Much has been written about the Ancillary Revenue services offered by the airlines. It has left many people scratching their heads wondering why it is so hard to be able to charge separately for – say – a premium seat.

In this first article, I will address what Ancillaries are, in a Q&A format, and then in my next article, I will address the issues surrounding the sale and distribution of these services.

Q: What are Ancillaries?

Officially, "Revenue beyond the sale of tickets that are generated by direct sales to passengers, or indirectly as a part of the travel experience." In reality the issue is simple, it's a pay for play model i.e. anything other what can be purchased than the basic ticket and taxes. There are two types – Trip Related and Customer Related.

Q: How big is it?

A recent report from 1A/IW showed the amount of airline generated ancillary revenues was €11 billion ($13.5 billion)
Total Annual Result – 2009 €7.68 billion ($10.25 billion)
Total Annual Result – 2008
So it's not chicken feed any more.

Q: Is this new?

Heavens no – it's been around for ages. Many charter carriers in Europe charged for things like drinks for years but for the regular airlines, it was not a big money spinner. However the big change came when the new model was adopted and enhanced by the LCCs particularly Spirit Airlines (USA) and Ryanair (EU). Then when they started to show how much money could be made, it caught on. In Asia, two carriers are making big advances. Tiger and AirAsia are leading the way. For example, in the first quarter of this year, ancillary revenues at AirAsia increased by 31%, comprising 16% of total revenues. The airline wants to bump that up to 20%. It now earns RM35 per pax in ancillary and aims to double that.

Q: What are some examples of a Trip Related Ancillary?

Trip Related are the more commonly referred to iitems. Here are some examples

• Seat Assignments – often associated with boarding – either type or specific seats which can be selected
• Early Boarding/Special Boarding
• Baggage – hold or cabin bags
• Meals/Food – presence or absence or special meals
• Drink Coupons
• In flight Entertainment or Internet access

There are others for example

• Frequent Flyer Miles
• Special Equipment handling
• Special Lounge/airport club access

Q: What are other non-trip related examples of Ancillary Revenue?

There are lots – the biggest money spinner is the money generated from the Airline branded credit cards. Other examples are the selling of frequent flyer miles. For some airlines there are traditional forms here too… the selling of access to the airline clubs. Airlines have also used the expression "Taxes and Fees" to describe things such as fuel surcharges which actually more than compensate for the additional price of fuel.

Q: Why is this special?

The low cost carriers (LCCs) started this by unbundling the basic products and services that were traditionally bundled into the ticket. It quickly became a way to get more revenue from a menu based approach rather than an all-in-one product that had been the traditional ticket price.

Q: Has it been successful?

Yes – it has contributed a significant amount of revenue to the individual airlines. Some airlines are not embracing this preferring the ail-in-one pricing model. Undeniably LCCs are showing the way here.

Q: Why can't I buy this easily on some airlines, for example I have to buy the service only at the airport?

The big problem is more often than not financial fulfillment – these products and services do not lend themselves to easy sale using the traditional tools of the airline reservation system. It is currently not possible to do this via a GDS based booking, Blame the antiquated reservation and operational systems of the airlines and the GDSs for not being able to accommodate this requirement. These systems in many cases were designed in the 1950s. The other major problem is that collecting the money is hard.

Q: Who are the big players and how do Asian airlines stack up against their counterparts in other regions?

In the past year, ancillaries have come into their own and there are the two leading Asian carriers – AirAsia and Tiger – leading the charge in Asia, although the total revenue champion in the region is actually Qantas with just over $1 billion in Ancillary revenues last year.

Q: What are some of the new buzz words and acronyms?

AR – Ancillary Revenues
Unbundled – taking the basic ticket and breaking the components into separate salable items
EMD – Electronic Miscellaneous Document – an Electronic accountable document which allows the purchaser to pay for the new service
EMD – A the ability to collect money at the original point of sale bundled with a ticket – for example a bag and a seat
EMD – S the ability to purchase the service away from the ticket purchase. For example deciding the night before that you want to take an additional bag.

Q: If this is so great why isn't everyone doing it?

Some airlines believe they shouldn't destroy the notion of an all inclusive ticket.

OK – so I still don't get it… what is so hard about this?
Well dear reader wait for next week when I will explain that to you. During this time I will highlight the complexity of the problem and what is being done to address it.

Note: Timothy O'Neil-Dunne will be speaking during WIT at a session on "Hot Air: Airlines, Alternatives & Ancillaries"

Timothy O'Neil-Dunne, CTO - Lute Technologies, Switzerland

Timothy O'Neil-Dunne serves as the lead for the Airline, Aviation and Airport Practice. Timothy has worked in aviation and travel distribution for more 30 years, including time with Worldspan and Microsoft/Expedia before founding T2Impact in 1998. He leads the group's efforts in the international arena, providing e-commerce services to travel and technology clients, and others involved in transaction processing oriented e-businesses.

Timothy was a founding management team member of the Expedia team where he headed the Ground Transportation and International portfolios. He was formerly Head of Technology for Worldspan where he managed all of the International Technology Services from product to infrastructure. Mr. O'Neil-Dunne is a published authority on Global Travel Distribution, a respected travel industry commentator, frequently writing in trade and consumer publications, and speaking at conferences worldwide. He is a permanent advisor to the World Economic Forum.

 Also featuring:

• Peter Harbison, Executive Chairman, Centre for Asia Pacific Aviation (CAPA)
• Marnix Fruitema, Senior Vice President, Asia Pacific, Air France KLM
• Azran Osman Rani, CEO, AirAsia X
• Assen Vassilev, VP Strategy and Business Development & Co-Founder, Everbread & Haystack

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