The recent annual CarTrawler report showed record income for airlines generated through baggage fees worth $33.3 billion.  But is a growing reliance on bag fees a risky strategy for airlines and those who live off their commissions?

Recently members of the European Union parliament called for the abolition of hand luggage fees and a similar motion is under consideration in the UK, whilst pressure on ‘junk fees’ has mounted in the US too. With such calls in many markets around the world perhaps the airline industry should be looking at pushing different types of ancillaries that can add value for travellers, whilst still generating revenues for the industry.

To find out more we spoke with a variety of travel technology leaders to find out where they think airlines should focus their ancillary plans.

Eugene Ko from Phocuswright – whose conference will take place in Phoenix, Arizona between 19 and 21 of November – says that the ancillary landscape is expanding, creating a growing opportunity for airlines to become retailers.  “Higher airfares and steady demand have pushed passenger revenue up by 13% to an impressive $198.3 billion in 2023, according to our research. With strong leisure demand boosting airline performance, especially on long-haul and premium routes, airlines have a golden opportunity to capture additional non-ticket revenue opportunities. We’re seeing ancillaries such as extra legroom and early boarding make up a greater percentage of airline gross bookings, not only enhancing the customer experience but also catering to individual needs. Airlines are also touting results from new merchandising capabilities that show increased revenue from premium seating, retailing and expanded loyalty from ancillaries.”

However, Barry Klipp from InterLnkd, the travel industry’s intelligent shopping mall partner, believes this shift towards next-generation ancillaries is long overdue. “With inflation squeezing consumers and airlines scrambling to fill seats, yields are plummeting. Combine this with weaker currencies, looming debt, and the ongoing cost-of-living crisis, and we have a perfect storm. To weather it, airlines must be prepared to go beyond traditional add-ons like car hire and travel insurance to boost their bottom line. The smartest airlines are already tapping into their customers’ lifestyles, such as fashion and beauty purchases, to drive ancillary revenues and build loyalty.”

To fully harness the power of ancillaries, however, airlines must dismantle the traditional fare package and rebuild it around individual customer preferences, says Sergio Mendoza from Airnguru – a fare management, pricing intelligence, automation, and optimization SaaS for airlines. “While many airlines are unbundling the air ticket, that usually means shifting part of the revenue from the ticket itself to ancillary sales. The real opportunity lies in leveraging generative AI to dynamically rebundle these components, along with other ancillaries from a potentially limitless list of possibilities. By tailoring offers to each customer’s specific needs and pricing them accordingly, airlines can unlock substantial new demand and offer a much better shopping experience.”

Jason Guan of DidaTravel agrees that ancillaries are a great opportunity to advance personalisation, but thinks there’s an opportunity for airlines to think beyond the flight experience. “Traditionally, ancillaries focused on the ‘en route’ experience,” he explains. 
“Now, we’re seeing a surge in popularity around personalised post-booking add-ons.  Imagine booking your flight and then seamlessly adding on local must-do experiences or exclusive access to events – all within the airline’s booking platform.  Airlines could partner with local activity providers, creating curated destination experiences for passengers.  This caters to the growing desire for unique and authentic travel, while airlines can earn commission on each add-on booked.”

Meanwhile, Manuel Núñez from Servantrip – the world’s leading B2B tours, activities, and transfer platform – points out a significant opportunity in the realm of on-board experiences.  “The inflight environment presents a unique chance for passengers to discover and book destination activities and tickets before arriving. On long-haul flights, where passengers have ample idle time, airlines can offer a platform for planning and organizing their activities. This not only enhances the travel experience but also provides a valuable revenue stream for airlines by facilitating bookings of local experiences and events. Furthermore, being able to secure these activities in advance is crucial as it allows travelers to avoid wasting time at their destination searching for bookings, while also mitigating the risk of sold-out tours or events.”

Sustainability could be another ancillary focus area.  Christian Sabbagh from Travelsoft explains: “The topic of carbon off-setting may be hotly debated, but sustainability-focused ancillaries represent a growing opportunity for airlines – in meeting carbon goals, strengthening brand image, and generating additional business.  Travellers today are increasingly environmentally conscious, and airlines are recognising the value of offering solutions that align with this growing sentiment.  Personalised carbon offsetting, for example, allows passengers to calculate their specific flight’s carbon footprint and contribute directly to verified offset projects. This empowers travellers, potentially assisted by concerned intermediaries like tour operators and travel agencies, to reduce their environmental impact while airlines demonstrate their commitment to sustainability.”

Cloudbeds, the innovative leader in hospitality management technology, sees an opportunity to link the air and hotel experience.  “What if your luggage could arrive at a hotel before you do?’” says Adam Harris from Cloudbeds. “Technology exists that can integrate third party innovators with airline booking systems, allowing passengers to book secure luggage delivery to their final destination. Imagine the convenience – travelers are no longer weighed down by luggage, which would transform the air travel experience. Airlines could also benefit by offering a unique value proposition and potentially generating revenue through partnerships with luggage delivery services and hotels.”

But the ability to add and drop extra ancillaries depending on current trends depends heavily on having the right technology in place.  “Airlines typically can be quite limited by old, siloed technology,” comments Maxim Sevastianov from Trava, whose technology revolutionises post-booking processes for online travel sellers.  “Although costly to upgrade, the growing significance of ancillary revenue could mean that now is the time to make that investment in smart, modern retailing technology.  Systems need to be flexible, adaptable and data-driven, otherwise airlines will remain fairly limited in the products they’re able to offer travellers – and this could be a huge missed opportunity.”