Monday, July 13, 2015

Airlines’ ancillary revenue skyrockets 21 percent in 2014

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.”

Ancillary revenue is revenue gained from retail activities, à la carte services including food and beverage and checked-bag fees, and the sale of frequent flier miles. The graphic at right shows a hypothetical example of how one carrier’s ancillary revenue is derived.

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.
CarTrawler and IdeaWorksCompany will release a 90-page compilation of results and overall rankings from the 63 disclosing airlines during September 2015.

Visit my main page at TheTravelPro.us for more news, reviews, and personal observations on the world of upmarket travel.



Graphic provided by IdeaWorksCompany
Click on graphic to view larger size

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