Frequent fliers have been noticing and putting up with this for a while – airlines charging for excess bags, charging for large bags, charging for any bags, charging for food, charging for “extra” legroom, charging for early check in. Of course, this approach to squeezing additional revenue from customers through the time-tested “nickel and dime” business model isn’t new: banks have been doing this for decades, and low-cost carriers ushered in the trend in the early 90s.
Yet recently this additional thrust towards a broad spectrum of ancillary fees, as they are known in the travel industry, has taken on added urgency and importance for many carriers. And, it’s a serious and not insignificant revenue stream, to the tune of $22 billion in 2010. As, Daniel Michaels of the Wall Street Journal describes in his recent article:
The world leader is leisure carrier Allegiant Air, based in Las Vegas. The Allegiant Travel Co. unit takes in about 40 cents in ancillary revenue for every dollar of ticket revenue, according to the study.
But more traditional carriers are expanding quickly, especially because fuel prices have risen significantly over recent years and airlines haven’t been able to raise fares.
Alongside the low-cost carriers the trend highlights the growth of ancillary revenue streams for the full service carriers. Indeed, growth in this area seems to be with international airlines, especially those in the Asia Pacific region. And, none of this is lost on the major GDSs, such as Sabre and Amadeus, which over the last couple of years have been significantly ramping up their distribution offerings and platforms so that they may participate in their airline customers’ ancillary revenues as well.
Time will tell as to how these new and different sources of revenue will transform the airlines and the 3rd parties that provide some of these services. Though one thing is clear, ancillaries and their fees are here to stay.