Feature: Ancillary Revenue


length of flight; and demand-based pricing. This is the system that LCCs use to manage their seat sales and it has now been taken up by Continental for its sales of extra legroom seats at check-in. Other extra revenue can come from pre-pay


discounts, as practised at easyjet, and annual pre-pay plans. United’s Travel Options is a good example of a successful á la carte service offering seat assignment, upgrades, baggage deals, travel insurance, taxi service etc. It also offers these benefits as an annual subscription, thus putting money in the bank and ensuring passenger loyalty in future. Following this model, in 2009 Air Berlin sold 64,000 of its annual pre-pay Service Cards for €59, bringing in €3.8 million. Carriers are preparing for the abolition of complimentary meals in Economy, and introducing pre-paid meals instead. KLM is testing this in long- haul from Amsterdam, with a €10 meal to replace the complimentary Economy offering. United is testing a ‘dine’ option on its San Francisco to Frankfurt and London flights, with a choice of premium meals available on the website for €15. United has also revived its 30-year-old association


with Trader Vic’s to provide Polynesian-style cuisine on their First and Business-class Pacific Rim flights. Trader Vic’s mai tai cocktails are also available on these flights. United is testing the Buy-on-Board (BoB) model by offering these drinks in the Economy cabin at $8 each. The Guide emphasises the importance of testing, changing and measuring the BoB food offering to increase revenue. Prices have to be set to achieve the highest profit. A large selection moves more goods and prevents loss of business to rivals. Slow- sellers are ruthlessly cut and replaced. Héctor Palacios, head of government and airport


affairs at Mexico’s only LCC, vivaAerobus, says that 20% of its income is from AR. “We are constantly changing, improving and playing with the price of our AR products and developing new ways to get that additional income. People try to fly cheap and if that means excluding AR from their bookings they will do so. Conversion rates are our daily thermometer and when AR products numbers start falling we have to do something about it pronto. “We are constantly trying to improve our existing


products, changing them in ways they comply with passengers’ needs. Just to mention a few, we are planning to change the priority boarding scheme, the excess baggage online scheme, the way we


26 www.onboardhospitality.com


collect the excess baggage fees from other outside stations, add other types of insurance, constantly changing our onboard menu, integrating systems for onboard sales, etc.” Amadeus’s Philippe Chérèque said: “€18.4 billion,


while significant, is still less than 5% of the operating revenue generated by the airlines in this study. We expect to see ancillary revenues grow significantly as airlines are only now beginning to use the high-yield travel agency channel to sell their range of ancillary services.” The Guide’s conclusion that food is the next frontier for building AR is reinforced by a recent whitepaper published by LSG Sky Chefs, entitled ‘Buy-on-Board: a Viable Alternative’. (see: lsg.sc/ obwp). In this whitepaper, the airlines’ global


Ancillary revenue defined:


The 2010 Amadeus Guide to Ancillary Revenue by IdeaWorks claims that AR now makes up 5% of airline operating revenue worldwide, in a market worth €18.4 billion.


Ancillary Revenue is made up of: • A la carte features including food and beverage, baggage, assigned or upgraded seating, call centre reservation support, credit card fees, priority check-in, early boarding, onboard entertainment, and Wi-Fi onboard.


• Commission-based products including hotels, car rentals, and travel insurance, which are usually website-based. They can also include consumer products sold onboard.


• Frequent-flier programmes including the sale of points to car rental and hotel companies, co-branded credit cards, online shops, retailers and phone companies. Also sales of points to members of the programme.


• Advertising is a new category covering revenue from inflight magazine, advertisements in or on gates, airport lounges and planes, and fee-based product placement.


The Guide groups airlines into four categories according to their success in generating AR.


• The best performers (known as ‘champs’) generate up to 20% of their total revenue from AR. These include Allegiant, Flybe, Ryanair, Spirit and Tiger Airways.


• The major US airline category generates up to 7.2% of their total revenues as AR, mostly through baggage fees and frequent-flier programmes. These airlines include American, Delta and United.


• Low-cost carriers generate up to 5.4% of their income as AR, mainly through à la carte facilities. These include Air Arabia, Air Berlin, Spicejet, Spring Airlines, Virgin America and Westjet.


• The traditional airlines trail the field with up to 2.9% of their revenue from AR, mainly through baggage fees and frequent-flier activity. They include: AeroMexico, Asiana, British Airways, Egyptair, Scandinavian and Silkair.


The guide’s six-point plan for increasing AR: 1. Innovate to distance from rivals 2. Move beyond flat fees 3. Integrate frequent-flier programme with à la carte spending 4. Abolish free baggage and complimentary meals in Economy 5. Introduce bigger selection of products 6. Test, change, measure for maximum profit.


“carriers are preparing for an end of complimentary meals in economy and introducing pre-paid meals instead”


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