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The Rise Of Ancillary Revenue – Is the lowest available fare always the best option?

Blog post   •   Nov 21, 2018 08:07 GMT

Ancillary revenue in the airline industry – generated by activities and services that yield revenue for airlines beyond the simple transportation of passengers from A to B – has increased dramatically over the years.

If you read our 2019 Energy, Resources & Marine Travel Forecast, you probably spotted a graph based on Idea Works Company data that shows a steady growth of it; from 32.5 billion US dollars in 2011 to 82.2 billion in 2017.

Impressive, isn’t it? So, what’s behind this phenomenal increase?

The economic downturn of 2008 made companies more cost-conscious. Travel policies were tightened up with a stronger focus on compliance.

Companies said farewell to the business class of the golden age of travel and started to book lowest available fares. Even low-cost companies became the new normal for business travelers around the world – C-Suite executives included.

And interestingly enough, as companies tightened their belts, airlines started to implement new creative ways of getting back some of this lost revenue. How? By taking inspiration from their low-cost competitors’ business model. Ancillary charges were born.

Despite the fact that the economy is slowly picking up, the crisis has left a mark. Austerity and caution are very much alive when it comes to travel program design and there are many travel managers that are still focusing their policies on the lowest available fares.

But are they always the best option when it comes to savings?

The answer is no. Not all that glitters is gold. These fares have many restrictions and any changes or extra services will end up costing your company more down the line than if you had booked a more flexible, if slightly higher, fare in the first place.

So, if you do not want to end up paying more for your travel, data reporting and regular analysis are your best friends. If you can put a number on your change rate, and either work to reduce it or use it to decide on the most appropriate fare, you will save money in the long run.

If you work in the energy, resources and marine sectors, the chances are that you have a high rate of last-minute changes and cancellations, so check your data carefully and adjust your policy accordingly.

And do not forget to always consider the traveler. Combine budgetary prudence, employee engagement, and your duty of care when establishing policies. Let your travelers lead policy change where necessary. I can assure you it will pay off in the long run.

Blog author: Tony Berry, Vice President, Global Program Management, CWT Energy, Resources & Marine.

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