Airline ancillary revenues soar

25-04-24

• From checked baggage to preferred seating, ancillary charges become a vital source of revenue for airlines.

In the airline industry, ancillary charges are not only common practice, but an increasingly crucial component of the airline revenue structure. These include additional payments passengers make for services such as checked baggage, advance seat selection and in-flight meals. What were once considered extras now form a significant and growing part of airline profits.

The gap between classes of service on flights has widened markedly in recent years. While business class passengers enjoy increasing amenities, economy class travelers increasingly face space restrictions and additional paid options. This "unbundled pricing" strategy allows airlines to offer lower base fares while generating additional revenue through a variety of optional services.

A prime example of this model is Air Canada, which reported nearly $2 billion in ancillary revenue in 2022, a 50% increase from five years ago. This revenue now accounts for more than 15% of the airline's total revenue, a significant increase from less than 11% in the same period.

Globally, ancillary services revenue is expected to reach a new record of $117.9 billion, surpassing the previous peak of $109 billion in 2019, according to data from CarTrawler, a travel technology platform. This revenue, essential to the survival of ultra-low-cost airlines, comes from on-demand services such as meals, in-flight Wi-Fi and extra baggage.

The marketing tactic of many airlines is to lure consumers with extremely low fares and then offer a range of additional services. A ticket that might initially cost USD 67.00 can easily escalate to USD 323 after adding options such as carry-on baggage, a large checked bag, priority boarding and front row seating. Interestingly, many of these services were standard on airline tickets years ago.

Airlines defend this strategy by arguing that it allows passengers to pay only for the services they really value, offering complete transparency about what is included in their purchase. This approach not only meets travelers' needs for personalization, but also helps airlines stay competitive in a volatile market.