Airlines’ ancillary sales reach $22.6 billion in 2011

Report sees more innovation and less of the ‘quick money-grab’ approach

Airlines’ ancillary revenue grew to $22.6 billion (€18.23billion) in 2011, up from $21.46 billion (€15.11 billion) the previous year, according to the Amadeus Review of Ancillary Revenue Results for 2011, researched by IdeaWorksCompany.

The report also found airline strategies evolving from the quick “money- grab mentality” that marked their earlier efforts.

IdeaWorks analyzed financial reports of 108 airlines worldwide and determined that big companies continued to top the list: United, Delta and American occupy the Top 3 spots, as they did in 2010. Delta's ancillary revenue results decreased during 2011, in part because it refined how it discloses ancillary revenue results. It now excludes revenue from some aviation-related businesses.

Southwest made the Top 10 for the first time in the No. 5 spot, despite not charging checked-bag fees. Rather, its ancillary revenues come from EarlyBird check-in, which allows passengers to check in automatically 12 hours before general check-in begins, improving the chances of getting a coveted “A” boarding position; Business Select, which provides a package of services including priority security screening, early boarding and a free drink, and its revamped Rapid Rewards program.

Ancillary revenue chartWhen it comes to ancillary revenue as a percentage of total revenue, low-cost carriers rule the roost. Spirit Airlines, which introduced the overhead bin fee to the U.S. market in August 2010, bumped Allegiant out of the No. 1 spot on that list, with 33.2%. Jet2.com grabbed the No. 2 spot, with 27.1%, edging out Allegiant’s 27%.

Qantas Airways grabbed the No. 1 position for most ancillary revenue per passenger, with $50.82 in 2011. But Qantas and TAM Airlines derive most of their ancillary revenue from their frequent flier programs. Spirit occupied the No. 2 spot, with $41.75 in ancillary revenue per passenger in 2011. In 2010, AirAsia X, AirAsia’s long-haul counterpart, took top honors in the category, with $41.60 per passenger.

IdeaWorks also found that airlines’ ancillary activities are evolving from the low-hanging fruit of checked-bag fees to more innovative strategies. “The gold rush mentality of ‘grab every buck, quid or kopek while you can’ from consumers is becoming a relic of the past,” the report said. “It’s a shortsighted view that invites the scrutiny of regulators and the eventual exit of consumers.”

The report identified several ancillary revenue activities that it described as innovative:

•     KLM economy passengers can pre-order upgraded meals on intercontinental flights from Amsterdam. They can choose from five selections, such as the Indonesian rijsttafel meal, for €12 to €15.

•     AirAsia’s Red Carpet Service offers elite-style perks from a low-fare airline starting at €21. It includes fast-track security, lounge pass, early boarding and a ride to the plane in an electric cart. 

•     Vueling offers early boarding, a drink and a snack and an adjacent empty middle seat for €60.

•     Qantas sells its Q Bag Tag for €39 (AU$49.95). The permanent baggage tag has wireless RFID technology that links to a traveler’s booking and permits easy self-checking of bags on flights within Australia. 

•     United offers a MileagePlus Explorer Visa card providing a free checked bag, two annual airport lounge passes, early boarding, bonus miles and more for a $95 annual fee the second year. 

 


Read about Sabre’s new defense in US Airways’ antitrust lawsuit in the Jan. 7 issue of TTU.


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