An increasing trend in the world of airline carriers is charging for what’s known as auxiliary services, such as meals, lounge access, and seat choice. This ala carte style of flying was inspired 20 years ago when Ryanair Holdings began making passengers pay for snacks and drinks.
According to Tony Tyler, International Air Transport Association Chief Executive Officer, sales for items such as food and overhead-bin space has increased to $36 billion since 2007, amounting to 5 percent of the total $680 billion earned by airlines last year.
Ancillary sales will rise to $50 billion in the next five years, John Thomas, a senior managing director at L.E.K. Consulting LLC said, and added that revenue streams that remain untapped were in-flight entertainment, wireless access and shopping, which could be worth about $5 billion.
“When people get on board an aircraft, they’re actually in a great retail mindset,” Thomas said. “About an hour into the flight, they start to relax and their mind opens.”
Bloomberg News notes Air France sold more than 26,000 menu upgrades priced at 12 euros and 28 euros to economy- and premium-economy fliers in the nine months to March 31.
“The Paris-based carrier’s duck confit with mushrooms and sauteed potatoes, followed by Opera cake for dessert, costs 18 euros. EasyJet, Europe’s number two discount carrier, charges 8 euros for its meal deal featuring a sandwich, tea or coffee and a Twix chocolate bar.”
John Dabkowski, managing director for airline technology company Navitaire Inc., claims the low-cost carriers have taken ancillary revenue from a normal way of doing business and turned it almost into an art form. “They’ve set the customer’s expectation, so people now are not offended by it.”
CEO Calin Rovinescu says Air Canada has seen ancillary revenues for services ranging from baggage fees to lounge access climb 30 percent annually since 2009.
“In terms of competing with new entrants, with folks who have a significantly lower cost than we do, the best way of competing was to give the exact same price on the base fare and then start incrementally adding to that,” Rovinescu said.
Pre-booking is key to boosting quality while trimming waste, helping to make the paid-for-food model cost effective, said Caroline Hanly, head of catering at Dublin-based Aer Lingus Group Plc, which began offering three-course upgrades to economy-class passengers on trans-Atlantic trips in February.
“We’re going to know exactly how many people on board are going to want certain meals,” Hanly said in an interview. By selecting traditional Irish fare such as soda bread and black pudding, it’s also an opportunity for Aer Lingus to highlight its status as an indigenous Irish brand, she said.
Regardless of the quality of food, catering also poses a design challenge to manufacturers Airbus SAS and Boeing, who must build galleys sufficiently large to cater for three meals on long-distance flights lasting more than 12 hours, said Tim Clark, president of Emirates, the world’s largest airline.