Ancillary Revenues – Blessing or Curse?

According to a study by Amadeus ancillary revenues will increase from $13.5 billion in 2009 to $22.6 billion this year. In 2009 United Airlines had a total of about $1.5 billion in ancillary revenues.

For airlines ancillary revenues accounted for a huge part of their total revenues, like Allegiant (29.2%), Spirit Airlines (23.9%) and RyanAir (22.2%). This clearly indicates the importance of ancillary fees for the entire travel industry including low-cost-carriers, traditional airlines travel agencies and the GDSs.

By offering a variety of additional services such as extra legroom, assigned seats, meals or drinks, airlines can now differentiate themselves and charge a fair price for services and thus create value for their customers. The $500 middle seat next to the $80 window is supposed to be a thing of the past. Airlines can satisfy the individual needs of both leisure travelers and business travelers as they can choose the set of ancillaries that’s best suited for them. This new flexibility in turn can increase customer loyalty and brand awareness. So in the end both the airlines and the customers might benefit from these changes.

Facing the challenge

However, most airlines’ unwillingness to provide sufficient data to the GDSs makes it very difficult for customers to compare prices between airlines and to estimate the real airfare. Since competition is tough and airlines need to be cheaper than their competitors, no one wants to be the first one to reveal their real airfare. Thus the airlines’ habit of hiding fees could be a huge disadvantage for customers. And even if airlines provide their data, – be it voluntarily or by governmental regulations – it still makes booking flights and comparing airfares extremely complicated.

This is a challenge the Travel Agencies, OTA’s and Booking Engines will have to face in the first place. They will all need a new point-of-sale interface that is able to present the different options airlines give their customers and to make airfares fully transparent. With its XX/1 Multi-GDS Transaction Server and the VTO 2G, PASS Consulting Corporation helps its customers to meet these new challenges successfully.

Future developments will show whether extra charged services are good or bad for the customers. Either way it means a significant change for the travel industry. Along the entire value chain companies will have to adapt in order to remain competitive.

Creating a brand based on values and not just frequent flyer alliance is one of the most important criteria for the future. The sales process will not stop at the process of booking. And the parties will know who’s asking and thus give a little extra to the person who changed the flight three times and bought a number of amenities. [However] Companies want to know the total cost of a trip, which poses a challenge, as the fees are no longer just incurred upon booking, but at some point between the booking and the return of the traveler.

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