Airlines have doubled the amount of money they make from selling ancillary products in the last three years, according to a new report.
Ancillary revenue has increased from $13.5 billion in 2009 to $27.1 billion last year with some carriers making more than $30 per passenger from these add-on products. Revenue from ancillaries also jumped by 19.6 per cent in just one year between 2011 and 2012.
The results were revealed in an annual report into airline fees carried out by research firm Idea Works Company.
Jay Sorensen, president of Idea Works Company, 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 $30 per passenger from ancillary revenue. This can be almost totally generated through optional extras as with Spirit and Air Asia X, or largely achieved through the co-branded credit cards held by consumers at Qantas and Virgin Atlantic.
“Whatever the source, it is revenue desperately needed by airlines during troubled economic times.”
The biggest US carriers make the most revenue from ancillary fees – led by United with $5.35 billion last year, and then followed by Delta ($2.6 billion), American ($1.99 billion) and Southwest ($1.65 billion).
European no-frills giants Ryanair and Easyjet also feature in the top 10 carriers for ancillary revenue with annual revenue of €1.06 billion ($1.4 billion) and €880 million ($1.15 billion) respectively in 2012.
Legacy carriers are also getting in on the act with Air France KLM making €924 million ($1.2 billion) in ancillary revenue during 2012.
“The most revealing development of 2012 is the addition of Air France KLM to this report and the ancillary revenue revolution that it represents for Europe’s global airlines,” said Idea Works in the report.
“Similar to the fuel price crisis that gripped US airlines in 2008, economic troubles force airlines to change their playbooks.
“Air France, while long singing the praises of optional extras, made the additional leap of excluding checked bags from its lowest fares on select routes within Europe.
“KLM took a similar approach by assessing bag fees for consumers not belonging to its frequent flyer programme. Even British Airways jumped on the trend by offering carry-on only fares from Gatwick.”
Idea Works looked at the ancillary revenue earned by 53 airlines around the world by examining their financial reports.
Frequent flyer programmes (FFP) helped Qantas to make the most ancillary revenue per passenger at $43.30 while Virgin Atlantic made $23.39 per passenger, which was good enough for 8th place. This revenue was primarily through co-branded credit cards.
Mike McGearty, CEO of Car Trawler, which sponsored the report, added: “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.”
ideaworkscompany.com