Ancillary revenue is revenue that is derived from goods or services other than a company's primary product offering. Examples include concessions at sporting events, baggage handling or seat selection revenue received by airlines, restaurant revenue received by hotel owners, and car-wash services sold by gas stations. Ancillary revenue may exceed primary revenues, leading to changes in business models. [1]
In the airline industry, ancillary revenue is revenue from non-ticket sources, such as baggage fees and on-board food and services. [2] [3]
Airline ancillary revenue was estimated to be $92.9 billion worldwide in 2018. [2] In the first half of 2018, ancillary revenue at Ryanair rose 28%. [4] United Airlines is the leader in dollar volume of ancillary revenue. [5]
The following lists total ancillary revenue reported by these airlines for fiscal year 2006: easyJet €189,476,508, [6] Aer Lingus €63,407,000, [7] SkyEurope €10,827,000, [8] AirAsia (Malaysia) €22,713,479. [9]
According to a study published by Amadeus IT Group and IdeaWorksCompany, airlines’ ancillary revenues were projected to increase from $13.5 billion in 2009 to $22.6 billion in 2010. [10] In 2009, United Airlines had $1.5 billion in ancillary revenues; for many airlines ancillary revenues accounted for a huge part of their total revenues: Allegiant Air (29.2%), Spirit Airlines (23.9%) and Ryanair (22.2%). [11] For 2018, the financial results have greatly increased with the following top performers noted: [12]
Airlines can use product differentiation and potentially boost their revenues by "unbundling" the travel experience by charging separate fees for services such as checked baggage and beverages served on board. [13] Low cost carriers such as easyJet and Ryanair have generated significant profit from ancillary revenue. However, the consumer backlash from charging fees (for services included in the price of a ticket by other airlines) can damage a carrier's reputation. For example, "European Skyway Robbery" was the headline written by noted travel columnist Peter Greenberg to warn consumers of abusive overcharging for baggage fees in Europe by easyJet and other carriers. [14] British Airways also wanted to boost its ancillary revenue with higher baggage fees during 2007. The carrier eventually backed down after the public outcry became too great. [15]
According to IdeaWorksCompany in its annually produced CarTrawler Yearbook of Ancillary Revenue, ancillary revenue for airlines includes: à la carte features, commission-based products, frequent flier activities, advertising sold by the airline, and fare or product bundles. [16]
Ancillary revenue in the hotel industry includes revenue from high speed WiFi, in-room dining, parking, business services, meals, fees for extra loyalty points, late checkout/early check-in fees, in-room entertainment, and trip cancellation insurance. [21]