G5 – Group Assignment: Ancillary Revenue

Ancillary revenue generated from goods or services that differ from or enhance the main services or product lines of a company. By introducing new products and services or using existing products to branch into new markets, companies create additional opportunities for growth.

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Delta Airlines 

  • Delta Airways may have a smaller slice of bag revenue, they certainly generate lots of cash from their frequent flyer programs.
  • The vast majority of activity occurs when airlines sell miles to the banks that issue cobranded cards such as the Delta SkyMiles card issued by American Express.
  • Worldwide the a la carte approach long embraced by low cost carriers has been adopted bynnetwork airlines. Within the US, American, Delta, and United recently introduced basic economy fares (sometimes called seat-only fares) to compete with Frontier and Spirit. These fares reduce the product to a minimalist experience with fees charged for bags and early seat assignments, no elite upgrades, and a ban on flight changes. Yet when presented with higher fare, better service options, the majority of consumers opt to spend more.
  • The airline has broken ranks with most others by investing a healthy $50 million of the revenue windfall from bag fees to actually improve service for the customer. Delta now attaches RFID tags to bags everywhere the airline flies. The tags transmit a bag’s whereabouts to the traveler via a mobile phone app. Reading the message ‘your bag has been loaded’ provides a sense of tranquility that truly allows travelers to ‘sit back and enjoy the flight’,” IdeaWorks states.

 

What is Ancillary Revenue on Airlines?

Ancillary revenue. In the airline industry, ancillary revenue is revenue from non-ticketsources, such as baggage fees and on-board food and services, and has become an important financialcomponent for low-cost carriers (LCCs) in Europe, North America and other global regions.

American Airlines

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Graph  displays the typical ancillary revenue sources for carriers such as American, Delta, and United. Baggage fees for US carriers represent approximately 20% of their ancillary receipts. The remaining revenue is produced
by an array of a la carte and commission-based products. Other sources include onboard sales of food, beverages, Wifi, and commissions from car rental bookings. The a la carte category grew to 20% (from 15% for 2014) due to more emphasis placed upon comfort-related services such as premium economy seating, buy-on-board food, and priority screening and boarding. Alaska, American, Delta, Hawaiian, and United offer premium economy zones which provide more leg room and other features.

Comment

All of us want to fly cheap, with an expection of a good service. LCC’s are selling cheap tickets with a standart services such as transporting you from A to B. But they are offering you extra services such as seat options. For example XL seat. In my opinion seat is the most important service. Because i can eat before my flight or drink whatever i want. But i can not change my seat on plane if its not comfortable. Offering seat assignments are the most important services for me. If you check 2008 – 2009  data you can see the increase of seat services as +147.1%m per passenger.

COMPARE

If we compare LCC vs FSC there is only one big differences which is LCC’s are offering what ever you want with different services you can pay for what you need. However FSC’s are giving you some standarts which you have to pay even if you dont need. Such as large seats, foods and beverages. For a people who are flying often because of bussines most of them choosing LCC’s because they only need to go A to B.

References

http://www.ideaworkscompany.com/wp-content/uploads/2014/07/Press-Release-89-Ancillary-Revenue-Top-10.pdf

https://www.vueling.com/en/vueling-services/supplementary-service-rates

https://en.wikipedia.org/wiki/Ancillary_revenue

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjA1NTkzfENoaWxkSUQ9LTF8VHlwZT0z&t=1

https://flightchic.com/2016/12/29/5-most-innovative-ancillary-strategies/

https://www.forbes.com/sites/gradsoflife/2017/10/19/cyber-attacks-against-you-will-get-worse/#6650b7823870

https://www.delta.com/content/www/en_US/traveling-with-us/onboard-services/food-and-beverage.html

http://www.ideaworkscompany.com/wp-content/uploads/2017/07/2016-Top-10-Airline-Ancillary-Revenue-Rankings.pdf

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