The LCC sector has triggered an ancillary revenue (merchandising) revolution, with airlines worldwide expected to generate USD58 billion in ancillaries this year, according to research from the Centre for Asia Pacific Aviation (CAPA). “A sizeable figure, USD58 billion however represents just 12% of total airline revenues, suggesting we are just at the start of the movement to monetise services and products passengers…
The LCC sector has triggered an ancillary revenue (merchandising) revolution, with airlines worldwide expected to generate USD58 billion in ancillaries this year, according to research from the Centre for Asia Pacific Aviation (CAPA).
“A sizeable figure, USD58 billion however represents just 12% of total airline revenues, suggesting we are just at the start of the movement to monetise services and products passengers used to receive as part of the ticket price”, according to CAPA Executive Chairman, Peter Harbison.
Baggage fees are one of the fast growing items in a portfolio developed largely by LCCs that also includes seat allocation, inflight services and products, related travel products (including insurance, car hire and accommodation), inflight advertising, airport lounges access and increasingly diverse opportunities including concert tickets, mobile phone credits and more.
“Air fares around the world, particularly in the US, have fallen sharply since the onset of the recession, making baggage fees (and other ancillary revenue items) an increasing lifeline for the airline sector. US airlines alone are expected to smash through the USD4 billion-barrier in 2010 in terms of baggage revenue generation”, said Mr Harbison.
But such charges, particularly in the US as network carriers adopt these strategies, have quickly become a flashpoint for airline differentiation and a catalyst for marketing innovation, notes the report.
The movement is spreading to Europe, with British Airways, under considerable financial strain, one of the earlier movers after its US counterparts. Asia Pacific adoption of ancillary revenue strategies, outside the LCC sector, has been much more cautious.
To help understand the opportunities better, CAPA, in partnership with Travelport, has launched a landmark study of Asia Pacific airline preparedness for, and participation in, the ancillary revenue revolution. Airlines across the region will be surveyed this month regarding their strategies and targets for ancillary revenues, which will form the basis of a report later to be published later in the year.
Today, full service airlines are trying to re-build and differentiate their brands in order to compete strategically with the LCCs, while still providing the quality service expected from their loyal customers. The number of ways to accomplish this is as different as the number of operating airlines.
For the LCCs segment, the issue is one of adding unbundled services and charging for them. The distinction may be too subtle for most consumers. In the US, it has not taken long for the “full service” airlines to become almost as unbundled as their low cost competitors – with a negative branding impact for their customers.
Ancillary revenues are expected to continue to rise as a proportion of total revenue as airlines become increasingly sophisticated about these new revenue streams.
Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales. She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.
