Airlines are reaping a revenue bonanaza by charging for services that used to be free with an Amadeus study revealing a 778% increase in total ancillary revenue for the industry since 2007 to a massive €21.46 billion. The surge is largely due  to legacy airlines learning from their low cost rivals about how to squeeze more from customers.

The top 10 was dominated by established carriers. United Continental (Continental + United Airlines) led the way followed by Delta, American Airlines, Qantas, US Airways, Ryanair, easyJet, Emirates, Alaska Airlines and TAM Airlines. However, low cost carriers dominated when ancillary revenue was measured as a % of revenue.

PRESS RELEASE, 1 June 2011

Ancillary Revenue reported by airlines grew to €15.11 billion in 2010 and has almost doubled since 2008

Strong revenue from baggage fees and co-branded credit cards placed US carriers in the first, second, and third slots, as revealed in the annual Amadeus Review of Ancillary Revenue Results, launched today.

IdeaWorks, with support from Amadeus, researched the financial filings made by 104 airlines all over the world to identify examples of ancillary revenue[1].

In 2007, only 23 airlines worldwide disclosed ancillary revenue activity -a modest result of €1.72 billion ($2.45 billion).  The world has changed dramatically in four years with 47 carriers disclosing 2010 ancillary revenue activity of €15.11 billion ($21.46 billion).

This represents ancillary revenue growth of 38% over 2009 and 96% since 2008. The amount listed by 47 carriers comes close to the €18.4 billion projected by IdeaWorks in autumn 2010 as the ancillary revenue associated with a global list of 150 carriers.

Two trends are obvious from the review of the financial disclosures made by airlines for the 2010 Amadeus Review of Ancillary Revenue Results. First, airlines already engaged in ancillary revenue activities are bringing more products to market.  This occurs through the introduction of new à la carte features and the inclusion of distribution methods beyond the carrier’s website.  Second, many of these airlines are becoming savvy retailers.  Branding has been emphasised, pricing is more sophisticated, and an increasing number of features are presented during the booking process.

“Ancillary revenue has become an enduring part of airline income statements, as revealed by this study”, says Ian Wheeler, Amadeus VP Marketing and Distribution.  True financial success for airlines is boosted when these services are available through online, travel agency, and corporate travel distribution channels.

That’s why we are seeing growing momentum behind Amadeus Ancillary Services solution, which helps carriers sell à la carte ancillary services on their website, call centre and via travel agencies. Sixteen airlines have signed up for the solution and we are continuing to evolve the product functionality”.

Annual Financial Disclosures of Ancillary Revenue

2010 Results

Posted by

47 Airlines

€15.11 billion

($21.46 billion)

2009 Results

Posted by

47 Airlines

€10.95 billion

($13.47 billion)

2008 Results

Posted by

35 Airlines

€7.68 billion

($10.25 billion)

2007 Results

Posted by

23 Airlines

€1.72 billion

($2.45 billion)

Currency exchange based upon rates in effect for 2011 and 2010.

Annual results are associated with a fiscal period that has ended in the year indicated.

Research carried out by IdeaWorks shows that ancillary revenue has definitely grown beyond its low cost airline beginnings. The oil price peak of 2008 caused huge losses and prompted US airlines to start charging travellers for checked baggage.  Ultimately, the ripple effect of these fees has eased the path for more airlines to consider à la carte additions and catalysed a stunning increase of 778% since 2007.

The list of top players in 2007 was dominated by carriers such as Ryanair, easyJet, and Aer Lingus.  Since then, large carriers have learned how to generate large ancillary revenue numbers.  Continental disclosed its ancillary revenue results for the first time when it merged with United.  The combination has created an ancillary revenue giant with annual results in excess of €3.5 billion, or nearly $5 billion (based on current excess rates)

Top 10 Airlines – Total Ancillary Revenue (euros)

Annual Results – 2010

Annual Results – 2009

€ 3,530,000,000

United Continental

€ 1,527,310,000

United

€ 2,612,200,000

Delta

€ 1,507,750,000

American

€ 1,379,524,000

American

€ 1,117,120,500

Delta

€ 1,087,268,000

Qantas

€ 782,903,000

Qantas

€ 834,492,000

US Airways

€ 663,600,000

Ryanair

€ 801,600,000

Ryanair

€ 608,796,693

easyJet

€ 654,824,400

easyJet

€ 540,589,500

US Airways

€ 426,240,000

Emirates

€ 534,143,000

Air Canada

€ 390,065,000

Alaska Airlines

€ 368,869,000

Alaska Airlines

€ 359,489,220

TAM Airlines

€ 356,742,400

TAM Airlines

2010 carrier results were based upon recent 12-month financial period disclosed which may have ended during 2010 or 2011.

