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How Airlines Can Boost Ancillary Revenues

How Airlines Can Boost Ancillary Revenues

Ancillary revenues, the money airlines make from sales and fees for products and services such as food, checked bags, and extra legroom, have become a topic of great interest for airline executives over the past decade. Now estimated at $50 billion to $55 billion a year, they exceed the industry’s $31 billion ten-year average annual operating profit. Without them, the industry would not be profitable.

Airlines setting out to increase these revenues usually focus on the commercial functions—marketing, sales, pricing, and distribution—and digitize as much of the process as possible. Granted, the commercial functions do have an important role, and digitization is an effective way to overcome operational issues, encourage upselling, and minimize revenue leakage. However, frontline employees remain significantly involved in selling or delivering most ancillaries. These men and women are an important, though often missing, part of the equation.

What’s more, the variation between the best and average frontline performance is significant. The cabin crews that sell duty-free products most successfully generate a multiple of an average crew’s revenues. On the ground, compliance with fee-collection policies can vary a good deal among agents, so important opportunities can be lost here too: for example, one airline we know collected fees for overweight and oversize bags in less than 30 percent of all cases. The potential impact of helping companies to improve on this measure is considerable. Our research suggests that better collection and upselling by the front line could raise ancillary sales by 20 to 35 percent—or an additional $11 billion to $18 billion for the industry.

The overlooked role of frontline employees

Considering the large opportunity in ancillary revenues, you might expect frontline employees to be deeply involved in efforts to raise them. You would be wrong. Although some airlines have launched projects (and even separate departments) to increase these revenues in recent years, we find that most carriers have not: they appear to consider this primarily a revenue issue, as the term ancillary revenues (rather than products and services) suggests. The ancillaries departments at over 95 percent of airlines in our recent survey report to the senior commercial executive, either directly or through the teams for pricing, revenue management, sales, or distribution.

Read rest of the article at McKinsey

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