Ancillary revenue became a crucial component of the revenue mix for all types of carriers, according to a report released by IdeaWorks and Amadeus.

Published: 21 Jul 2010

Ancillary revenue became a crucial component of the revenue mix for all types of carriers, according to a report released by IdeaWorks and Amadeus.

Early results from an analysis of 2009 financial filings made by 96 airlines indicate ancillary revenue increased to a total of €11 billion ($13.5 billion) for 2009. The full report of this activity will be available in the autumn 2010 release.

The 43 percent increase over 2008 also reflects new a la carte fees and commission-based services. These estimates include revenue from a la carte features such as baggage fees and food sold onboard aircraft, commissions from the sale of hotel accommodations, car rentals, and travel insurance at airline websites, and partner revenue generated by frequent flyer programmes.

Worldwide Review of Ancillary Revenue (based on financial disclosures)

IdeaWorks’ findings with regards to the current top 10 list of airlines show subtle changes from the 2008 ranking. US-based network airlines fill the top three positions courtesy of robust partner revenue from frequent flier programs and a stronger emphasis on baggage fees. But revenue from this mature group has stabilised, while the revenue produced by lower-ranked carriers has jumped dramatically. The 4th place slot is now held by Qantas at a 25 percent revenue premium above the same position held by Ryanair in 2008. The annual revenue required to join the top 10 club now begins at €300 million. US Airways and Air Canada are new to the list, displacing JetBlue and Emirates.

Top 10 Airlines – Total Ancillary Revenue

Large network carriers can generate huge ancillary revenue numbers. But ancillary revenue success is better measured by reviewing activity as a “percentage of revenue” or on a “per passenger” basis.

Spirit Airlines and Tiger Airways joined the “% of total revenue list” for 2009 because the carriers only recently disclosed ancillary revenue results. Spirit is a privately held carrier and disclosures are rare and Tiger made disclosures for 2009 due to its initial public offering. Eight carriers in the 2008 list scored higher percentages for 2009. Of the two that dropped off the list, SkyEurope ceased operations and Germanwings was folded into Lufthansa Group during 2009.

Top 10 Airlines – Ancillary Revenue as a % of Total Revenue

The carriers in this top 10 list pursue a robust ancillary revenue agenda that includes baggage fees, buy-on-board cafes, assigned seating fees, and commissions from the sale of hotel accommodations and car rentals. Alaska is the only network airline in the list; the carrier has a less aggressive a la carte approach but benefits from powerful frequent flier and co-branded card programs.

Overall “per passenger” activity for 2009 clearly increased with top and bottom results better than 2008. Allegiant continues to achieve strong growth with a nearly 25 percent increase above 2008 results. UK-based carrier Jet2.com generated an amazing 58 percent increase while Qantas posted a spectacular 72 percent jump. A major upset occurred with ancillary revenue champ Ryanair falling off the top 10 list and arch-rival easyJet entering the list at the number 10 slot for 2009.

Top 10 Airlines – Ancillary Revenue per Passenger