Second place Delta has embraced ancillary revenue as evidenced by the spread of baggage fees to transatlantic routes, and à la carte fees associated with in-flight Wifi, on-demand movies, onboard dining, and SkyClub lounge passes.  The big jump for 2010 can largely be attributed to more thorough financial disclosure of à la carte activity in its annual report and more SkyMiles programme revenue.

The carrier disclosed revenue from the sale of various à la carte activities generated $2.1 billion during 2010 with an additional $1.6 billion from its SkyMiles frequent flier programme.  IdeaWorks includes the sale of miles or points to partners as ancillary revenue activity.

Qantas disclosed “ancillary revenue” of A$334 million (€252 million) from traditional à la carte sources.  However, it is the Qantas Frequent Flyer Programme that really piles on the profits.  Revenue posted by the programme was A$1.108 billion (€835 million) for 2010.  Points in the programme have seemingly gained the status of official currency through partnerships with major Australian retailers and banks.  With 7.2 million members, that’s a stunning A$154 (€116) for every programme member.

Ancillary revenue as a percentage of total revenue provides a better measure of ancillary aggressiveness and marketing acumen.  This method of measurement allows low-cost carriers to dominate the top-10 list for 2009 and 2010.

Top 10 Airlines – Ancillary Revenue as a % of Total Revenue

Annual Results – 2010

Annual Results – 2009

29.2%

Allegiant

29.2%

Allegiant

22.6%

Spirit

23.9%

Spirit

22.1%

Ryanair

22.2%

Ryanair

21.0%

Jet2.com

19.4%

easyJet

20.5%

Tiger Airways

19.4%

Tiger Airways

19.2%

easyJet

18.1%

Jet2.com

18.7%

AirAsia

14.4%

Aer Lingus

18.1%

AirAsia X

13.3%

Alaska Airlines

15.7%

Flybe

13.2%

Flybe

14.7%

United Continental

13.1%

AirAsia

Currency exchange based upon rates in effect for 2011 and 2010.  2010 carrier results were based upon recent 12-month financial period disclosed which may have ended during 2010 or 2011.

These airlines are known for low fares and thus it is easier for ancillary revenue to represent a larger piece of the total revenue picture.  They earn ancillary revenue through the complete array of à la carte activity.  Consumers benefit from a menu-based approach.  Rock bottom prices are possible for those who only travel with a carry-on bag, opt for non-assigned seating, and bring their own food and drink onboard.

Ten years ago Michael O’Leary, CEO of Ryanair, expressed the desire for ancillary revenue to eventually replace the need to charge air fare.[2] The results on the table suggest this objective may top out at 30%; the best performers achieve rates of 20 to 29%.  Ancillary revenue certainly helps the bottom line and definitely reduces the pain of high fuel prices.  But its ability to eliminate air fares remains elusive for Ryanair and the airline industry.

Ancillary revenue expressed on a per passenger basis is another method to rank the ability of airlines to unbundle the fare.

Top 10 Airlines – Ancillary Revenue per Passenger (euros)

Annual Results – 2010

Annual Results – 2009

€ 29.45

AirAsia X

€ 24.89

Allegiant

€ 26.24

Qantas

€ 22.51

Jet2.com

€ 24.23

United Continental

€ 22.35

Spirit

€ 24.20

Jet2.com

€ 20.37

Qantas

€ 23.20

Allegiant

€ 18.76

United

€ 17.76

Spirit

€ 17.23

Air Canada

€ 17.67

Aer Lingus

€ 16.72

Aer Lingus

€ 16.72

Alaska Airlines

€ 16.47

Alaska Airlines

€ 16.06

Delta

€ 14.43

American

€ 14.84

Flybe

€ 13.47

easyJet

Currency exchange based upon rates in effect for 2011 and 2010.  2010 carrier results were based upon recent 12-month financial period disclosed which may have ended during 2010 or 2011.

AirAsia X has jumped to €29.45 (ancillary revenue per passenger) in 2010 from last year’s result of €17.07.  The result posted by AirAsia X demonstrates that travellers on long flights tend to spend more online and while onboard.  Consumers have embraced the long-haul – à la carte concept; the carrier’s continued growth and planned share offering are signs of this success.

The strong showing by a merged United and Continental is a significant development for 2010.  United has been hard at work for years perfecting its à la carte product offer under the Travel Options by United brand name.  Continental has been innovating too and added fare lock and extra legroom seating options during 2010.  IdeaWorks estimates the combined revenue from the sale of United Mileage Plus and Continental OnePass miles was approximately $3 billion (€2.1 billion) for 2010.  Synchronising the ancillary revenue efforts of these two airlines will undoubtedly produce higher results for 2011.

Ancillary revenue offers a broad appeal to virtually every type of carrier.  It is a revenue art practiced by global airlines known for luxurious first class suites such as Emirates and carriers that sell a bare bones product of a seat with a 30-inch pitch such as Ryanair.

ends.

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