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Ancillary sales have been a small silver lining for airlines during the Covid-19 pandemic.
Costs for ancillary services, such as bags and seat assignments, have held steady, even as passenger demand has crashed and ticket prices have plunged.
Meanwhile, airlines, especially discount carriers, say that their average customer is spending a similar total on ancillary items and fare bundles during the pandemic as before.
“Given the fact that it’s about half of our revenue, that’s a comfortable thing in a downturn like this. We kind of have a little bit more reliable revenue stream,” said Spirit CEO Ted Christie.
TSA checkpoint throughput figures show that air passenger traffic remained off 65% from 2019 numbers during the week that ended Oct. 18. Airfare was down 25% year over year in September, according to the Bureau of Labor Statistics.
But according to an analysis published in late September by the consulting firm IdeaWorks, ancillary revenue rates are holding up.
IdeaWorks said it surveyed a selection of ancillary revenue executives globally who, on balance, reported ancillary revenue rates equaling or exceeding 2019 results. The executives reported baggage revenue on a per-passenger basis is up, “because passengers have more bags due to increased family travel, more days away and relocations.”
Discount carrier Wizz Air, which made specific disclosures about ancillary revenues in its second-quarter earnings report, said per-passenger ancillary revenue projections were on track with projections it made before the pandemic.
Discount carriers in the U.S. are offering similar reports. At a presentation during the International Aviation Forecast Summit in Cincinnati this month, Allegiant CFO Greg Anderson said that the carrier’s prepandemic average of approximately $50 in ancillary purchases per passenger has held up.
At Spirit, too, ancillary spend has proven more resilient and less elastic than ticket prices, Christie said. In the mainline U.S. sector, the standard $30 baggage fee hasn’t budged.
Charuta Fadnis, senior vice president of research and product strategy for Phocuswright, said that ancillary prices likely are holding up because certain standard charges, such as bag fees, have become widely accepted. She also said the decision on whether or not to travel typically doesn’t hinge on ancillary fees.
“With drastic capacity cuts, the trade-off decisions/opportunities when choosing between airlines are also likely not available to the extent they would be in normal times,” Fadnis said.
Travel industry analyst Henry Harteveldt of Atmosphere Research Group compared the current dynamic of cheap airfares and full-price ancillaries to a supermarket that’s having a sale. Customers will show up to buy the sale items but then spend money on full-price products, as well.
Research conducted by Atmosphere in June found that even though the average income of air travelers had dropped substantially due to the pandemic, 54% of survey respondents were still willing to pay a premium for better service, while 60% said they’d pay extra to save time or hassle and 64% said they’d pay a premium for more comfort.
“You still have the majority of passengers, even amid a very difficult economic environment, who are willing to shell out extra for the experiences that they think will give them a more pleasant, more comfortable, less stressful journey,” Harteveldt said.
While the durability of ancillary sales is particularly helpful to ultralow-cost carriers like Wizz, Spirit and Allegiant, mainline carriers also see opportunity.
In an interview with Harteveldt during the World Aviation Festival virtual event last month, American chief customer officer Alison Taylor said that the carrier had created new NDC-enabled bundled fare packages during the pandemic, which have been made available to leisure agency partners.
Source: travelweekly.com