One of the recurring themes within this blog has been the difficultly in nailing down an accounting definition of ancillary revenue to asssist in comparisons between airlines.  Therefore I was interested to be emailed the following from Chris Staab at Airline Information the other day in reference to an upcoming conference at which I am speaking.

Definitions: For this conference ancillary revenue is defined as: “Revenue other than through the sale of tickets that is generated by direct sales to passengers, or indirectly as a part of the travel experience” and a-la-carte revenue is defined as: “Revenue generated from selling products or services separately, which have traditionally been included in the price of the airline ticket.”

I tend to use the term ancillary revenue to cover both of the above categories, as airline executives in their financial commentary usually do likewise, but there was a decent article in the Wall Street Journal the other day looking at what Amadeus and Sabre are doing in supporting a-la-carte fees across various sales channels via the GDS central system. There is no doubt the GDS’s need to invest heavily in this area, and are doing just that, but it will always be the airline internet sites that can move first in this area as individual airlines do not have to wait for agreement on industry standards. Part of this innovation may come from airlines always trying to keep one step ahead of the effect mentioned below in the WSJ article.

“The new tools being developed by Sabre and Amadeus could make the world of airline fees far more competitive and bring down prices for consumers. If a higher baggage fee pushes one carrier’s fares to the bottom of display screens, the carrier may cut the fee to match prices, just as airlines typically do with base fares.”

Today I am already working with airlines wanting to implement a-la-carte pricing before it is available via central system, and we are using a variety of methods to achieve this. Eventually doing this via central system will make the accounting for this revenue simpler, as well as take better advantage of other products offered by the GDS’s such as internet booking engines, but I do not see individual airline innovation being replaced by industry standards; there will always be airlines thinking up creative new ways of getting extra revenue and wanting to get a jump on other airlines by implementing these ideas ahead of their competitors. If it means having to write eventually redundant code, or creating back office workarounds, the revenue potential of being an innovator in this area can make these drawbacks seem very small indeed.

Advertisements