Airline Ancillary Revenue: How to Price Extras Passengers Accept

According to IdeaWorksCompany’s 2025 global estimate, airlines will generate a record $157 billion in ancillary revenue in 2025, up from $148.4 billion in 2024 and from $67.4 billion in 2016. Ancillary revenue now accounts for 15.7% of total airline revenue, up from 9.1% in 2016. Exhibit 1 sets out the trajectory. The category has moved from a supplement to a core line, and boards should treat it with the same scrutiny as fare yield or fuel.

The weight of ancillaries matters most because the industry’s margin is thin. IATA forecast a 2025 net profit of USD 36 billion, a 3.7% net profit margin, which it translates into an average of just USD 7.2 per passenger. When profit per passenger is that small, a few euros of extras on each booking can decide whether a route earns its cost of capital. This is why ancillary decisions belong in the CFO’s agenda and not only in the commercial team’s.

The spread between airlines is equally instructive. IdeaWorks reports that, among individual airlines, the ancillary share of revenue ranges from 3.2% to as high as 62% (Exhibit 2). That range is a strategic choice. It reflects different business models, different regulatory exposure and very different relationships with passengers. A carrier at the low end has room to grow; a carrier at the high end has concentrated both revenue and risk in a mechanism that depends on passenger tolerance.

There is a second reason to take this seriously. Ancillary lines differ in how they are perceived. A seat fee, a bag fee and a payment surcharge are all optional in a technical sense, yet passengers judge them very differently, and a regulator will judge them differently again. Finance teams that allocate effort by revenue alone will tend to defend the lines that are least defensible.

Seen from the board, the practical question is how much of the 15.7% is durable. Bag, seat and flexibility fees are exposed to rule changes; partner commissions and onboard sales depend on traffic and passenger mood. Without that split, the same headline can support very different conclusions about earnings quality.

What to do: break ancillary revenue into at least five lines (bags, seats, flexibility, onboard and partner retail) and report each with its complaint rate and regulatory exposure beside it. A single headline figure hides the lines most likely to be challenged.

The context for passenger sentiment is price. IdeaWorks reports that in 2016 the average one-way base fare was $294, with an additional $16 in ancillary fees. Its 2025 comparison uses an IATA estimate of an average base fare of $166.38, with an IdeaWorks estimate of $21.21 in optional extras. IdeaWorks calls this a 40% drop in the total cost of air travel for consumers over nine years. Fares fell; extras rose modestly in absolute terms.

That pattern supports the industry’s case that unbundling lets passengers avoid paying for what they do not use. About 45% of travellers buy only the base fare, according to IdeaWorks, while more than 50% opt for add-ons. The case is genuine. It is also fragile, because it depends on the passenger believing that the base fare is a real, usable product and that the price of each extra is knowable before commitment.

The risk for a CFO is that a defensible commercial logic can be undone by a poor presentation. A passenger who pays a low fare and then meets a sequence of charges at checkout does not experience a 40% saving; they experience a bait-and-switch. The financial benefit of unbundling is real only when the fare-plus-extras journey stays within what the passenger expected to pay.

The comparison with other consumer sectors is useful. Retailers, utilities and ticketing platforms have all faced rules that require the full price to be shown early. Airlines were among the first to build large businesses on unbundling, and they are likely to be among the first to meet the tightening of the rules. Planning for that outcome is cheaper than adapting to it under pressure.

This also affects how airlines should communicate with investors. A clear description of the ancillary mix, its regulatory exposure and the steps taken to move revenue into fare families is more credible than a growth narrative based on a single total. Analysts already compare carriers on ancillary share; the sensible response is to give them a better measure.

What to do: track the total price paid at the booking level, including extras, and compare it with the headline fare advertised. A widening gap is an early indicator of both churn and regulatory attention.

Enforcement in Europe has been steady and is moving up the agenda. In May 2025, BEUC and 16 member organisations from 12 countries submitted an alert to the EU consumer protection network about fees for hand baggage at seven airlines: easyJet, Norwegian, Ryanair, Transavia, Volotea, Vueling and Wizz Air. The alert records that a complaint in Spain led to fines amounting to a total of €179 million. The direction of travel is clear: the question is whether the passenger can see the true price and whether a basic item is being sold as an option.

