Is Airline Ancillary Revenue a Loyalty Killer?

Oct 25, 2011

I’ve been tracking the airline industry since 1978 when deregulation took place. We’ve come a long way since then as we have seen the introduction of the hub and spoke route system, a new breed of discount carriers, and now ancillary revenue.

Ancillary revenue is an inwardly facing term, similar to CRM or Coalition Loyalty. Consumers don’t care what we call any of these items, they just care how the outcomes impact their flight experiences, in-store service, or rate at which they accumulate points or miles towards a free flight. Only recently have we seen marketers exposing their proprietary lingo to the public as retailers and grocers offer “BOGO” offers – “buy one get one” in case you are living next to the Geico ad spokesperson under a rock.

I am torn on whether exposing the language we speak to each other to our customers is a good idea. The use of BOGO is cute and might represent a curiosity approach. The use of ancillary revenue is one that should never escape the halls of airline FFP and co-brand conferences. It’s right up there with “Merchant Funded Rewards”, a descriptor which makes retailers feel as though they are being used by their financial services counterparts.

A recent trip on Spirit Airlines drove this point home to me. As is customary, the members of our party cast aside our liquids as we prepared to enter security at the airport. Comfortably through and with 30 minutes to kill before boarding, we purchased two big bottles of water and a snack. A few minutes later, passing through the Jetway to board our flight, we were stopped by flight security and told that we could not board with our water bottles. We were livid. This has never happened to me while flying domestically and it is possible that this was an international anomaly.

On the other hand, more than one fellow traveler was grumbling derisively that “it’s all about the money”. You see, Spirit sells absolutely everything on board, no free water, no free snacks, no nothing. Being a little stubborn, we rode home thirsty rather than pay the $3 charge for a water bottle on board.

In the interest of airline profitability, the flight experience has been deconstructed and charges applied to nearly every distinct aspect of travel. It might be good for the airlines, but it is absolutely horrible for travelers. One airline official told me that there is strength in numbers and that “people will get used to it”. That’s an attitude that screams disregard for the customer base.

If you were considering investing in an airline stock, you might find attractive the ones doing the best job at generating ancillary revenue. At the same time, those same airlines might be the last on your list to select for your next trip.

It’s an interesting quandary, and one that the airlines should realize bears a fuse. One day, when the fuse runs out, the powder keg will ignite and people will make their opinions known. As always, they will vote with their pocketbook.

Skype anyone?