Ancillary revenue is generated by activities and services that yield cashflow for airlines beyond the simple transportation of customers from A to B. This wide range of activities includes commissions gained from hotel bookings, the sale of frequent flyer miles to partners, and the provision of a la carte services − providing more options for consumers and more revenue for airlines. But, Ancillary revenue at most airlines is a very small percent of the total top line. However, few Airlines are showing that giving consumers a much broader range of choices for how they spend their money before, during and after their flight can generate significantly higher returns.

The traditional factor which is ailing the Airline industry is its high cost and low margin ecosystem. But there are numerous industries with high fixed costs that have successfully layered additional offerings onto their core products and services. Consumer electronics retailers derive much of their margin from warranty and after sales service ; hotels generate significant earnings from food, beverage and in-room services; In each case, these ancillary revenue streams have become core drivers of profit in these industries.

Airlines’ customer demographics are something most retailers yearn for: a captive audience with substantial spending power– namely, business people with minimal time to shop and vacationers who are already relaxing their wallet. But despite having access to attractive consumer segments, only a few airlines today generate significant ancillary revenue. Our analysis suggests a legacy airline can generate at least 10% more highly profitable revenue from a successful ancillary revenue strategy. For a major airline, this could translate into hundreds of millions of dollars in additional annual earnings.

AnciRev Consulting research also suggests that Covid-19’s impact on the travel industry cannot be understated, but ancillary revenue has been a much-needed silver lining during an unprecedented year. Even though the average fare has dropped steadily over the past decade, we have seen significant growth in ancillary revenue per passenger – a figure that has grown by over 200% since 2010 and whose trajectory has been unaffected by the pandemic. This shows that airline customers’ appreciation of a true end-to-end travel experience is here to stay, and gives us a solid foundation on which we can recover and thrive again in 2021 and beyond.”