Tuesday, September 15, 2015

Report details sources of ancillary revenue

Airline revenue from sale of ancillary services and à la carte items up 21 percent from '14


A newly released report sheds some light on how much revenue 63 of the world's airlines derived in 2014 from the sale of so-called ancillary services.

In July 2015, IdeaWorksCompany released high-level details of a survey sponsored by CarTrawler that pored over financial filings made by 130 airlines worldwide. Fewer than half of those airlines disclosed qualifying revenue activity but those 63 carriers reported a total increase in ancillary revenue of $6.6bn, to $38.1bn in 2014 compared to $31.5bn in 2013. The 2015 Cartrawler Yearbook of Ancillary Revenue provides detail about the specific sources of that revenue.

While the term "ancillary revenue" immediately brings to mind à la carte services including seat reservations, food and beverage, early boarding and checked-bag fees, it is also derived from sources including frequent flier activities, commission-based products such as car rentals booked through the airlines, advertising sold by the airline and the à la carte components associated with a fare or product bundle.

“Some airlines are vague in their descriptions and merely provide an 'ancillary revenue' line on the income statement without further details," IdeaWorksCompany said in a statement accompanying the release of the report. "Some of the carriers don’t specifically list ancillary revenue, but describe qualifying activities such as 'revenue from the sale of frequent flier miles to partners' or 'revenue from onboard cafe sales.' Other airlines ... provide robust details and seem very proud of their ancillary revenue accomplishments.”

Overall, airlines are generally becoming increasingly revealing about their approach to ancillary revenue, the report said. The company uncovered several specific examples, including:
  • Aeroflot sales of frequent flier miles to partners jumped to $223m, or more than $53 per member.
  • Alaska Airlines introduced Preferred Seating in May 2015. Charges for sitting in the bulkhead or exit rows are expected to initially provide $15m annually.
  • American and merger partner US Airways issued more than 287bn frequent flier miles duirng 2014, 61 percent of which were sold to program participants.
  • 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).
  • Spirit Airlines generated more than $76m in revenue from the sale of assigned seating during 2014.
  • Tigerair offers a city center shuttle and sightseeing tour of Singapore for travelers with connections of eight hours or more for a fee of about $18 per person.
New to 2015 is a list of à la carte items sold through booking tools Amadeus, Sabre and Travelport for each of the 63 disclosing airlines.

Spirit, the airline that derived the largest percentage of its total revenue -- almost 39 percent -- from the sale of ancillary services, earned $318m from baggage fees for both checked and carry-on bags. It also earned nearly $222m in fees for all bookings except those made at the airport, $76m in advance seat selection fees and $131m in "other" ancillary fees.

Garuda Indonesia jet on ramp at Boeing plant, Everett, Washington
Garuda jet at Boeing plant in Everett, Wash.
At the other end of the spectrum, Garuda Indonesia only derived 0.3 percent of its revenue from ancillary services, and those all fell into a single category. The airline reported revenue from excess baggage fees of approximately $10.2m. Four other airlines also reported ancillary revenue of less than one percent of total revenue: China Southern, Emirates and All Nippon Airways (ANA) all reported ancillary revenue of 0.5 percent of total while Air Berlin reported 0.8 percent of its revenue derived from ancillary revenue.

The complete 99-page report is available here.

As with any body of data, the statistics contained in the report are presented in a certain context that may not align with the experience of the individual traveler. For example, the report's author estimated that British Airways received £42m from seat assignment fees, or £1 per each of the 42 million passengers the airline carried in 2014. However, when planning a trip earlier this year that would have included flights on British, reserving my seats in advance from Seattle-Tacoma International Airport (SEA) to London's Heathrow Airport (LHR) would have cost me $45, or about £29 each way, rendering the average of £1 per customer fairly meaningless.

That said, it is interesting reading about a business practice that, love it or hate it, appears to be here to stay.

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



Photo by Carl Dombek
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