What are the categories of airline ancillary revenue?

categories of airline ancillary revenue

Airline ancillary revenue has become an integral part of any airline’s business model. Originating with the introduction of low cost carriers, the sale of ancillary products and services has revolutionised the aviation industry in many ways (I explained exactly what airline ancillary revenue management is in this post). Society has become more ‘choosy’ in what we want. We don’t want to pay for alcoholic beverages that we won’t drink. We don’t want to pay for a sandwich that we won’t eat. We don’t want to pay to check in a bag that we don’t need. These changes in consumer demand have resulted in airlines developing a range of ancillary products and services that are available for sale both on and off of the aircraft. Here are the four categories of airline ancillary revenue.

categories of airline ancillary revenue

Categories of airline ancillary revenue

 

A la carte

Just like an ‘a la carte’ menu, these are products and services that the consumer can choose on an ad-hoc basis. They are not included in any ‘bundled’ fair (click here for more unbundling and unbundling).

Different airlines will offer slightly different products and services depending on their business model. For example, British Airways sells Marks and Spencers’ branded food because they believe that this fits with their ‘premium’ image.

Here are some examples of a la carte products or services typically sold by airlines:

  • Sandwiches/snacks/small meals
  • Drinks
  • Duty-free products such as perfume and chocolates
  • Lottery tickets/scratch cards
  • Baggage
  • Priority boarding
  • Seat upgrades
  • In-flight entertainment
  • Comfort packs
  • Fast track security
  • Credit card charges
  • Flight change fees
  • Wifi

This post discusses more about the management of ancillary revenue from a la carte products.

 

Commission-based products

These are products that are sold by a third party but whereby the airline takes a commission based on the number of sales. Commission rates will be negotiated between the airline and the company that they choose to work with. These sales are often made prior to undertaking a flight and are promoted during the booking process. Sophisticated data analysis can also assist in promoting sales through the use of cookies etc.

Here are some examples of commission-based products or services typically sold by airlines:

  • Hotel rooms
  • Car hire
  • Insurance
  • Airport parking
  • Tours and activities
  • Foreign currency exchange
  • Online gaming
  • Tickets to events

This post discusses more about the management of ancillary revenue from commission-based products.

 

Frequent flier activities

Most people don’t understand how airlines use their frequent flier programmes as a means of earning a profit beyond the fact that people are more likely to become loyal customers. But in actual fact, this can be a significant revenue earner.

Whilst it is mostly full service carriers who capitalise on this income potential at the moment, low cost carriers are also beginning to diversify their products and are beginning to offer a range of loyalty-induced schemes similar to the traditional frequent flier model.

Essentially, a frequent flier programme encourages loyalty: a passenger wants to collect points to redeem on future flights or other available services. This in itself does not make the airline money. Where the profit comes in is from selling points.

Individuals can purchase points themselves should they wish to, but it is more likely that other companies will purchase points to enable them to offer them as an incentive to their own customers.

Here are two examples from British Airways:

  • Credit card- British Airways sells Avios points to American Express. American Express buys these points because they want to offer them to their customers. They believe that more people will use their credit card if they accrue points. I can’t speak for everyone, but this is a tactic that has absolutely worked for me- I pay for everything on my Amex card in the light that I will get a free flight at the end of each year! Some people really make the most out of such offers, I recommend you take a look at the Points Guy– he has loads of useful money-saving tips and advice.
  • Supermarket- Similar to American Express, Tesco believe that offering out points instead of Clubcard vouchers will entice travellers into their supermarkets. They also pay British Airways for points so that they can offer them to their customers as a reward.

This post discusses more about the management of ancillary revenue from frequent flier activities.

 

Advertising sold by airline

The final method of airline ancillary revenue is advertising. A common mistake is that people confuse this with the marketing and promotion of the airline itself- this is not the case. Self-promotion costs the airline money, so it can’t possibly be correct.

Instead, this method of ancillary revenue management is all about selling advertising space to third parties. This can be a lucrative business and some airlines take advantage of this more than others do. Budget airlines, for example, tend to sell a lot of advertising space whereas scheduled carriers tend to be more reserved. This is largely because they do not want to taint their brand image or overload passengers with adverts and promotion.

There are many opportunities for airlines to advertise third party products and services. Here are some examples:

  • Seat backs
  • Tray tables
  • Cups
  • Headrests
  • Boarding pass
  • Sick bags
  • Aircraft livery
  • In-flight entertainment
  • In-flight magasine
  • Overhead lockers
  • Airline website
  • E-mails
  • Social media

This post discusses more about the management of ancillary revenue from advertising sold by the airline.

As you can see, there is big business in ancillary revenue management and there are lots of opportunities for airlines to make sales both on and off the aircraft. Have you seen any examples of ancillary products or services that haven’t been mentioned in this post? Please let me know- drop them in the comments box below!

If you wish to cite any of the content in the post please use reference ‘Stainton, Hayley. (2018) Lifeasabutterfly.’