The Ancillary Regime

The above cartoon probably best illustrates the current ancillary revenue regime ruling at legacy carriers than anything else.

The advent of economic crisis and continuous pressure from LCCs have forced a number of legacy carriers to turn into ancillary revenue models. But will this work for legacies in the longer term ?

Without a doubt, yields are at historical lows while costs are high. This has forced many full service carriers to deeply reconsider their model.
Filling the back with profits from the front of the plane simply doesn’t work anymore.

The Root

The root of the problem, as mentioned before, is declining premium traffic. This has been caused since most businesses have started to control their travel budget. Most individual price sensitive travelers traditionally do not consider premium class. These factors have caused legacy carriers to face a situation where their costs cannot be recovered from the passenger revenue.

The Outcome

With this continuous decline of yields, most legacies have turned to one of the main revenue tactics of LCCs – ancillary revenue .

A wide range of measures have been introduced from fees for checked bags to loss of inflight food .

A number of carriers such as Delta, Air France have now turned to this solution, with Lufthansa the latest with an idea to join the bandwagon.

The Reality

But in reality, what has this done to passengers’ attitude towards these legacy carriers ?
What in fact has this done to the identity of these legacies ?

The harsh truth is that they are becoming a medium model between full fares and LCCs. This leaves a question in passengers’ mind as to what to expect.

This has forced passengers into a complex selection situation.
The times of knowing what you will get when flying with a legacy carrier and what you will not get when flying with a LCC is over. They now do not know what to expect when flying with A or B and have no idea for which will they have to pay next. They are paying for a full fare airline, but will still be paying for many services like they would with a LCC. This unnecessary burden will only cause passengers to feel of these hybrid legacies as airlines that cheat them. At the end, the ancillary revenue regime will push more passengers towards LCCs. In the longer term, the airline would have diminished its identity.

However, this process has now become almost inevitable for most legacy carriers, notably from the West. But this is certainly not a long term solution, and they are desperately in need of one.

The Evolution for Legacy Carriers

There is certainly a lot legacy carriers can do to increase ancillary revenue while not diminishing their identity. In my opinion, legacy carriers should consider a broad range of “outside” offers which they could partner with. This will range from selling hotel deals to sale of temporary mobile phone SIM cards to broadband deals, to inbound tourists. This kind of offers will diversify the range of products an airline can provide but will only help to increase the brand’s value and not diminish it.

But, these measures will certainly not be sufficient to most legacy carriers to survive in an ever competitive environment with re-surging fuel prices.

A re-innovation of the definition of a legacy carrier is badly needed. This should be the next level of full fare airlines and it should be able to help a dying product survive.
What could they do ?

Let us discuss from the next part of this article.