Policy is also being reconsidered at EU level. According to Osborne Clarke, the Commission’s consultation on a Digital Fairness Act is seeking views on an outright prohibition on drip pricing, the practice of revealing mandatory costs in stages. A rule of that kind would hit airline checkout design directly, and it would apply across the single market rather than country by country.

Outside Europe the same principle is spreading. From 12 May 2025 the US Federal Trade Commission’s fees rule requires total price disclosure upfront for live-event tickets and short-term lodging, and its guidance gives the example of a resort charging a nightly rate of $199 plus a mandatory resort fee of $39. The rule does not cover airlines, but it shows the policy direction: mandatory charges belong in the headline price.

The consequence is that ancillary strategy cannot be delegated entirely to distribution or revenue-management teams. It needs a financial owner who understands both the earnings and the exposure, and who is willing to say that a line that earns well is also a line that costs more than it appears to.

The Spanish fines are a reminder that enforcement can follow years after a pricing practice is introduced. A CFO who recognises a fee line as vulnerable should consider what the exposure would be if enforcement were applied retrospectively, and whether the revenue earned justifies carrying that contingent liability.

What to do: treat consumer-protection exposure as a design constraint for pricing, assessed before launch and reviewed jointly by finance, legal and commercial teams. Build a provision logic for fee lines under active challenge, and avoid planning to revenue levels that depend on a practice that a regulator may restrict.

McKinsey’s 2025 global survey of 7,000 travellers gives the clearest evidence of what causes friction. Asked about booking frustrations, 39% pointed to finding the best price and 36% to hidden fees or lack of transparency, while 24% cited complex comparison tools (Exhibit 3). Hidden fees sit almost level with price itself as a source of frustration. The complaint is about concealment and complexity, not about the idea of choosing extras.

The same research shows that price is not the only driver of choice, and that travellers weigh ease of booking and brand trust as well. McKinsey estimates a latent customer value opportunity of more than $45 billion across the airline retail value chain. For a CFO, the point is that revenue can be earned from perceived value as well as from price discipline.

The commercial consequence is that transparency is not a cost to be minimised. A passenger who understands what each option includes is more likely to buy it, more likely to buy again and less likely to complain. The cost of a hidden fee is not only the refund or the fine; it is the lost willingness to purchase the next extra.

For European carriers there is a further point. Rules and enforcement priorities differ between member states, yet the passenger sees one website. A pricing design that is acceptable in one market and challenged in another creates a compliance map that is expensive to maintain. The simplest safeguard is to design to the strictest credible interpretation and to treat anything above it as a documented exception.

Passengers also compare the airline with its peers and with the wider retail experience they know. Clear inclusions and early price disclosure are now normal in other consumer markets. Airlines that still rely on late disclosure are measured against that standard, whether or not the law requires it.

What to do: measure checkout abandonment and post-booking complaints by fee line, and set a target for the share of ancillary revenue that is purchased in the first booking step rather than at the final payment screen.

McKinsey finds that nearly half of respondents, 46%, express positive attitudes toward travel bundles, while only 22% say they prefer to book each element separately. Appetite varies by component: 60% of travellers would consider a hotel in a bundle, 50% travel insurance, 43% tours and activities and 43% airport parking (Exhibit 4). Passengers are not asking for fewer choices; they are asking for choices that arrive pre-assembled and priced as one.

For an airline, the equivalent is the fare family: a small number of clearly named products, each with a defined set of inclusions, priced so that the step between them is visible. Done well, a fare family moves the commercial conversation from the cost of a bag to the value of a fare that includes the bag, the seat and the flexibility the passenger actually wants. It also makes comparison easier, which is the opposite of the opacity regulators are targeting.

McKinsey’s research indicates that advanced merchandising techniques can drive a 10 to 20 percent revenue lift. That range should be treated as an upper-bound indication rather than a plan, because it depends on data, systems and talent that few airlines have fully assembled. The practical point holds, however: revenue gains come from relevance and presentation more reliably than from adding charges.

This is also a question of governance. Pricing decisions on fees are often taken by commercial teams under pressure to meet a yield target, with legal review at the end. Moving the review to the start, and giving finance the authority to ask for a downside case, changes the quality of the decisions taken without slowing them materially.

