Airlines generate US$27.1 billion in ancillary revenue

AIRLINES around the world reported US$27.1 billion in ancillary revenue in 2012, signalling that the industry is now taking this revenue channel, once the domain of LCCs, more seriously.

In 2011, 50 airlines reported US$22.6 billion in ancillary sales, while 53 airlines revealed their ancillary revenue the following year. However, in 2009 and 2010, 47 airlines reported US$13.5 billion and US$21.5 billion respectively.

This was according to an analysis by IdeaWorksCompany and CarTrawler, and comes on the heels of CAPA India’s recent report urging India to recognise that ancillaries were part of the airline business model and that airlines should be allowed to innovate and charge fees where appropriate (TTG Asia e-Daily, May 28, 2013).

Notably, full-service carriers now dominate the top 10 airlines with the most ancillary revenue, with new additions to the lineup including Air France-KLM and Korean Air.

United Airlines came in first, generating US$5.4 billion last year, followed by Delta Air Lines (US$2.6 billion), American Airlines (US$2.0 billion), Southwest Airlines (US$1.7 billion) and Qantas (US$1.6 billion).

The top 10 ancillary revenue-generating airlines saw more than US$18.2 billion made last year, accounting for 68.5 per cent of the total amount disclosed by 53 airlines in 2012.

Mike McGearty, CEO, CarTrawler, said: “The blueprint for an airline business has changed dramatically over the past 10 years. Consumer demand for choice and convenience of complimentary products has forced the travel industry to reinvent itself with airlines leading the way.

“Consumers are more loyal to carriers that address their needs. Unbundling boosts profit margins through the sale of optional services, as do the commissions earned through the booking of ancillary products such as car rental.”

The report also shed light on how different airlines seek to maximise ancillary revenue from each passenger. Qantas and Virgin Atlantic sell frequent flier points to programme partners, Jetstar attracts attention through low fares and then promoting a la carte options, while Air France goes so far as to exclude checked bags from its lowest fares on certain routes within Europe.

Jay Sorensen, president, IdeaWorksCompany, said: “The most aggressive airlines easily have more than 20 per cent of their revenue produced by a la carte fees. The best performers realise more than US$30 per passenger from ancillary revenue.”

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