Ancillary revenue reported by airlines grew to €15.11 billion in 2010 and has almost doubled since 2008, according to a new report.

Published: 01 Jun 2011

Ancillary revenue reported by airlines grew to €15.11 billion in 2010 and has almost doubled since 2008, according to a new report.

The world has changed dramatically in four years with 47 carriers disclosing 2010 ancillary revenue activity of €15.11 billion, according to the annual Amadeus Review of Ancillary Revenue Results. This represents ancillary revenue growth of 38 percent over 2009 and 96 percent since 2008. The figures relate to the revenue earned by the 47 airlines which disclosed some type of ancillary revenue activity in 2010 including á la carte, or unbundled, services, commission-based services – such as hotel or car rental bookings – and other ancillary services revenue from co-branded credit cards, loyalty programs and other activities.

Current trends:

First, airlines already engaged in ancillary revenue activities are bringing more products to market. This occurs through the introduction of new à la carte features and the inclusion of distribution methods beyond the carrier’s website.

Second, many of these airlines are becoming savvy retailers. Branding has been emphasised, pricing is more sophisticated, and an increasing number of features are presented during the booking process.

“Ancillary revenue has become an enduring part of airline income statements, as revealed by this study,” says Ian Wheeler, Amadeus VP marketing and distribution. “True financial success for airlines is boosted when these services are available through online, travel agency, and corporate travel distribution channels.”

Catching up

Research carried out by IdeaWorks shows that ancillary revenue has definitely grown beyond its low cost airline beginnings. The oil price peak of 2008 caused huge losses and prompted US airlines to start charging travellers for checked baggage. Ultimately, the ripple effect of these fees has eased the path for more airlines to consider à la carte additions and catalysed a stunning increase of 778 percent since 2007.

Over the last four years, large carriers have learned how to generate large ancillary revenue numbers. Continental disclosed its ancillary revenue results for the first time when it merged with United. The combination has created an ancillary revenue giant with annual results in excess of €3.5 billion, or nearly $5 billion.

Second place Delta has embraced ancillary revenue as evidenced by the spread of baggage fees to transatlantic routes, and à la carte fees associated with in-flight Wifi, on-demand movies, onboard dining, and SkyClub lounge passes. The big jump for 2010 can largely be attributed to more thorough financial disclosure of à la carte activity in its annual report and more SkyMiles programme revenue. The carrier disclosed revenue from the sale of various à la carte activities generated $2.1 billion during 2010 with an additional $1.6 billion from its SkyMiles frequent flier programme. IdeaWorks includes the sale of miles or points to partners as ancillary revenue activity.

Qantas disclosed “ancillary revenue” of A$334 million (€252 million) from traditional à la carte sources. However, it is the Qantas Frequent Flyer Programme that really piles on the profits. Revenue posted by the programme was A$1.108 billion (€835 million) for 2010. Points in the programme have seemingly gained the status of official currency through partnerships with major Australian retailers and banks. With 7.2 million members, that’s a stunning A$154 (€116) for every programme member, highlighted the report.

AirAsia X has jumped to €29.45 (ancillary revenue per passenger) in 2010 from last year’s result of €17.07. The result posted by AirAsia X demonstrates that travellers on long flights tend to spend more online and while onboard. Consumers have embraced the long-haul - à la carte concept; the carrier’s continued growth and planned share offering are signs of this success, indicated the report.

The strong showing by a merged United and Continental is a significant development for 2010. United has been hard at work for years perfecting its à la carte product offer under the Travel Options by United brand name. Continental has been innovating too and added fare lock and extra legroom seating options during 2010. IdeaWorks estimates the combined revenue from the sale of United Mileage Plus and Continental OnePass miles was approximately $3 billion (€2.1 billion) for 2010. Synchronising the ancillary revenue efforts of these two airlines will undoubtedly produce higher results for 2011.

(IdeaWorks with support from Amadeus has researched the financial filings made by 104 airlines all over the world to identify examples of ancillary revenue).