n today’s world, there is one certainty when it comes to investing that you need to be aware of… new technologies will disrupt nearly every industry.
Take the stodgy airline industry. The Internet of Things (IoT) is about to make airlines more profitable than they’ve ever been in the past. I’m sure you’re wondering how this will be accomplished. Simple – instead of treating their passengers as mere travelers, airlines are beginning to look at them as online consumers that just happen to be on their plane.
Before I delve into more details, let me fill you in on more background on the industry.
Airlines and Ancillary Revenues
In this age of low-cost airlines, the days of when airlines made the majority of their money from airfares are largely gone. Thanks to low-cost airlines, so-called ancillary services have become a mainstay and an important source of revenues for all of them.
A report last month from the research firm IdeaWorksCompany in conjunction with the online car rental company CarTrawler gave insight into the growth of ancillary fees. The report projected that for 2017 airlines will have received a total of $82.2 billion in ancillary revenues. That is about 10.6% of their projected total revenues for 2017.
That $82.2 billion number is also a 22% increase from 2016, with most of the ancillary revenues being garnered by the traditional airlines. Quite a contrast from just 10 years ago when the top 10 airlines (ranked by add-on services) earned only $2.1 billion from ancillary services.
One main reason is the fact that, within the domestic U.S. market and the short-haul operations of airlines outside the U.S., the prevalence of a ‘Basic Economy’ product has driven ancillary sales. The aforementioned report cites airline estimates that over 50% of passengers who purchase this product opt for higher priced bundling options.