Feature: Ancillary Revenue


airline operating revenue worldwide, in a market worth €18.4 billion. The survey is based on 150 passenger airlines worldwide, and the forecast is for continued growth. Amadeus commercial executive vice-president Philippe Chérèque predicted that ancillary revenues could increase by more than 300% to as much as €74.8 billion. He forecast a rise in the use of mobile technologies. “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. Travellers arriving early at the departure airport might be offered an hour in the Premium Lounge, for example, for a price, of course.” Another potential revenue-earner is Wi-Fi in the


cabin. United Airlines now offers Gogo® Inflight Internet service on all premium service flights between New York, Los Angeles, and San Francisco. Subscription to the service costs $34.95 per month, and you can register in advance or simply launch your web browser while in flight. Some airlines have been holding back from providing this service, probably because of the danger of losing the customer to competitors on the web. Roger Williams, managing partner at consultancy Airline Information, comments: “Certainly there is a risk of losing customers to other providers but you need to give people what they want, and Wi-Fi on board is in high demand. One of the ways to mitigate this issue is to use sign-in pages for Internet as showcases: people like convenience and will convert on a good deal if it is relevant, and easy to find and book.” Peter Hill, ceo of Oman Air, talks about the


made life even tougher for airlines. They face higher costs, labour problems, falling passenger numbers, tighter security, competition from high-speed trains and political pressure from the Green lobby. Is Ancillary Revenue (AR) the answer in their quest to turn a profit? The 2010 Amadeus Guide to Ancillary Revenue by IdeaWorks claims that AR now makes up 5% of


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n November 1 2010 the increase in UK Air Passenger Duty pushed flight taxes up to an all-time high. This has


opportunities offered to both airlines and their customers by the integration of in-flight entertainment (IFE) and in-flight connectivity systems. “Having been the first airline to introduce in-flight mobile phone and Wi-Fi connectivity, Oman Air has proved that the technology works. Over the next year or two, many other carriers will offer connectivity to their customers and the speed of technological development will see enormous possibilities open up. “The convenience of staying connected in-flight


is clear. Making mobile phone calls, sending text messages, checking email and surfing the internet are all taken for granted on the ground, and now they are available in the air, the next step will be for


airlines to make the most of the technology. In-flight broadband already gives us the opportunity to shop whilst we fly, but carriers and their technology partners will be working together to develop a greater range of options, tailored to the needs of customers and offering opportunities to deliver new revenue streams. “Those new income streams will be


complemented by savings, as we see more airlines provide in-flight magazines, menus and other publications via seatback IFE monitors, thereby cutting down on the costs of production and making weight savings.” Ancillary Revenue takes many forms, and is


defined by the Amadeus Guide as revenue beyond the sale of tickets that is generated by direct sales to passengers, or indirectly as a part of the travel experience. It is made up of: 1) à la carte features, 2) commission-based products, 3) frequent flier activities, and 4) advertising sold by the airline. Advertising is a new category, recently added to the definition, but Roger Williams points out:


“the 2010 amadeus guide claims that ar now makes up 5% of airline operating revenue worldwide in a market worth €18.4 billion”


“Airlines have always sold advertising, especially onboard. However, much like Facebook has done, airlines have an opportunity to develop more targeted ads. Companies like Jetera are already doing this by providing customer-tailored coupons on in-flight sales receipts using data currently available on the customer, such as class of service, gender and destination; then using assumptions to create insightfully targeted advertising campaigns.” The Guide suggests that AR growth will come


from: coordination among alliance partners resulting in charging for baggage fees across the board; upgraded meals being sold to Economy passengers; and low-cost carriers (LCCs) charging for beverages and bags. It says the easiest way for airlines to increase revenue from à la carte facilities is by revenue management, which can be described as matching willingness to pay against distinct price points. Flat- fee pricing is predicted to give way to: price testing in the market; variable pricing, for example by


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