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What are Travel Industry Ancillary Fees?
In addition to travel tax and fees, the travel industry relies more heavily than most on ancillary fees. Ancillary fees are generally optional charges for additional services offered on-board or on-site by cruises, airlines, hotels, or car rental providers.
Keep in mind; the travel industry can sell these items so vigorously that you think they are required. (in fact, I would argue that the airline cancellation/change fee and the cruise ship gratuities* seem mandatory to me).
In addition, if you spend too much on ancillary products, it can stifle your plans. (I admit many of the ancillary services I used were disappointing and expensive).
* Passengers can request that cruise ship gratuities be removed
The Importance of Ancillary Travel Fees
Even with all the emphasis on yield management, very few industry segments survive just by selling seats on a flight, renting a room in the hotel, etc. Much of the industry’s profit and revenue comes from selling other services and fees.
A 2018 study of fifteen airlines found that fees (called ancillary revenue) represented 17% of the airline’s average operating revenues. The same study also found that the surveyed airlines experienced a 23% annual growth in ancillary fee revenue between 2017 and 2018. (Ancillary fees represented a higher percentage of income for budget carriers, like Ryan Jet, and a lower percentage for legacy carriers, like Delta).
I have not seen a similar analysis of how vital these fees are for maintaining industry profitability. However, I feel confident they are a significant and growing source of profitability. Why? Travel providers usually do not have to pay that much money to provide ancillary services. Nonetheless, they can charge a lot for these services.
The Future of Ancillary Travel Fees
Consumers can see many signs of the growing importance of fees to the travel industry, including the:
- growth in the number of fees.
- Travel industry’s willingness to impose fees for services that used to be free.
- Increasing costs of these fees over the last several years.
Consumers could avoid most of these fees just by deciding not to use the services offered in the past. Nowadays, some of these fees- like baggage fees-are difficult to avoid. (After all, most people need to travel with more clothes, etc., than they can put in their carry-on bags).
Remember, travel industry professionals, particularly on cruise ships, receive many incentives to sell these added services. If you succumb to these promotions (as I have at times), it can severely strain your budget.
Here are some of the most common consumer-related, ancillary charges and services that the travel industry provides:
- Cruise lines make the bulk of their profits through selling ancillary extras, including:
- Alcoholic beverages.
- Specialty restaurants.
- Shore excursions.
- Gambling casinos.
- Art auctions.
- On-board stores.
- Phone services.
- Gratuities for the staff. (Cruise lines add 15-18% gratuities onto most on-board services. They also charge $12-$18 a day for waiter and maid services. Gratuities are not part of the initial price of the cruise).
Note: This is true unless you go on an expensive luxury cruise with very few additional charges.
Airline Ancillary Fees
Airlines have added many ancillary extras in recent years for such ¨amenities¨ as:
- Meals and alcoholic beverages.
- Selecting your seats.
- Check-in baggage.
- Some airlines even charge now for cabin baggage.
- A couple of airlines also charge you for printing out a boarding pass (Easy Jet in Europe).
- Spirit Airlines even tried several years ago, charging for using the bathroom!
- Airlines (and some cruise ships) in the mid-2000s until the mid-2010s added a fuel surcharge to address their loss of income from higher fuel costs. (Thankfully, fuel surcharges are rare nowadays).
- Perhaps the most consumer-unfriendly airline ancillary extra involves changing tickets. (In 2012, these charges alone accounted for almost half of many airlines’ profit margin). Consumer advocates say the penalty is excessive (usually, between $200 and $500). Airlines argue that these charges help avoid traveler no-shows and limit customer changes. Consumer advocates counter by saying that when passengers change flights far in advance, airlines usually resell these seats and still collect change penalties. Some suggest airlines should charge smaller fees for switches long before departure.
Though most mid-range hotels do not charge a lot of ancillary charges; some hotels, particularly more high-end properties, charge for some of the following additional extras:
- Resort services.
- Drinks and snacks from in-room mini-fridges.
- Pay-per-view movies.
- Fees for early and late check-in.
- Wi-fi access and use of in-room phones.
- Airport shuttles.
- A service charge for gratuities for bellhops and housekeeping staff.
- Cancellations; (fortunately, these are less common than with airlines).
- Energy surcharges.
- In-room safe.
- Luggage holding.
- Holding packages at the front desk.
Rental Car Companies
- Rental car companies are the worst offenders in the ancillary game. They are notorious for both gauging customers and adding undisclosed fees. Here are some of the more common fees that rental car companies charge for include:
- Early and late return. (I was once charged $40 for dropping off a car two hours before I indicated when I picked up the car).
- Additional authorized driver.
- Frequent traveler program.
- Lost keys.
- (Often high) dropping off a car anywhere other than where you picked it up.
- GPS and baby seats.
- Airport concessions.
- Miscellaneous car-related ¨services¨ such as vehicle licensing and tire recycling.
Travel Insurance and Other Revenue Sources
Tour companies, cruises, travel agents, and airlines make a lot of their income from selling travel insurance. They get massive commissions (used to be often up to 50%), and it is an easy sell. That said, it is worth purchasing sometimes.
Other Revenue Sources
It is not just ancillary, consumer taxes that help the travel industry stay profitable. Airlines, for example, receive about 60 percent of their revenue from consumers directly and the other 40 percent from:
- Selling frequent-flier miles to credit card companies (which the credit card companies, in turn, award to clients as an incentive to use airline-branded credit cards).
- Repairing aircraft.
- Cargo (particularly profitable on some routes).
Want to Know More About Extra (Ancillary) Charges?
Check out this article from the Professional Hobo.
Travel Economics 101 Posts
Here are several posts designed to give Fifty-Plus Nomads a basic idea of how Travel Economics works. Being armed with a better economics education should make you a better travel consumer. (These can be read in any order)