While air travel in some markets is resuming, most international air travel markets remain in the doldrums. Few people expect a significant reboot in the short term. But most people see COVID-19 testing figuring in any future international travel over the next few years. A COVID-19 testing industry emerging, and airlines are key players. One of the outcomes is COVID-19 testing is shaping up as an important source of ancillary revenue for airlines.
Survey highlights nexus between ancillary revenue & COVID-19 testing
CAPA Centre for Aviation and Collinson recently surveyed participants from CAPA’s online monthly events. They received responses from aviation and travel insiders from 64 countries. Those responses were collated into the Asia-Pacific Travel Recovery Report.
The report reveals a slightly pessimistic outlook regarding travel recovery. Only 33% of respondents expect a full recovery in travel activity by the end of 2022. Just over two-thirds (67%) of respondents expect a full recovery by the end of 2023. Some (8%) do not expect travel recovery to recover to 2019 levels until 2025 or later.
Over half of respondents (52%) believe COVID-19 testing will play a critical role in rebooting any international travel across 2021 and 2022. Around one quarter (23%) of respondents believe testing will play a significant role in international travel for at least three years.
WIth COVID-19 testing shaping up as part of the travel landscape for some time yet, businesses are looking to monetize testing. Included in that group is Collison. They are better known for operating the Priority Pass network of lounges. But with many lounges now indefinitely closed, Collison has moved into the COVID-19 testing business.
Ancillary revenue is a multi-billion dollar windfall for airlines
Not that Collison is alone here. COVID-19 testing is shaping up as a handy source of ancillary revenue for airlines and other players in the travel industry. Ancillary revenue is revenue not generated from a company’s core business or service. Airlines offer flights – that’s their core business. But most travelers are used to have their wallets worked out, paying extra for seat selection, check-in luggage, priority boarding, or an inflight G&T.
All those extras come under the ancillary revenue umbrella. It is big business for airlines. In 2019, the last year of normal travel demand, Europe’s airlines racked in US$31 billion from ancillary revenue. Now, many of the survey respondents expect COVID-19 testing to be an added source of ancillary revenue.
According to the survey report, 30% of respondents think COVID-19 test bookings will be key ancillary options. Illustrating how much the travel landscape is changing, these travel insiders believe COVID-19 will become the most important ancillary option – relegating seat upgrades, queue jump, and excess luggage to also-ran status.
While many countries remain closed to outsiders, many other countries require evidence of a recent COVID-19 test to enter. Presently, the United States bans most travelers from the EU and eight other countries (including the United Kingdom). Travelers from other countries need a negative COVID-19 test result no more than three days before traveling.
Consequently, that COVID-19 test and appropriate evidence of it is becoming part of the travel experience. Airlines, keen to get people onto planes, are doing what they can to ease that travel experience. Teaming up with outfits like Collison to offer COVID-19 testing is part of that. Whether it should be cost neutral (or, in other words, a public benefit) is debatable.
COVID testing just another but option on an airline’s website?
If a traveler ponies up extra for seat selection on British Airways, that’s pretty much pure profit for the airline. If a traveler pays extra to check-in baggage on a low-cost carrier, that’s also handy money for both the airline and the ground handling business the airline usually contracts out baggage services to. When you hand over the credit card for another inflight Stella, it’s bonus pocket change for the airline and catering company. With that in mind, why should COVID-19 testing be any different?
In any case, the trend is well underway. In October last year, Alaska Airlines teamed with a private healthcare provider to offer convenient COVID-19 testing at centers dotted along the West Coast to cater for Hawaii’s testing regime. Alaska Airlines might dress that up in social good messaging, but let’s face it, Alaska Airlines wanted to fill its flights to Honolulu, and making COVID-19 testing easier helped. You can’t fault the airline for that. At the time, the test cost US$135 per person. It isn’t known what, if any, direct financial benefit Alaska from its partnership with the testing provider.
Alaska Airlines isn’t alone here. All North American airlines with services to Hawaii set up similar partnerships at the time. Requiring airlines to provide COVID-19 testing facilities on a cost-neutral basis would impose a significant financial burden on them at a time when most still struggle financially.
A clever move that slides under the radar
Flipping COVID-19 testing into a source of revenue is clever. Until now, it has largely slipped under the radar. Airlines promote their testing partnerships as convenient and in the public good – both true.
“These new purchase and pack COVID-19 tests offer a convenient option to provide proof of a negative test result and enable a seamless experience for our customers.” says a Delta Air Lines executive about rapid COVID testing options offered by the airline.
“Delta is giving customers even more ways to reclaim the joy of travel, all underpinned by our science-backed health and safety efforts,” the airline says at the end of the statement.
“We remain committed to exploring easy and affordable testing solutions to help our customers travel again, whether it’s for business, to reunite with family and friends, or take a much-needed break abroad,” said Sean Doyle, British Airways CEO, about a similar option offered by his airline.
Airlines aren’t talking about monetizing COVID-19 testing. It isn’t the sort of discussion airlines want to have – at least publicly. But the monetization of COVID-19 testing is underway. Judging by what the survey respondents think (and remember, those respondents are travel insiders), COVID-19 testing will become a significant source of ancillary revenue for the airline industry for several years to come.
As most airlines struggle to get their balance sheets in order, you can hardly blame them for looking for new sources of revenue.
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