Over the last 10 years, the growth of ancillary revenue has been nothing short of stratospheric. The potential for huge incremental revenue growth is enormous, and airlines are fully embracing it. But where did the concept of ancillary revenue start? Let’s take a look at its history.
The concept of ancillary revenue in the airline industry has its roots in the operational models of low-cost carriers (LCCs), which began gaining prominence in the late 20th century. These carriers introduced a novel approach to air travel, emphasizing cost reduction and operational efficiency.
In the early days of commercial aviation, traditional airlines operated under a bundled pricing model, wherein all services were included in the ticket price. This model was largely dictated by the limitations of the distribution technology of the time, such as Passenger Service Systems (PSS) and Global Distribution Systems (GDS). These systems were designed to facilitate the sale of tickets but were not equipped to handle the complexities of unbundled services and dynamic pricing.
Traditional airlines, bound by the constraints of these legacy systems, found it challenging to diversify their offerings and introduce ancillary revenue streams. The GDS, which were the primary channels for ticket distribution, did not have the flexibility to allow airlines to sell ancillary services efficiently.
In contrast, LCCs, many of which emerged in the 1990s and 2000s, were not encumbered by legacy systems. They leveraged newer technologies to sell tickets and ancillary services directly to consumers through their websites. This direct distribution model allowed LCCs to bypass the limitations of GDS and offer passengers a more customizable and à la carte approach to purchasing travel services.
For instance, Ryanair, one of the pioneers of the low-cost model, offered passengers the option to purchase additional services such as baggage allowances, seat selection, and priority boarding directly through its website. This approach was instrumental in the rapid expansion of LCCs and the ancillary revenue model.
The success of LCCs in generating ancillary revenue prompted traditional airlines to reevaluate their reliance on outdated distribution technologies. Over time, advancements in technology and changes in industry regulations facilitated the gradual adoption of more sophisticated and flexible systems, allowing traditional airlines to unbundle their services and explore ancillary revenue opportunities.
In our article “The Future of Airline Ancillary Revenue: A Personalized Journey” we explore how the future of ancillary revenue is expected to see a significant shift towards a more personalized and data-driven approach to ancillary offerings. The concept of “customer willingness to pay” is set to play a central role in shaping this evolution, revolutionizing revenue management in the airline industry.
As ancillary revenue becomes ever more critical through personalization and increasing reliance on data-driven approaches, it is essential that airline pricing teams are able to clearly understand exactly what their competitors are offering. For example, for airlines that are virtually identical on price, travelers will start to look at luggage allowance, cancellation terms, meals, etc. Companies like FareTrack are leading the market in providing unbundled ancillary revenue insights.
For more information about unbundled ancillary revenue data, get in contact with FareTrack here.
