John Francis O'Connell

Airline boardrooms have steered commercial departments to increasingly focus on diversifying revenue streams through ancillary revenue mechanisms. Ancillary revenues are any revenues which are additional to those generated from the sale of the different fare categories or branded fares. Ancillary revenues can be classified into four main groups: a la carte sales, frequent flyer programmes, commission-based products and advertising. Across the world’s airlines, baggage is also a big ancillary item with AirAsia for example producing 56 per cent of its total ancillaries in Q1, 2018 from baggage fees. Surveys have shown that passengers were willing to pay for specific ancillary products that were perceived as a ‘necessity’ such as seat assignment and baggage and together with food and drink, rather than ‘nice-to-have’ products. Punitive charges are another key revenue driver as consumers may be charged a penalty fee if they choose to alter their travel itineraries or for purchasing tickets with credit cards.

Airline boardrooms have steered commercial departments to increasingly focus on diversifying revenue streams through ancillary revenue mechanisms. Ancillary revenues are any revenues which are additional to those generated from the sale of the different fare categories or branded fares. Ancillary revenues can be classified into four main groups: a la carte sales, frequent flyer programmes, commission-based products and advertising. Across the world’s airlines, baggage is also a big ancillary item with AirAsia for example producing 56 per cent of its total ancillaries in Q1, 2018 from baggage fees. Surveys have shown that passengers were willing to pay for specific ancillary products that were perceived as a ‘necessity’ such as seat assignment and baggage and together with food and drink, rather than ‘nice-to-have’ products. Punitive charges are another key revenue driver as consumers may be charged a penalty fee if they choose to alter their travel itineraries or for purchasing tickets with credit cards.

The airline industry is characterised by sustained long-term growth in demand for air services. Yet the industry, consisting of around 1,400 airlines globally in 2015 with a combined fleet of over 23,151 aircraft. Airlines worldwide reacted by adding large amounts of capacity in order to capture the increasing passenger traffic. Global airline traffic has been doubling every 15 years since the early 1970s despite the fact that it is fully exposed to many external forces that cause its growth to widely fluctuate. New disruptive airlines continue to enter the global marketplace equipped with leaner cost structures, high productivity mandates and best practice efficiencies that trigger structural shifts within the industry that distinctly impact the legacy incumbent airlines. Airlines based in the Asia-Pacific region fly almost two-fifths of total international freight tonne kilometres which represents around 40 million in metric tonnes each year. Airlines must prepare well in advance for the impending cyclicality of downward macroeconomic forces that regularly hit the industry.

In terms of air transportation, the International Air Transport Association has forecast that seven of the ten fastest-growing passenger markets over the next 20 years will be Malawi, Rwanda, Sierra Leone, Central African Republic, Tanzania, Uganda, and Ethiopia. This study of airline business models indicates that Africa is set for strong expansion in air connectivity and that is expects passenger growth to average around 4.4 percent between now and 2034. In the context of African aviation, chief bodies of research centre on the impact of liberalisation on the continent, not least of which was a comprehensive piece published for the International Air Transport Association on the economic benefits of implementing the Yamoussoukro Decision. High air fares on the continent are a symptom of the general lack of competition from strong airlines on intra-African routes as well as the inequality of income across African populations.