No longer just a “nice to have,” ancillaries have become central to driving revenue for today’s airlines, hotels, cruises, and rail lines. But instead of adding more fees that travelers see as punitive — such as charging extra for carry-on bags — travel companies should focus on creating incredible add-on experiences that travelers are happy to pay for.
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Loyalty programs and a la carte extras proved to be critical revenue sources for travel companies during the disruptive years of the pandemic. In addition to helping make up for lost ticket sales, they drove long-term customer value and ensured that airlines would be well-positioned when travel returned.
Today, almost half of all travelers are using ancillary services to improve their travel experience. CarTrawler projected airline ancillary revenue to grow from $66 billion in 2021 to $103 billion in 2022, a 56 percent year-over-year increase. In fact, many airlines — both low-cost and full-service carriers — now generate more revenue from mileage programs and other ancillaries than from ticket sales, moving the idea of ancillaries as a core revenue driver into the open and highlighting its potential as a massive growth engine.
The largest contributors to ancillary revenue growth have historically been baggage and change fees, but these add-ons often leave travelers feeling nickel and dimed. Last year, as “revenge travel” peaked and travel disruptions became more commonplace, the need for a new kind of ancillary experience emerged.
Enhancing Travel Experiences for Passengers and Guests
Everyone loves to travel, but that doesn’t stop the stress and anxiety that often surfaces on the day of travel. What if you could replace that stress with a positive experience? No time for those unexpectedly long lines at the airport? Use your points to dash through the security line with ease. Don’t feel like sharing your armrest in economy class with a random stranger? Just book the seat next to you, stretch out, and truly enjoy your flight.
“Travelers are willing to pay for great experiences,” said Ken Harris, CEO at Plusgrade, a technology company that combines ancillary retailing and loyalty expertise to enhance travel experiences, create new revenue opportunities, and provide collective intelligence to proactively manage disruptions. “We went through years of unbundling the ticket, and now we’re unbundling the whole travel experience so customers can pick and choose the parts of the experience most important to them.”
Everyone can imagine upgrading to a business-class seat on an airplane or a large suite at a hotel, but what about getting to be the lucky passenger next to an empty seat or ensuring a quick and easy check-in? These more novel upgrades may be more accessible for the average traveler.
“There are so many elements of the air travel experience that can be enhanced,” Harris said. “We’ve also introduced something called Speed Pass, an on-the-ground experience that includes priority check-in, security, and boarding. Essentially, you pay $50 or so to have priority status for a day. There’s a growing expectation for airlines to provide easy add-ons like this.”
Creating New Revenue Opportunities for Partners
Last June, Plusgrade acquired loyalty commerce platform Points, expanding from 80 to over 140 partners globally and generating $3.5 billion in new revenue in 2022 alone. While Plusgrade covers airlines, cruises, and rail, Points had never been in the cruise space. Similarly, while Points started with airlines before expanding into hotels, Plusgrade had never been in the hospitality space.
“With both companies under one roof, we’re uniquely positioned to quickly deliver any ancillary offering using cash, miles, or points as a currency,” Harris said. “Making loyalty currency more actionable and accessible is incredibly valuable to our partners and their customers.”
Whether upgrading on an Air Canada flight or buying points at Marriott, the customer experience is meant to be frictionless, fully integrated, and white labeled — as seamless as every other interaction a traveler would have with the airline, hotel, cruise, or rail line.
“That was really important to us because we want the goodwill to go back to our partners,” Harris said. “Beyond just great technology, both Plusgrade and Points have in-depth expertise that helps them understand the best way to bring their loyalty programs forward and the best way to merchandise these incredible experiences.”
Leveling Up: An Ancillary Revenue Powerhouse
Expanding its reach even further, Plusgrade recently announced its acquisition of UpStay, a leading provider of hotel and hospitality ancillaries like early check-in, late checkout, and spa and dining packages.
“By bringing UpStay’s excellent technology platform into our organization, we will now be able to go deeper into the hotel space, build out a more comprehensive hospitality ancillary platform, and be even more effective,” Harris said.
With both Points and UpStay operating under Plusgrade going forward, the company expects to generate over $5 billion in new revenue opportunities for its partners through 2023.
“We’re proud not only that we are building a global ancillary revenue powerhouse and helping our partners become ancillary revenue powerhouses themselves, but that our solutions are bringing happiness to travelers — improving their experiences on behalf of our partners every day,” Harris said. “Whether it’s enabling someone to upgrade a travel experience, or facilitating a top up on their loyalty program currency so they can redeem for their dream trip, our ultimate goal is to put smiles on the faces of our partner’s customers.”
The simple business proposition of making customers happy while also making money can feel like an uphill battle in today’s increasingly disruptive and turbulent world, but by giving customers more control over their travel experience and offering tangible ways to make it better, travel companies can thrive in these unpredictable times.
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