IdeaWorksCompany: ancillary revenues can exceed base revenues

IdeaWorksCompany: ancillary revenues can exceed base revenues

A new study from IdeaWorksCompany has found that airlines’ revenue from ancillary fares (checking luggage, seat selection, buy-on-board food & beverage, etc.) can sometimes exceed revenue from the base ticket fare.

The study was flagged by Business Traveller, which notes, “Spirit Airlines, known for its low fares, also collects the most ancillary revenue per passenger of any airline — an average of $49.89 on every ticket sold. Spirit also generates the greatest proportion of its overall revenue from ancillary sources— 46.4 per cent.”

This doesn’t come as a surprise, but the data is revealing – specifically which ancillary fare brings in the most money for each airline. For instance, in 2016, over 50% of British Airways ancillary revenue came from the Executive Club, their frequent flier program, and related co-branded credit cards, whereas EasyJet’s largest ancillary revenue base came from checked baggage fees (47%).

I also found it interesting that full service carriers – which took a bit of time to adopt and adapt the “charge for everything” model of low-cost carriers – are now profiting big time from them. The study says United Airlines had ancillary revenues in excess of $6.2M in 2016.

United 737 at SFO

Charging for previously-included services is what helped Qantas around from a tremendously loss-making business to a profit center. That revenue has been diverted partially into their product development and new airplanes, ultimately benefiting customers.

I don’t mind ancillary fares on discount economy tickets on full service carriers but feel they go too far on low-cost and ultra low-cost carriers (my solution: just don’t fly them). If I’m flying BA Euro Traveler (Economy) from London to Nice, I don’t mind coughing up £5 for a Marks and Spencer sandwich – the quality and taste far exceed anything BA used to service free of charge in the past. Furthermore, my ticket will likely have been a lot cheaper as well.

Ultimately, the decentralized cost structure provides travellers with more options. Don’t mind picking a seat at check-in? You don’t have to pay. Don’t want to eat on board? Don’t pay. No bags to check? No worries. The more choice you have, the more independence.

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