Ancillary Air Revenue Grew to $21.4 Billion

Strong revenue from baggage fees and co-branded credit cards placed U.S. carriers in the first, second and third slots, as revealed in the annual Amadeus Review of Ancillary Revenue Results. The merger of Continental and United created an ancillary revenue giant – number one worldwide – with annual results in excess of nearly $5 billion, or €3.5 billion (based on current excess rates). Delta and American represent the second and third spots, respectively, Amadeus said.

IdeaWorks, a consultancy in airline ancillary revenues, with support from Amadeus, has researched the financial filings made by 104 airlines all over the world to identify examples of ancillary revenue.

In 2007, only 23 airlines worldwide disclosed ancillary revenue activity--a modest result of €1.72 billion ($2.45 billion). The world has changed dramatically in four years, with 47 carriers disclosing 2010 ancillary revenue activity of €15.11 billion ($21.46 billion), Amadeus reported. This represents ancillary revenue growth of 38 percent over 2009 and 96 percent since 2008.

The amount listed by 47 carriers comes close to the €18.4 billion projected by IdeaWorks in autumn 2010 as the ancillary revenue associated with a global list of 150 carriers.

Two trends are obvious from the review of the financial disclosures made by airlines for the 2010 Amadeus Review of Ancillary Revenue Results, Amadeus says. 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 emphasized, pricing is more sophisticated, and an increasing number of features are presented during the booking process, Amadeus says.

“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. That’s why we are seeing growing momentum behind Amadeus Ancillary Services solution, which helps carriers sell à la carte ancillary services on their website, call center and via travel agencies. Sixteen airlines have signed up for the solution, and we are continuing to evolve the product functionality.”

Sixteen airlines have signed up for Amadeus Airline Ancillary Services, Amadeus reports, of which nine will implement the solution both for the online and the travel agency channels. Two of those airlines – Cimber and Corsairfly – are live and in production, selling ancillary services on their websites and via travel agencies in Denmark, France, Norway and Sweden. Amadeus said it aims to enable travel agencies in 15 countries to sell ancillary services on behalf of airlines by the end of 2011.

“Amadeus Ancillary Services now provides travel agents with a fully competitive content comparable to that of the airline’s own website. It removes our need to differentiate between channels, which will undoubtedly broaden the appeal of our travel services. We are thrilled to use this solution as it clearly benefits all parties involved,” said Carsten Jensen, Director Business System &Industry Relations at Cimber Sterling.

“At Amadeus, we are committed to helping airlines adapt and evolve their ancillary services strategy so that they can move their focus from pure revenue to delivering profitability,” said Julia Sattel, Amadeus VP Airline IT. “Whilst the sale of ancillary services may have become standard, the processes are not, and non-standard processes can be costly. Our goal is therefore to deliver end-to-end, fully integrated and automated solutions across all airline as the benefits are clear."

Amadeus reports it has developed a unique interactive catalogue that clearly displays the range of additional airline services available allowing travel agencies to view, book and up-sell ancillary services quickly and efficiently. The catalogue has been launched in cryptic so that travel agents who prefer to use the long-standing GDS interface can also sell ancillary services on behalf of airlines.

Airlines can drive loyalty with their top customers and maximize the value in their loyalty programs by pricing à la carte services according to Frequent Flyer status, Amadeus says. Airlines using the Altéa Customer Management Solution (CMS) can now automatically cancel services which are not ticketed within a time limit and make them available for other passengers to book. This helps airlines maximize their revenue.

Airlines using the Altéa CMS can also ensure that bad weather does not disrupt their ancillary revenues: if a flight is cancelled, the ancillary service is automatically rebooked for passengers when they are placed on another flight, Amadeus says.Carriers on Altéa Departure Control System (DCS) can also now price and collect payment of excess baggage at check-in desks.