(Last updated on: 10/12/2020)
Airline ancillary revenue is an important 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 today I will be explaining to you why airlines use commission-based ancillary revenue products.
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 is commission-based ancillary revenue?
So, as I outlined in this post- ‘What is Airline Ancillary Revenue Management?’, we have established that ancillary revenue is the essentially any money made by the airline that is not the sale of the seat.
Commission-based sales are exactly that- sales which make the airline a commission. These will typically include products and services that are offered by third party providers (i.e. outside companies). In exchange for promoting said products and services, airlines yield a commission when a purchase is made.
Commission-based airline ancillary revenue can be an excellent source of passive revenue for the airline. All the airline needs to do is refer customers to the third party provider and then they can watch the money coming in, easy as that!
Commission-based ancillary revenue sales has effectively enabled the airline to become a ‘one stop shop’. This means that customers can buy many of the things that they need from the airline, without having to shop around, otherwise known as dynamic packaging. For more on dynamic packing in aviation, visit this post- ‘Are airlines the new tour operator? Dynamic packaging in aviation’.
Commission-based ancillary revenue sales are facilitated through airlines tapping into various inventory systems. Air travel is typically the smallest part of an overall travel itinerary and by airlines attacking the total spend, the possible revenue from any individual customer can exceed three to five times the average airfare value! This shows that there is a lot of money to be made!
Examples of commission-based ancillary revenue products
There are many examples of commission-based ancillary revenue products within the aviation industry. These can generally be segregated into five categories, as outlined below.
Travel related services
Travel related services is the biggest category of commission-based ancillary revenue. Here are some examples:
- Activity packages
- Airport lounges
- Airport coach transfers
- Airport parking
- Car rental
- Hostel booking
- Hotel booking
- Theme park tickets
- Hotel booking
- Train tickets
- Tours and activities
Consumer services tends to focus on things that they consumer wants, but that might not be directly travel related. Examples include:
- Foreign currency exchange
- Home insurance
- Life insurance
- Overseas property
- Holiday home sales
- Credit cards
- Travel insurance
Some airlines will make money through selling entertainment options to consumers. These include:
- Online gaming
- Scratch cards
- Theatre tickets
- Concert tickets
- Tickets to sporting events
Airlines sell a range of items both onboard and off of the aircraft. Whilst many of these will be sold on an a la carte basis, sometimes companies will agree a commission-based deal.
Some airlines will invest in advertising-based agreements that pay on a commission-based level. This could include items such as travel guides or brochures.
Why different airlines offer different commission-based ancillary products
Different airlines have different business models and it is important that they tailor their commission-based ancillary products and services to suit the needs and desires of their particular type of customers. Ryanair, for example, have been known to have links to online gaming websites on their website and sell scratch cards onboard. Whereas a premium airline, like British Airways, would likely avoid such business deals for fear that it would negatively impact their brand image.
What are your views on commission-based ancillary products? Should airlines be doing more of this? Leave your comments below!