Airline ancillary revenue is soaring to new heights as several leading airlines of the world have started to tap into creative ways of boosting their bottom line. From premium seats to in-flight entertainment, these added services are not just optional extras—they’re now a vital part of the airline industry’s financial strategy. 

We have curated a three-part blog series that looks at how ancillary services are changing the industry outlook, generating new sources of revenue, and how airlines can leverage them with a technology and strategic edge, especially in the passenger segment. 

The Evolving Role of Airline Ancillaries

Over the past decade, the airline industry has seen a dramatic shift in its revenue generation strategies. Once primarily reliant on ticket sales, airlines now increasingly depend on ancillary services to enhance profitability. These services, ranging from baggage fees to in-flight entertainment, have become indispensable to modern airline business strategy. 

Part one of the ancillary blog series examines the types, significance, and emerging trends of ancillary services, supported by the latest industry data.

Airline ancillaries are basically add-on services and products offered by airlines beyond the basic travel of passengers. These services are designed to enhance the travel experience and provide added convenience to passengers. Broadly, airline ancillaries can be categorized as shown in the diagram:

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A Deeper Look at Airline Ancillaries

The significance of ancillary revenue has grown steadily over the past decade. According to a 2023 report by IdeaWorksCompany and CarTrawler, global airline ancillary projected revenue was approximately USD 117.5 billion, compared to USD 102.8 billion in 2022, USD 109.5 billion in 2019 and USD 82.2 billion in 2018. The projected ancillary revenues of USD 117.9 billion from 2023 represents a 275% increase compared to USD 31.5 billion in 2013. This growth underscores the significance as well as growing interest for airlines in generating revenues from non-ticket sources.

Key Trends and Figures Emerging in the Recent Years

• Baggage Fees: In the United States, airlines keep making a lot of money from charging for extra bags. In 2021, they made over USD 5.8 billion just from this, which is more than the USD 4.9 billion they made in 2019. This shows that airlines keep asking for more money for checked bags,
• Seat Selection Fees: Passengers prefer choosing better seats on planes. For example, a mega north American carrier made almost USD 1 billion in 2021 from selling better seats and other special services.
• In-Flight Services: Things like in-flight Wi-Fi, food, and entertainment on planes are becoming quite profitable. By 2026, the money made from in-flight internet is expected to be USD 4.7 billion. Airlines are working with tech companies to make flying more enjoyable.
• Loyalty Programs: Frequent flyer programs are a big source of income. In 2021, another large North American carrier’s Advantage program added about USD 1.5 billion to the airline’s income, and Delta’s SkyMiles program made over USD 1.2 billion,
• Onboard Retail: Worldwide sales from travel retail, which includes duty-free goods and other items sold on flights, totaled USD 86 billion in 2019, with a large part coming from sales made during flights.

Regional Variations & Pandemic Effect

The types of ancillary services offered along with their importance can vary in different parts of the world. For example, budget airlines in Europe and Asia have been the first to use extra services to keep ticket costs low but still make a profit. Ryanair, the biggest budget airline in Europe, said that extra income made up 40% of its total income in 2021, which is a lot more than before.

On the other hand, big airlines in North America focus on high-quality services and loyalty programs. For example, United Airlines made about USD 7.6 billion from loyalty programs and similar services in 2021, showing how significant these ancillary services are to their business.

The COVID-19 pandemic caused big challenges for the airline industry, leading to extremely difficult times. During the pandemic period these extra services (ancillaries) played a very important role in helping airlines get through the touch time, with ancillary services like flexible booking options and new health and safety services becoming key extra offerings.

The Data-Driven Future of Ancillary Revenue

The future looks promising for airline ancillary revenue, thanks to new technologies like IATA’s New Distribution Capability (NDC) and changing customer preferences. Innovative techniques such as continuous pricing and AI-powered personalization will boost ancillary revenue streams even more. These latest revenue management approaches will help airlines customize services using passenger data, creating a more tailored and profitable travel experience.

Here are a few upcoming trends that will shape ancillary revenue strategies:

• Personalization and Data Analytics: Airlines use data analytics to provide more customized or rather personalized ancillary services, which makes passengers happier and increases revenue through targeted promotions.
• Sustainability Initiatives: As people worry more about the environment, airlines now offer eco-friendly extras. These include ways to offset carbon and green products on flights.
• Digital Transformation: Ancillary services have gone digital, which makes it easily accessible and convenient for passengers to buy extra services through apps and websites.
• Dynamic Ancillary Pricing: Airlines are going to adopt flexible pricing models that will let them change the ancillary service prices based on the passenger needs and based on the market conditions, allowing them to make more revenue.

Conclusion

Ancillary services will become even more crucial to enhancing the passenger experience and increasing profitability as the airline industry continues evolving. Unpacking services and pricing separately is more than a trend: it’s a new era for the airline industry. Those airlines that innovate and can successfully capitulate ancillary revenue generation will be those that thrive on the sharply contested high-gravity skies of tomorrow.

RTS is at the forefront of this transformation, helping airlines align innovation efforts with strategic goals to reshape the future of ancillary services. RTS has developed better practices in pursuit of ancillaries’ transformation, with an airline partner imagining radically different futures.

RTS’ focus is on supporting the design of new ancillary framework that steer technologies to enhance profitability and thrive within a world of finite resources.