Carriers earned more than $38bn from sale of ancillary services and à la carte items
For the eighth consecutive year, airline revenue derived from the sale of so-called ancillary services continued to rise, leaping more than 21 percent to more than $38bn in 2014, according to a newly released report.
Conducted IdeaWorksCompany and sponsored by CarTrawler, researchers pored over financial filings made by 130 airlines worldwide, 63 of which disclosed qualifying revenue activity. Those airlines reported a total increase in ancillary revenue of $6.6bn, to $38.1bn in 2014 compared to $31.5bn in 2013.
“Ancillary revenue is an increasingly important indicator of commercial success, and a major contributor to the bottom line of airlines across the globe,” Michael Cunningham, CCO of CarTrawler, said in a statement accompanying survey results. “It is no longer just the preserve of low cost carriers – it is something from which all airlines are benefiting.”
As in 2013, the carrier that reported the most income from ancillary revenue was United Airlines (NYSE:UAL), which reported more than $5.86bn in 2014, up from $5.7bn the previous year. Merger partners American Airlines (NYSE:AAL) and US Airways reported $4.65bn in ancillary revenue, up from a combined total of $3.18bn in 2013, when the two carriers reported separately.
Delta Air Lines (NYSE:DAL) was third, deriving $3.21bn from ancillary revenue compared to $2.53bn last year. Air France/KLM was fourth with approximately $2.05bn, an increase from $1.71bn in 2013. Ireland-based low-cost carrier Ryanair rounded out the top five with $1.9bn, up from $1.69bn in the previous report.
While airlines all over the world benefit from ancillary revenue, the degree to which airlines disclose financial results varies. Financial statements for U.S.-based airlines universally provide a high level summary of ancillary revenue results while publicly held low-cost carriers almost always make direct reference to ancillary revenues achievements due to investor interest in the topic.
Low-cost carriers had the highest ancillary revenue as a percentage of total revenue. Since 2011, the top slot has been held by U.S.-based Spirit Airlines, which is conspicuous among consumers and regulators for its aggressive pursuit of à la carte sales. The airline has a policy of “no waivers & favors” for enforcing its fee structure and intentionally seeks to “treat all customers the same,” according to the study. In 2014, Spirit derived nearly 39% of its total revenue from ancillary services.
On a revenue per passenger basis, U.K. low-cost carrier Jet2.com topped the list with $56.28 per passenger in ancillary revenue, follow by Spirit with $52.35, Australia’s Qantas Airways with $50.16, Allegiant with $45.16 and Malaysia’s AirAsia X with $43.22 in revenue per passenger attributable to ancillary services.
Key findings of the study include:
- Ancillary revenue per passenger is $17.49 on average, 8.5 percent more than the 2013 result.
- Activity among low-cost carriers jumped more than $2.9bn, or 32.8 percent.
- Ancillary revenue among major U.S. airlines increased $2.6bn, or 18.7 percent.
- American’s co-branded credit card generated additional revenue of $624m, largely due to enhancements made to its relationship with card issuer Citibank (NYSE:C).
- The annual revenue stream from Delta’s Comfort Plus service increased by 18 percent and is now $350m.
- Southwest’s (NYSE:LUV) Rapid Rewards program continues to make significant revenue gains with a nearly $400m contribution linked to its 2014 strategic initiatives.
- Lufthansa likely boosted revenue from its Miles & More frequent flier unit in excess of €200m based upon reported profit that more than doubled since 2013.
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