Gaps in strategy and technology holding airlines back from ancillary growth, says Airnguru

As revealed in a recent CarTrawler report, ancillary revenue surged above pre-pandemic levels in 2023, with the top ten carriers alone generating a staggering $54.1 billion in revenue from ancillaries. 

However, despite their potential, airlines are still facing gaps that could hinder them from maximising ancillary opportunities and ensuring their profitability.

Sergio Mendoza, CEO of fare management and pricing optimisation specialist Airnguru, offers critical insights into how the industry can bridge these gaps and fully capitalise on the ancillary market.

“Ancillary revenue must be viewed as an integral part of the overall passenger business,” said Mendoza. “You can’t just focus on optimising a single component, like baggage fees, without considering the ripple effects across your entire product offering. 

"If you don’t have that holistic view, you may end up increasing the baggage revenue at the cost of simultaneously reducing the overall revenue, especially if it impacts bundles or packages that include baggage.”

He advised another key challenge is the lack of transparency in ancillary pricing when targeting the open public, which ultimately hinders competitiveness. 

“If an airline’s mid-term objective is to be able to offer a personalised, well targeted service to customers, dynamic ancillary bundling seems to be the reasonable endgame,” he said.

“However, achieving this vision requires a flexible tech infrastructure capable of scaling quickly and delivering consistency across channels. 

"Of course, those who can harness generative AI quickly and effectively to drive personalisation and optimise offers will have a huge advantage in the market.”

Mendoza urges that dynamic pricing engines (DPE) will be integral to the future of ancillary bundling. “

He added: "Airlines will gradually move away from legacy technology and embrace more flexible dynamic pricing solutions that will increase automation and handle real-time segmentation. 

"We must be aware that the legacy infrastructure may be rigid, however, it is currently enabling a substantial fraction of the airlines’ margins – so, the decades of industry knowledge implicit in this must be carefully absorbed into the newer DPEs.”