Jump onboard: Ancillary revenue is earning billions for airlines
New research of 47 airlines worldwide has revealed just how much carriers are raking in extra cash from ancillary revenue – items such as the sale of premium seats, checked baggage and inflight entertainment.
“Airlines are earning a lot of money selling ancillary services,†says Jay Sorensen, author of the 2011 Amadeus Yearbook of Ancillary Revenue by IdeaWorks.
“This is partly an illusion. Some airline ancillary service earnings are not additional revenue but shifted revenue.
“Airline base fares are at an all-tome low and ancillary services are supposed to make up the difference,†says Sorensen, president of the IdeaWorks Company.
Once restricted to low-coast carriers like Ryanair and easyJet, ancillary revenue is now a big earner for the traditional airlines.
In the United States, 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 US$5 billion.
US Airways. Choice Seats, where consumers pay more to get a better seat in coach, provided US$30 to US$40 million in revenue during 2010. The carrier estimates this could be US$200 to US$300 million once it’s sold through all distribution channels.
Qantas disclosed ancillary revenue of A$334 million from traditional a la carte sources.
“However, it is the Qantas Frequent Flyer Programme that really piles on the profits,†said Sorensen. Revenue posted by the frequent flyer programme was A$1.1 billion 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 for every programme member,†Sorensen added.
Ancillary revenue per passenger was topped by AirAsia X (US$41.6 per passenger) followed by Qantas (US$37)
Excess baggage charges delivered US$79.9m for Emirates for the fiscal year ended 31 March 2011 – a result no doubt of all those crates of electrical goods being shipped out of Dubai by visitors from Russia and India.
Top Ten Airlines – Total Ancillary Revenue 2010 (US dollars)
1. United Continental ($5bn)
2. Delta (3.7bn)
3. American (1.95bn)
4. Qantas (1.53bn)
5. US Airways (1.18bn)
6. Ryanair (1.13bn)
7. easyJet (926m)
8. Emirates (603m)
9. Alaska Airlines (552m)
10 TAM Airlines (509m)
Ancillary revenue is defined as revenue beyond the sale of tickets that is generated by direct sales to passengers, or indirectly as a part of the travel experience.
IdeaWorks further defines ancillary revenue using these categories: 1) a la carte features, 2) commission-based products, 3) frequent flier activities, and 4) advertising sold by the airline.
The 2011 Amadeus Yearbook of Ancillary Revenue by IdeaWorks is a free-of-charge report sponsored by Amadeus. The full report is available at the IdeaWorks web site: www.IdeaworksCompany.com/news.
Ian Jarrett
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