We’ve witnessed the great airline ticket unbundling, which has shifted all-inclusive fares to an a la carte ticketing strategy.
This has given travelers greater choice and flexibility while giving airlines more ways to customize the flying experience onto their path to personalization.
These extras from the base fare which are not required to travel are known as ancillaries. Travelers are presented with lower fares in exchange for the ability to purchase only the additional products that they need for their specific journeys.
Ancillary Revenue Categories
So, what kind of products are considered ancillaries? The best way to understand ancillaries is to categorize them and walk through each category. In the graphic below you’ll see a broad-level overview.
As you can see, ancillaries can be broken down into three distinct categories: Attached Products, Partnerships and Loyalty. We’ll walkthrough each one and their corresponding products.
Let’s first begin with a bit of history. In 1981, Former American low-cost airline PeopleExpress charged travelers $3 for checked bags, and by 2005, most airlines were charging for overweight bags.
However, baggage fees really took off with Ryanair. The low-cost carrier began charging travelers for checked bags in 2006 ($10 if purchased online and $20 at the airport).
By 2008, even most full-service carriers started shifting towards unbundling and were charging for checked bags.
By 2010s, carry-on bags were the next to be added as an ancillary. In 2010, Spirit Airlines began charging for carry-on bags followed by Allegiant Airlines and Frontier Airlines in the coming years.
Today there are several baggage-related ancillary products.
Types of Bag Charges:
- Carry-On Bags
- Checked Bags
- Sporting Equipment
There are some additional optional services that are related exclusively to bags:
- Priority bag drop
- Priority bag return
- Lost bag insurance
- Valuable baggage insurance
- Hands-free bag
As you can see, even a seemingly singular component such as a bag can have a significant number of ancillary options related to it.
Next to baggage, seat selection is probably the most understood type of ancillary. While premium ticket purchases include seat selection, it’s become very common (even for full-service carriers) not to include seat selection as part of the standard fare.
Seat selection options are based on the Seat Zone or Sear Group a traveler has access to based on the fare class a traveler has purchased.
While many airlines today have branded seat zones, the most common seat zones are:
- Lie flat
- Business Class
- First Class
- Extra Leg Room
- Front of Aircraft
- And the rapidly growing Premium Economy option
Additional services related to seat selection include:
- Neighbor Free Seat (Extra Seat)
- Some airlines require oversized passengers to purchase an extra seat (as you can imagine this policy isn’t without scrutiny).
- Upgrade auctions that allow travelers to bid on seat and cabin upgrades.
- Some airlines have explored different pricing based on Window, Middle and Aisle seats.
There are a few other points to be aware of when it comes to seat selection ancillaries. One of the challenges for airlines comes with family seating. Family seating rules require children 15 or younger to be seated with an adult on their reservation.
Unfortunately, random seat assignment algorithms are not configured to follow these rules and can separate a child from an adult, which means gate agents are then required to reseat travelers.
The other important component here is regarding premium seat zones such as First Class and Extra Leg Room. The limited quantity allows for revenue optimization utilizing traditional revenue management techniques.
Changes and Cancellations
Changes and cancellations related ancillaries have faced the most upheaval during the pandemic as airlines have given travelers greater flexibility during uncertain times.
During normal travel periods there are three main types of changes a traveler can make to a ticket:
- Flight Modifications: A traveler changes the flight date/time or origin/destination (fare difference will apply)
- Flight Cancellation: A traveler cancels the flight
- Name Change: Change the name of the traveler on the reservation
If these changes are made on the same day of travel, there are additional perimeters to consider:
- Same Day Change (Same day airport change): A traveler changes to a later or earlier flight on the same day as the original departure date. This charge typically only occurs at the airport. The traveler will not pay a fare difference.
- Same Day Standby (Revenue Standby): A traveler requests to be added to the standby list for a flight departing the same day as their original flight. The traveler will not pay a fare difference
- Airline Trip Protection (Passenger Rescue Service, Departure Protection): Pre-purchased service that requires airline to help the traveler in the event she/he misses her/his flight. This can include giving priority to these travelers in the event of a flight cancellation
Of course, travelers can purchase additional ancillaries in order to avoid these potential change fees:
- Flexibility: Avoids the change fee if the traveler decides to move her/his flight. The traveler will still pay the fare difference
- Refundability: If the traveler cancels the ticket, she/he will receive a refund (not all ancillary fees are refundable).
