The impact of ancillaries Airline Economics and Marketing

Airline boardrooms have steered commercial departments to increasingly focus on diversifying revenue streams through ancillary revenue mechanisms. Ancillary revenues are any revenues which are additional to those generated from the sale of the different fare categories or branded fares. Ancillary revenues can be classified into four main groups: a la carte sales, frequent flyer programmes, commission-based products and advertising. Across the world’s airlines, baggage is also a big ancillary item with AirAsia for example producing 56 per cent of its total ancillaries in Q1, 2018 from baggage fees. Surveys have shown that passengers were willing to pay for specific ancillary products that were perceived as a ‘necessity’ such as seat assignment and baggage and together with food and drink, rather than ‘nice-to-have’ products. Punitive charges are another key revenue driver as consumers may be charged a penalty fee if they choose to alter their travel itineraries or for purchasing tickets with credit cards