From priority boarding and checked baggage to more legroom, food and even car rentals, airlines are making a mint from ancillary services.
Once a supplemental source of revenue for carriers, air travel ancillaries have grown to become a massive income driver for commercial airlines.
One need only look at how much ancillary revenue has grown in the past decade to know what this source of revenue now means to airlines.
According to research by ancillary revenue consultancy IdeaWorksCompany, and car rental distribution firm CarTrawler, global ancillary earnings rose from US$42.6 billion (around AU$64 billion) in 2013 to more than US$102 billion (AU$153 billion) in 2022. That’s equal to a massive 240 per cent or so increase.
But even this doesn’t tell the whole story, as disruptions to air travel caused by COVID-19 tempered growth in the sector.
In 2019, airlines amassed a record US$109.5 billion (AU$164 billion) in ancillary revenue, which is more than 250 per cent higher than ancillary earnings just six years earlier, in 2013.
While 2022 ancillary revenue fell just short of the all time high figure of 2019, ancillary income as a percentage of total earnings hit a record high last year, with add-ons accounting for a whopping 15 per cent of total airline revenue.
When it comes to the types of ancillaries passengers are paying for, ‘seat selection and upselling’ account for 27 per cent of revenue, while ‘first and second checked bag’ add-ons account for 25 per cent of total ancillary revenue, US firm McKinsey & Company reported.
When asked how likely they would be to spend money on a flight ‘upgrade’, a Skyscanner survey revealed that 32 per cent of travellers would pay for seat selection, 31 per cent would pay for insurance, 30 per cent would pay for baggage, and 28 per cent would pay for better quality of food.
Win/Win?
According to global travel data provider OAG, ancillaries have become increasingly important in an industry of tight margins and fierce competition.
And as more and more airlines sell flights through NDCs and personalise offerings, “the landscape of ancillaries stands at the precipice of exponential growth”, OAG says.
However, data shows the rise of ancillary revenue hasn’t just benefitted airlines, but passengers as well.
CarTrawler and International Air Transport Association (IATA) reports claim that the unbundling of fares contributed to a huge 54 per cent fall in the average global one-way airfare between 2013 and 2020 – from just over US$300 to just under US$150.
So while it remains a win/win for airlines and passengers, like it or not, the unbundling of fares is here to stay.
