A new study shines a spotlight on lucrative examples of ancillary revenue by retail and travel companies.
The study (opens as a PDF) was commissioned by Amadeus, the global distribution system used by countless airlines, and executed by IdeaWorksCompany, a consulting organisation that runs workshops on how airlines can earn more ancillary revenue,
The most creative ancillary revenue programmes
Case in point: At the start of this year, British airline Jet2.com rolled out a "Kids Eat for a Penny" promotion — placed in the booking path to tempt parents — in which a child could get a Kids Meal ordinarily priced at five pounds for only a penny for every adult who pre-orders a meal. It was part of a range of upsells directed at families.
The Jet2.com offer impresses the report's authors because "asking customers to pay in advance provides good cash flow" and the initiative "also has the customer, in effect, make a “personal investment” in the airline.
What's the unsung hero of ancillary innovation today? The report's authors highlight subscription services as exceptional generators of revenue and loyalty.
Their main example here is Spanish low-cost airline Vueling's Vueling Pass. Customers sign up for a recurring annual charge of €250 for a year of priority-treatment, such as 10 passes to its VIP lounges in Barcelona, Roma, Madrid and other cities, fast-track security screening, and early-boarding (which gives passengers an early shot at over-head bin space).
Innovation versus unbundling
Some of the examples of new ancillary services are truly innovative.
Exhibit A: In August, American Airlines debuted Luggage Delivery Service at 200 US airports. Starting at $30, the service promises to deliver a bag within 4 hours to an address up to 40 miles from the arrival airport. It's innovative in the sense that it is adding a service that the airline never provided before: guaranteed, door-to-door delivery.
Others ancillary revenue services are merely an unbundling of existing services that used to be included in a total price as new, add-on features, to achieve disintermediation, also known as the rolling out of à la carte fees.
Carnival, the US brand of cruise line company Carnival Corp., this summer began testing a "Faster to the Fun" program. For $50 per cabin, passengers can receive early boarding, priority dinner reservations, and faster luggage delivery.
Get inspired by examples outside of the travel industry
The all-star of ancillary revenue across industries is probably Disney Parks and Resorts, which earns half (49%) of its revenue from activities beyond selling tickets to their theme park and hotel rooms at their resorts. Think: merchandise and meals.
Think an entertainment brand can't inspire sellers of "commodity" services like airlines? Think again.
KLM touts seating for couples with its "Seat in a Row of 2" optional extra. Side by side seats, with no middle seat, can be assigned for €30 a person.
Starbucks spent $15 million during its 2011 fiscal year on research to develop beverages, food products, and technical processes. Says the Amadeus/IdeaWorksCompany report:
It’s a fascinating number because it likely has few parallels in the airline industry where investment in product development is often nil.
If you don't take risks with ancillary revenue, you may be left in the dust by competitors. Southwest Airlines, for instance, will likely earn $1 billion in ancillary revenue in 2012, according to the study's authors.
For more context, see these recent posts on upselling and cross-selling:
Revealed: Winners in the battle for airline ancillary revenue
and Airlines to net $36 billion in fees and upsells this year worldwide