Ancillary revenue

For many airlines, especially low-cost carriers, ancillary revenue is what turns a loss-making fare into a profitable passenger. It is also a reporting choice: airlines unbundle fares in different ways, so comparing ancillary revenue across airlines needs care. This guide explains when ancillary services are part of the flight, works through a booking that mixes flight extras and agency sales, and covers onboard sales, fees, subscriptions, cargo, presentation and US GAAP.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 4 minute read.

Short answer

Airline ancillary revenue covers everything a passenger pays for beyond the base fare: checked bags, seat selection, priority boarding, onboard food and drink, change fees, and travel products such as hotels, car hire and insurance sold through the airline. Under IFRS 15, services tied to a flight, such as bags and seats, are usually not distinct from the transportation, and even where they are, they are delivered with the flight, so they are recognised when the flight takes place. Hotels, car hire and insurance sold for other companies are usually agency sales, so only the airline's commission is revenue. Onboard sales are recognised at the point of sale. In this guide's example, a passenger pays US$ 495 in one booking but the airline's revenue is 225.

At a glance

Bags, seats, priority
Usually part of the flight
Recognised
When the flight takes place
Hotels, cars, insurance
Agency sale: commission only
Onboard sales
At the point of sale
Change fees
With the changed flight
Presentation
Disaggregated from fares
Ancillary revenueBags, seats, priority: Usually part of the flight; Recognised: When the flight takes place; Hotels, cars, insurance: Agency sale: commission only; Onboard sales: At the point of sale; Change fees: With the changed flight; Presentation: Disaggregated from fares.KEY FACTS AT A GLANCEAncillary revenueBags, seats, priorityUsually part of theflightRecognisedWhen the flight takesplaceHotels, cars, insuranceAgency sale: commissiononlyOnboard salesAt the point of saleChange feesWith the changed flightPresentationDisaggregated from faresTax BakersAncillary revenueBags, seats, priority: Usually part of the flight; Recognised: When the flight takes place; Hotels, cars, insurance: Agency sale: commission only; Onboard sales: At the point of sale; Change fees: With the changed flight; Presentation: Disaggregated from fares.KEY FACTS AT A GLANCEAncillary revenueBags, seats, priorityUsually part of the flightRecognisedWhen the flight takes placeHotels, cars, insuranceAgency sale: commission onlyOnboard salesAt the point of saleChange feesWith the changed flightPresentationDisaggregated from faresTax Bakers
Key facts at a glance, as set out in this guide.

Are ancillary services part of the flight?

IFRS 15 asks whether each promise is distinct: whether the passenger could benefit from it on its own and whether it is separately identifiable from the other promises. A checked bag, a chosen seat or priority boarding has no value without the flight and is delivered as part of it, so many airlines conclude these services are not distinct and form part of the transportation performance obligation. Others treat some of them as separate performance obligations. Either way, the services are provided when the passenger flies, so revenue is recognised at the same time as the fare, and the cash received in advance sits in the air traffic liability until then. See performance obligations and unused tickets and breakage.

Ancillary revenue in one booking

A passenger books a flight online for a fare of US$ 120, adds a checked bag for 40 and a seat for 15, buys travel insurance for 20 on which the airline earns a 25% commission from the insurer, and books a hotel for 300 on which the airline earns 15% from the hotel booking partner.

Paid by the passenger and the airline's revenue (US$)Paid by the passenger and the airline's revenue (US$)120120Fare5555Bag and seat205Insurance30045HotelPaid by passengerAirline's revenue
Agency sales add cash, but only the commission is revenue.
US$Paid by passengerAirline's revenueRecognised
Fare120120When the flight takes place
Checked bag4040When the flight takes place
Seat selection1515When the flight takes place
Travel insurance, as agent205When the policy is sold
Hotel, as agent30045When the booking is confirmed, net of expected cancellations
Total495225

The airline collects 495 but its revenue is 225. The insurance premium and the hotel price, less the commissions, are owed to the insurer and the hotel partner, so they are liabilities, not revenue. If hotel bookings can be cancelled and the commission refunded, the airline includes only the commission it expects to keep, as variable consideration.

When is the airline an agent?

For hotels, car hire, insurance, airport transfers and similar products, the airline usually does not control the service before the passenger receives it: the hotel or insurer provides it, sets the main terms and bears the risk of failing to deliver. The airline arranges the sale and earns a commission, so it is an agent and recognises the commission as revenue when its obligation, arranging the sale, is complete. Packaged holidays sold by airline-owned tour operators can be different: where the operator controls the package, it is principal for the whole holiday. See principal versus agent and marketplace principal or agent.

How are onboard sales and fees treated?

Food, drink and duty-free goods sold on board are recognised when sold. Where a third party supplies the goods and pays the airline a share, the airline assesses whether it is principal or agent in the same way. Change fees, where still charged, are part of the price of the new flight and recognised when it is flown. Fees for paying by card or for printing a boarding pass at the airport are part of the price of the flight, not separate services.

What about subscriptions and passes?

Some airlines sell subscriptions, such as a year of free checked bags or seat selection, or flight passes covering unlimited or a set number of flights. A subscription that entitles the member to a benefit on each flight is recognised as the benefit is used, or evenly over the subscription period if the airline is standing ready and usage is expected to be even. Unused entitlements expected to lapse are breakage, recognised in proportion to use. Passes for a set number of flights are recognised as flights are taken.

How is ancillary revenue presented?

IFRS 15 requires revenue to be disaggregated into categories that show how economic factors affect it, so airlines typically split passenger revenue into fares and ancillary revenue, and show cargo and other revenue separately. Because some airlines include bags and seats in passenger revenue and others in ancillary revenue, ancillary revenue per passenger is a non-IFRS metric that needs a clear definition. Revenue from co-branded credit cards and loyalty is often shown with ancillary revenue; see frequent flyer programmes.

What about cargo carried on passenger flights?

Cargo carried in the hold of passenger aircraft is a separate revenue stream, recognised as the transport is provided, usually when the flight carrying the cargo takes place. Where the airline sells cargo capacity to freight forwarders, it is normally principal for the transport, and handling and storage fees are recognised as the services are performed.

How does US GAAP differ?

ASC 606 gives the same answers. US airlines generally treat bags and seats as part of the passenger ticket, recognised when the flight takes place, and present some ancillary items within passenger revenue and others in other revenue, so their disclosures need reading closely. See airline accounting.

Need help applying the standards?

Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.

Book a call Chat on WhatsApp

Questions people ask

When do airlines recognise baggage and seat fees?

When the flight takes place, because these services are delivered with the flight, whether or not they are treated as separate performance obligations.

Is an airline principal or agent for hotels sold on its website?

Usually an agent, so only its commission is revenue, recognised when the booking is made, net of expected cancellations.

Are change fees ancillary revenue recognised immediately?

No. A change fee is part of the price of the new flight and is recognised when that flight is flown.

Is ancillary revenue per passenger an IFRS measure?

No. It is a non-IFRS metric, and airlines define it differently, so it needs a clear definition.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
  2. FASB Accounting Standards Codification: Topic 606, Revenue from Contracts with Customers
  3. Financial Accounting Standards Board: Revenue recognition

Rules and fees change. If you are reading this long after October 9, 2026, confirm the figures with the source before you rely on them.

AirlinesAirline accounting: the key IFRS issuesIFRS 15Principal or agent: gross or net revenue under IFRS 15AirlinesUnused tickets and breakage

More in Airlines

Previous in this topicAirline impairment testingTopicAll 11 guides in Airlines

This guide is general information. It is not tax or legal advice for your situation.