Airlines around the world rely heavily on ancillary revenue for their overall income. For low-cost carriers, buying all those little added extras can make up a considerable proportion of their total revenue. Apple Ignacio, Director of Ancillaries at Cebu Pacific, has spoken this week about the impact on LCCs of the loss of ancillary revenue as a result of cutting buy onboard services.
Ancillary revenue is a hugely important stream for any airline, and in particular, for low-cost carriers. Apple Ignacio, Director of Ancillaries, Cebu Pacific, spoke about the importance of ancillary revenue to low-cost carriers in a webinar hosted by Future Travel Experience. She said,
“I wouldn’t say it was an easy decision for us to stop by onboard service when we resumed our flights. We know that when we started envisioning what our flights would look like when we restarted, we knew that it’s going to be contactless.
“Buy onboard service, for example, is high contact, high interaction with cabin crew and passenger plus the idea of handling of cash fully stopped. We acknowledge that there is an opportunity lost for us when we stop selling.”
Cebu Pacific positions itself as a low-cost carrier, and annually reports around 20% of its total revenue as coming from ancillary sales. It’s not alone in this by any means, with many airlines increasingly reliant on ‘added extras’ to make up significant proportions of their income.
In the recent Wizz Air results call, the airline highlighted its reliance on ancillary revenue. Per passenger, this evened out to an average of €31.30 ($35.60) and accounted for 45% of its total revenue. The bulk of this was from value-add ancillary purchases, which is basically everting other than baggage, with just around €6 of the €31 accounted for under extra or checked bag purchase.
And, of course, it’s not just the low-cost carriers this affects either. Mainline carriers, too, rely on ancillary purchases, with the five largest US carriers (American, Delta, United, Alaska, and Southwest) generating 15.2% of their profits from this source. Globally, ancillary revenues exceed $100bn per year, with around $30bn generated by those five airlines alone.
If airlines are no longer able to serve buy on board, and as other perks such as priority boarding become unnecessary due to social distancing at the gate, how can they get around this problem?
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How can airlines get around a lack of ancillary revenue streams?
As Apple pointed out, the loss of some forms of revenue streams gives an opportunity to develop others. She pointed out that, in a post-COVID aviation environment, people might be willing to pay for thigs that were previously not a priority. She cited the middle seat as a potential revenue stream, although that didn’t go down well when a US carrier recently attempted it. She said,
“My realization during this whole pandemic, and I think it holds true for the majority of the airlines, is that the add-ons [ancillary revenue] are really relying on passenger numbers and passenger volume. So, if there’s a big take away from me, it is we need to consider and explore add-ons that wouldn’t make us so dependent on passenger numbers.”
Nevertheless, Cebu flies in a very different environment, and what didn’t work in one place is not necessarily going to flop in another. She explained how Cebu’s relationship with airports will be increasingly important in the post-COVID recovery.
We’re looking at ways we could maybe hand out pre-ordered meals during boarding, for example. I think in terms of our relationship with airports, with Manila, for example, we’re working with them and hope that we can still collaborate with them to serve a better experience for our customers.”
What do you think about the ancillary revenue crunch for airlines? Would you be willing to pay for things like an empty seat next to you? Let us know in the comments.