(Last updated on: 10/12/2020)
Airline ancillary revenue is an integral part of any airline’s business model, although it is used to different degrees by different airline types (i.e. budget, charter, scheduled). This additional revenue source has become a core part of ancillary revenue management and comes in different shapes and sizes. As I explained in this post, there are four different categories of airline ancillary revenue and the most prominent of the four are the a la carte ancillary products.
A la carte ancillary products are products and services sold to supplement the travel experience by airlines. There are two main “types”:
1- Unbundling – Charging for products and services which were traditionally part of the ticket price. Allowing passengers a “pick and mix” option of products they want. One size does not fit all.
2- Value-added – Selling ancillary products and services which may “add” to the travel experience, but that were not generally included in ticket price.
Why do airlines use a la carte ancillary products?
Ultimately, airlines sell a la carte ancillary products to increase the likelihood of commercial survival. Synder (2014) stated that
“When the legacy carriers all put this into place — it was around 2007, 2008 — they were just desperate for money because they were bleeding so bad. They couldn’t reduce fares because they needed to stem the tide.”
By relying less on the base fair and selling a range of additional products and service on an a la carte basis the airline increase the likelihood of greater profitability. As you can see in the graph below, airlines make very little profit from the sale of the seat itself, so it is very important to explore other revenue opportunities.
By making money through alternative means, airlines are able to lower fares, which in turn stimulates demand. In reality this may only be a matter of perception. By the time you add on payment, baggage, check in and seat selection fees, for example, your Ryan Air flight may indeed be the same cost as the equivalent British Airways flight. But because the initial price was lower, it sparked your interest and thus secured your business.
Examples of a la carte ancillary products
These most commonly come in the form of in-flight retail. For budget airlines, there is often a big push in this regard, with frequent advertisements and Cabin Crew who are trained in sales techniques. Other airlines may place less of a priority on a la carte ancillary product sales.
Here are some examples of the types of a la carte ancillary products commonly offered by airlines:
- Duty free
- Scratch cards
- Headsets for in-flight entertainment (IFE)
- Onward travel tickets
- Attraction tickets
- Check in Baggage
- Hand baggage fees
- Excess baggage fees
- Credit debit card fees
- Speedy/priority boarding
- Flight change fees
- In-flight entertainment
Why different airlines offer different a la carte ancillary products
Different airlines have different business models and it is important that they tailor their a la carte ancillary products and services to suit the needs and desires of their particular type of customers. Take British Airways, for example. They now charge for food and drink onboard their short-haul flights, but they have chosen to team up with Marks and Spencers in order to offer a premium product that they think would suit their customers.
It is also important to recognise that he offering of ancillary products and services will change regularly depending on consumer demands and the state of the industry as well as the wider economy. Ryan Air, for example, will shortly be introducing hand baggage fees as an additional revenue earner, we are yet to see if other airlines will follow suit.
For more info on ancillary revenue management and airline management in general I recommend the texts Airline Operations and Management by Cook and Billig and Air Transport Management: An International Perspective by Budd and Ison. You’re more than welcome to cite anything that I have written in this post, but if you’re doing research for an academic piece of work remember that you will need a range of sources in your reference list- I’ve added the links to these two recommended books for you here and here.
What are your views on a la carte ancillary products? Do you prefer the bundled, package-style option, or would you prefer to be able to ‘pick and mix’?