Ancillary revenues offset rising overheads

Ancillary revenues offset rising overheads

Ancillary revenues spiked in 2011 as airlines look to offset rising overhead costs. Ancillary revenues grew 43.8% in the last gear and generated US$32.5 billion. This has essentially lifted the airline industry from a loss making position and continues to provide a very effective hedge against runaway fuel bills.

A report titled Amadeus Worldwide Estimate of Ancillary Revenue for 2011, shows that this kind of behaviour is no longer the reserve of budget airlines, but is rapidly being adopted by full service carriers as well. These ancillary services are also being applied in different ways and are now available through global distribution systems. For example, KLM and Iberia have just joined the ranks of carriers implementing the Amadeus Ancillary Services solution for travel agencies.

Generally speaking, the ancillary model now focuses on services which increase the scope of the product offering and reinforce the brand rather than unbundle the ticket price. However, Ideas Works analysis shows four different approaches to service delivery that are dictated by prevailing industry standards.

US airlines are leaders in this field, with just seven carriers controlling 38% of ancillary revenues globally. Much of their success stems from their rewards schemes, which sell air miles through co-branded credit card activity.  Baggage fees and a plethora of additional services are also key revenue generators. To illustrate the success of US airlines, their ancillary revenues jumped 87% through 2011.

Mark Elliott
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Mark Elliott
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