Agents Needed to Tap Ancillary $$ Explosion

Airlines’ ancillary revenues will reach an estimated $22.6 billion worldwide this year, according to a new report by IdeaWorks, a consultancy that specializes in ancillary revenue improvement and competitive analysis.

But that is a drop in the bucket compared to the potential revenue explosion if airlines tap the high-yield travel agency market, particularly the corporate agency market, according to Amadeus, the sponsor of “The 2010 Amadeus Guide to Ancillary Revenue.”

Philippe Chereque, executive vice president, commercial, for Amadeus, said airlines are only beginning to tap that potential, and Amadeus is talking with several airlines about the issue.

This year’s estimate of $22.6 billion represents less than 5% of operating revenues generated by the airlines in the study. But if airlines catch up to the “ancillary revenue champs” – Allegiant, Flybe, Spirit, Ryanair and Tiger Airways, for example – ancillary revenue could approach 20% of airline operating revenues. Chereque said ancillary revenues could increase by more than 300%, to more than $102 billion.

Creative Revenue
Jay Sorensen, president of IdeaWorks and author of the report, noted that airlines are moving beyond bag fees to far more creative areas of ancillary revenues, such as lounge access, priority boarding, inflight Internet access and other products that are more appealing to customers.

The report states that a la carte fees are fundamentally changing the airline business, similar to the revolution caused by online booking in the travel industry. The vast majority of hotel rooms, car rentals and airline seats are now sold online.

Traditional travel agencies, “not unlike global airlines, are scurrying to find new sources of revenue in an increasingly online world,” the report said.

Traditional travel agencies do, however, dominate the high-yield corporate market, and in order to reach them, airlines should keep in mind how agents work. “If agencies have to do things outside their normal workflow, you won’t get the upsell,” Ian Wheeler, vice president of marketing and distribution for Amadeus, said.

Even some low-cost carriers, such as AirAsia, have added GDSs as “integral parts of the selling mix,” according to the study. “They will likely harmonize a la carte products to promote distribution through travel agencies.”