Airline Ancillary Revenue Leaps Nearly 21% in a Year
Airline ancillary revenue has continued to grow for the eighth consecutive year, according to IdeaWorksCompany, who tracked 63 airlines and researched financial filings made by 130 airlines all over the world.
Airlines tracked by the consulting organisation reported substantial increases in revenue gained from retail activities and the sale of a la carte services and frequent flier miles.
Ancillary revenue per passenger among the 63 airlines is $17.49, which is 8.5 percent more than the 2013 result, and activity among low cost carriers jumped more than $2.9 billion, or 32.8 percent.
“Ancillary revenue is an increasingly important indicator of commercial success, and a major contributor to the bottom line of airlines across the globe,” says Michael Cunningham, Chief Commercial Officer at CarTrawler.
US airlines dominate the top of the table, with United Airlines who produced the greatest amount of ancillary revenue in 2014 – more than $5.86 billion overall. American/US Airways ranked second, due to the merger of the two, while Delta ranked third, having produced over $3.2 billion in 2014.
European airlines begin to filter in, with Air France/KLM taking fourth place with an ancillary revenue of over $2 billion in 2014, and Irish LCC Ryanair ranking fifth in the table, producing almost $2 billion in ancillary revenue – up by over $210 million from the previous year.
“The secret to unlocking this revenue stream can be found in the data that customers generate with every transaction. It is no longer just the preserve of low cost carriers – it is something from which all airlines are benefiting. The question is not who is doing it, it’s how well it is being done,” added Mr Cunningham.
The top ten carriers achieved an increase of nearly $4.6 billion in a single year, which represents revenue growth in excess of 22.5 percent. American’s co-branded credit card generated a revenue of $624 million, largely due to enhancements made to its relationship with Citibank, while Southwest’s Rapid Rewards program continues to make big revenue gains with nearly $400 million contributing to its 2014 revenue.
In terms of world regions, The Americas generate the greatest amount of ancillary revenue overall, with a 56 percent share worldwide, while Europe and Russia stand at 29 percent for 2014. Asia and the South Pacific region generated 14 percent of worldwide ancillary revenue, while the Middle East and Africa made up a tiny 1 percent worldwide.
When ancillary revenue is measured as a percentage of revenue, low cost carriers rise to the tops of the chart. Since 2011, the top spot has been held by US-based Spirit Airlines, whose ancillary revenue made up 38.7 percent of its overall revenue. Wizz Air and Allegiant placed second and third respectively, while Jet2.com and Ryanair ranked fourth and fifth in terms of ancillary revenue as a percentage of revenue.
This reality is leading more LCCs to adopt methods that attract high yield business travellers. Ryanair has made significant changes to its business plan by adding more frequencies on select routes, creating a bundled fare with business-friendly features, and targeting commercial travellers with an advertising campaign.
In terms of ancillary revenue per passenger, Jet2.com ranks the highest, with the average spend of a customer marked at $56.28 per traveller in 2014. Spirit Airlines ranked high again in second place, though is Qantas Airways which rank third for ancillary revenue per passenger.
Many of the airlines listed in this top ten such as Qantas will continue to see revenue advances due to the new distribution of optional extras through travel agencies and corporate travel planners. Alaska, Korean Air, Qantas, United and Virgin Atlantic all rank in the top ten, and have advantages over LCCs because they have long relied upon global distribution systems (GDS).
Switching on the sale of a la carte items through a GDS has been problematic due to technical and contract issues, but progress is rapidly occurring. Fare bundles sell very well through a GDS and are becoming more popular with airlines.
According to IdeaWorksCompany, “product bundles combine popular features and tempt consumers with savings in the same manner as a meal deal at a McDonald’s restaurant. This has become a key method for global network carriers and LCCs as these two airline types compete with each other.”