- Hold Fare: Pay a fee to lock in the ticket price (for 24-48 hours) without purchasing the tickets. During this time the price of the ticket will not change but full payment must be received by the end of the reservation period to make the reservation
Something to note is that premium fare families include flexibility/refundability.
We've seen booking charges pop up in aviation discussions in relation to how fares are distributed.
Airlines are using these fees to encourage travelers to select purchasing channels that are most beneficial and cost effective to the airline.
Booking charges can be classified in the following ways:
- Call Center: A booking fee for booking a ticket via the call center or service fee when adding an item to an existing booking that can be purchased online
- Airport or Office: Agent Booking Fee for going to the airport or ticket office to buy a ticket
- Web Booking Fee: Charge to book a ticket online. A Website Booking Fee (cost of maintaining the airline’s website passed to the traveler) or GDS/NDC Booking Fee (charge when a ticket is purchased through a 3rd party channel)
- Award Redemption Fee: Charge to book award travel
- Group Booking Fee: Charge to make a group reservation (typically 10+ passengers)
Along with booking fees, are sometimes payment charges, which consist of:
- Payment Method Fee (most commonly credit card transactions): The airline passes along the fee paid to credit card (or other) companies to the traveler. Payment charges can vary based on payment method
- Deferred Payment Fee: Additional charge to create a payment plan for the value of the PNR (this is often provided as a partnership with another company)
In addition to the ancillaries we’ve already discussed, there are a few others of significance. Another large category is priority services, allowing travelers access to an expedited service line. Among the priority services are:
- Priority Boarding
- Priority Security
- Priority Bag Drop
- Priority Check-in
- Priority Bag Return
In addition to priority services, there are other airport-related services that travelers can purchase:
- Lounge Access
- Agent Check-in Fee (Boarding Pass Printing Fee): Charge for checking in with an agent. This does not apply if the customer is not eligible for online check-in
- Auto Check-in or Early Check-in
- Paper Invoice/Itinerary Reprint
- Personal Attention at the Airport: This varies depending on the airline. It can be agent check-in or assistance through security and to the gate
And finally, there are a few other ancillaries to be aware of:
- On-time Arrival Guarantee
- Unaccompanied Minor
- Infant Charge
- Pending Passenger
This is often referred to as Dynamic Packaging and includes the sale of any item not directly related to transportation from point A to B. Through partnerships, a traveler can reserve their hotel, car and even tickets to events.
By bundling these services together, travelers can save money (and planning time) on their entire trip.
Vacation packaging is how airlines compete with online travel agencies. Vacation packaging items include:
- House or Apartment
- Car Rental
- Transportation to/from the hotel
- Airport Parking
- Tickets to shows or events
While loyalty programs can be their own entire topic, we’ll keep it brief for now. Loyalty programs can be classified into two categories.
Frequent Flyer Program:
- Any program that allows a traveler to earn miles based on their trips
- Co-branded Credit Cards: Credit card are offered with a bank partnership and travelers earn miles on anything they purchase with the credit card
- Travelers can buy miles or buy miles accelerator programs to redeem on flights or reach the next loyalty status level
- Earn/Burn Miles Partnerships: Online shopping portal that allows travelers to buy items and earn extra miles on their purchases or spend their miles on different products (ex. Magazine subscription)
Paid Loyalty Program: A paid club that gives travelers access to exclusive discounts and promotional fares
Rounding out partnerships are three other categories:
- Travel Insurance: Additional insurance coverage fulfilled by a third-party company, ranging from medical coverage to lost baggage coverage
- In-Flight Entertainment and Wi-Fi: Internet access and stored content such as movies, TV shows or games preloaded to the airline’s entertainment portal
- Food and Beverage: Available to order both during the flight and (for some airlines) pre-flight
As you can see, there are no shortages of opportunities for airlines to capitalize on when it comes to boosting per-passenger revenue.
Ancillaries give both the traveler and the airline greater flexibility in constructing the ideal travel journey. Stay tuned for more ancillary-related content such as KPIs and metrics, bundling strategies and dynamic pricing.