certainly, airline execs across the board are reviewing rivals’ and non-direct competitors’ strategies alike for keeping the fare price down while driving operating revenues as they set their goals for next year.

“I know CEOs of global network airlines use the Yearbook as a method to compare their results with other carriers, and seek to grow revenue when they feel peer airlines are achieving better results,” Sorensen said. “In terms of 2020, I would expect consistent ancillary revenue growth to continue.”