Airlines around the world are stepping up efforts to capture new income growth through ancillary revenue.
An Abacus survey of Asian airline executives has found that 75% of airline management teams were either ‘very’ or ‘somewhat’ committed in making ancillary services as one of their key priorities for 2010. More than 50% these airlines are already somewhat or heavily involved in merchandising strategies.
Regarded as a high-yield revenue stream, industry analysts think the unbundling of services can offer airlines opportunities for brand image enhancement, product differentiation and competitive advantage . A recent report by the Centre for Asia Pacific Airlines (CAPA) predicted airlines worldwide are expected to generate $58 billion in ancillaries this year. For leading low cost carriers in mature markets, ancillary revenue already accounts for more than 15% of total revenue.
However in Asia the figure is less than 5% of their total sales.
“In the U.S., traditional network carriers now fill the top three positions in annual total ancillary revenue instead of budget airlines . There is a huge revenue opportunity for Asian airlines in cultivating ancillaries as part of their overall business strategy,” Abacus Vice President of Marketing, Brett Henry said Friday.
“We have seen some of the world’s top carriers applying a-la-carte fees to business class travel and premium seatings over the past year, and these moves have set the industry thinking about ancillary products as a viable revenue source. What is key to the success of introducing this new revenue strategy to the market lies in careful management of customers’ expectations without hurting the brand integrity of the carriers.”
The top ancillary revenue category cited by Asian airlines in the Abacus survey was the selling of travel insurance. Other key strategies included onboard advertising, premium seat assignments, branded fares adoption, advanced seat assignments, paying for the first checked bag and lounge access.
“More innovation is expected as merchandising strategies evolve. Abacus Branded Fares is a first-of-its-kind solution in Asia enabling airlines effectively to sell unbundled services categorised by fare families with similar attributes. This business model gives the airlines the opportunity to emphasise the true value of their fares instead of appearing only focused on price,” Henry said.
