The unorthodox business model envisioned by Mr. O’Leary uses commissions from pay-per-view entertainment, onboard shopping, internet gaming, car hire and hotel bookings to eventually replace the revenue from selling airline seats. Consumers may someday “fly for free,” but airline executives already benefit from the bottom line boost provided by ancillary revenue. Mr. O’Leary’s radical idea catalyzed an industry-wide trend to coax more revenue from the profit-challenged airline business.
Management at competing airlines often ridiculed the path pursued by Ryanair. Legacy carriers defined their product distinction by bundling many amenities into the price of an airline ticket. At the same time, low cost carriers had not yet embraced the option of selling an unbundled airline experience. But economics eventually prevailed and airline management and consumers began to understand the relationship between low fares, rising costs, and the invention known as ancillary revenue.
Airlines can boost their revenues by "unbundling" the travel experience by charging separate fees for services such as checked baggage and beverages served onboard. Low cost carriers such as easyJet and Ryanair have generated significant profit from ancillary revenue, and major airlines such as British Airways are trying this too. However, the consumer backlash from charging fees (for services included in the price of a ticket by other airlines) can damage a carrier's reputation. For example, "European Skyway Robbery" was the headline written by noted travel columnist Peter Greenberg to warn consumers of abusive overcharging for baggage fees in Europe by easyJet and other carriers. The world's largest carriers are not immune from the public backlash against aggressive ancillary revenue actions. British Airways also wanted to boost its ancillary revenue with higher baggage fees during 2007. The carrier eventually backed down after the public outcry became too great.
Ryanair’s €408 million profit, along with ancillary revenues of €252 million, confirmed what the airline industry has already realized. Ancillary revenue activities have become a necessary ingredient in the profit mix of successful airlines.
Other airlines all over the world also report ancillary revenue from legacy airlines to low cost carriers. The following lists total ancillary revenue reported by these airlines for fiscal year 2006: easyJet €189,476,508, Aer Lingus €63,407,000, SkyEurope €10,827,000, AirAsia (Malaysia) €22,713,479.
Frequent Flier Programs: The frequent flier category is defined by the sale of miles or points to program partners such as hotel chains and car rental companies, co-branded credit cards (co-branding), online malls, retailers, and communication services.
Industry agreement largely exists for inclusion of a la carte features and commission-based products under the ancillary revenue banner. These are perfectly aligned with Ryanair’s current ancillary revenue activities. Frequent flier activities represent an inclusion that is growing in acceptance.