Fare families also help finance teams forecast. Revenue per booking becomes a function of tier mix, which can be modelled and tested, rather than a function of dozens of individual choices. That makes budgeting more reliable, and it makes it easier to assess the effect of a price change on the step between tiers.

What to do: design fare families around three or four passenger needs, test the step-up price between tiers, and keep a small à la carte menu for genuine refinements. Review each inclusion against a simple test: would a reasonable passenger expect this to be part of the fare they believed they were buying?

Evidence from the airlines that lead on ancillaries points the same way. In IdeaWorks’ 2026 yearbook, as reported by PhocusWire, Jet2.com made the most ancillary revenue per passenger at $100.73, and approximately 30 airlines generated at least $1 billion in ancillary revenue in 2025, up from 27 in 2024. Among reporting airlines, ancillary revenue rose 13.4% in 2025 while total revenue rose 7.2%.

Ryanair’s results show the high-volume model at scale. In its FY25 results the airline reported that ancillary revenues rose 10% to €4.72bn on 9% traffic growth. Volume, not only price per item, drives that figure. The lesson for finance teams is that growth in the number of passengers buying something is a more durable source of revenue than growth in the fee on each item, which regulators and competitors can erode.

Package-holiday and leisure carriers, which sell the flight inside a wider product, offer a related lesson: the passenger sees a single price for a trip and the airline retains control of the mix. Carriers with a network and loyalty base can use loyalty and co-brand relationships to add value without adding visible fees. In each case the revenue arises from a relationship in which the passenger sees value.

A CFO should also ask how ancillary revenue is forecast. If the forecast assumes continued fee increases, it embeds an assumption about regulation and passenger tolerance that is rarely stated. Making that assumption explicit allows the board to test it, and to see how much of next year’s plan depends on it.

A further advantage of the retail-depth approach is resilience. If a regulator restricts one fee, an airline whose revenue is spread across tiers, partner products and loyalty income can absorb the change. An airline whose earnings depend on one fee line cannot, and the board will find that out only after the rule changes.

What to do: set the ancillary growth target in terms of attach rate and revenue per booking, with fee levels as an output. Review which of your current lines depend on a single fee that a competitor or regulator could remove.

Most airline scorecards report ancillary revenue per passenger and little else. A more complete scorecard would add the measures that determine whether the number is sustainable: complaint rate per thousand bookings by fee line, regulator contacts and open cases, share of ancillary revenue sold within fare families, checkout abandonment, and the gap between advertised and paid price.

These measures can be reported alongside the financial lines at no great cost, and they change decisions. A seat fee that yields a modest amount but generates a disproportionate share of complaints may be better folded into a fare family. A baggage policy that is under formal challenge in more than one member state should be modelled with a downside scenario. A partnership product that passengers value, such as insurance or a hotel bundle, may deserve more shelf space.

The 2025 IATA margin of 3.7% leaves little room for error. An airline that earns ancillaries through trust has a revenue stream that can survive tighter rules; one that earns them through opacity has a liability that grows with the amount it earns. The two look identical in a revenue report and very different in a risk review.

Finally, consider the customer lifetime view. A passenger who feels well treated returns, buys again and buys more of the optional products over time. A passenger who feels exploited switches carriers where a competitor offers a clear alternative. The revenue lost to that switching never appears as a line in the ancillary report, yet it often exceeds what the disputed fee earned.

A good scorecard is also a communication tool. When commercial, legal and finance leaders look at the same indicators, disagreements about whether a fee is worth defending become factual rather than political. That is the real value of the exercise: not the dashboard, but the shared view of what ancillary revenue is worth after its costs are counted.

What to do: commission a one-page ancillary health report each quarter that sets revenue, trust and compliance indicators on the same page, and agree escalation thresholds with the audit committee. Revisit fare-family design annually using conversion data.

Karter McKinley supports airline finance and commercial teams through its Commercial Growth & Sales Execution service. We help design fare-family architecture, build the attach-rate and trust scorecard described above, and run the commercial analysis that tests pricing steps before launch. Legal advice on consumer-protection rules remains with the airline’s own counsel.