On-Board Revenue is Growing, but is Profit?
Ancillary revenues continue to become a major source of money for many airlines.
In a recent report commissioned by B2B technology firms CarTrawler and IdeaWorksCompany, growth in ancillary revenues of airlines was pegged at $44.6 billion in 2016. This was based on the total sales of 66 global airlines.
Ancillary revenues in 2016 represented 9.7% of the total sales of the airlines covered in the report, up from the 8.7% in 2015.
The trend holds true even in the United States. The top three US have been lowering their fare prices to combat the growing number of low-cost carriers. But these airlines are also getting their fair share of money from ancillary revenues.
Out of the three, one has been getting the biggest share of its profits from ancillary revenues. According to a report by IdeaWorksCompany, 17% of the total revenues of a major US airline were generated by ancillary revenue; the other two took in over 12% of total revenue from ancillaries.
Losses due to poor inventory controls
However, many airline companies are not able to maximize their ancillary revenue potential due to poor inventory controls especially pertaining to on board inventory items.
Studies completed at major airlines have showed that airlines do not have an effective method of tracking inventory consumed on board. They rely mostly on estimates and assumptions.
Most flight attendants are not required to record inventory consumption as a part of their inflight responsibilities.
What this means to airline companies
In an era when airlines look for other sources of revenue due to lower ticket sales, it is very important for firms to maximize every revenue opportunity.
The sale of alcoholic beverages on board has proven to be a very good source of revenue.
According to a survey conducted by Toronto-based GuestLogix, the sales of liquor, beer and wine made up more than 50 percent of in-flight purchases during their testing period. The said report took into account 8 million transactions across five airlines based in the United States.
Liquor was the runaway choice among flyers, accumulating 34% of the sales. Wine was next with 13% and beer, 10%. Non-alcoholic beverages accounted for a mere one percent during the survey period.
The survey results mirrored the increase in global sales of alcoholic beverages sold during flights. The same report noted that sales of beer and liquor have been growing by 10 and 5 percent, respectively.
With the poor inventory controls implemented by airline companies, there is a great risk of theft that can result in loss of revenue.
Do the readers know of any viable solutions to address this problem?