Ancillary fees are here to stay. As proof, a new analysis from IdeaWorksCompany, sponsored by CarTrawler, a consultancy in the area of airline ancillary revenues, reports that ancillary fees increased 19.6 percent in 2012. It's also a global movement transforming the airlines and how air travel is marketed.
IdeaWorksCompany researched the financial filings made by 116 airlines all over the world, 53 of which disclose ancillary revenue activity, to reveal that ancillary revenue reported by airlines grew to $27.1 billion in 2012. This represents a more than doubling (101 percent increase) of the ancillary revenue of $13.47 billion from 2009.
Once largely limited to low fare airlines, ancillary revenue is now a priority for many airlines worldwide with new activity among global carriers in Europe. The disclosures of ancillary revenue, which IdeaWorksCompany has analyzed since 2007, demonstrate how far the industry’s approach to ancillary revenue has developed in the past six years.
“The blueprint for an airline business has changed dramatically over the past 10 years,” says Mike McGearty, CEO of CarTrawler. “Consumer demand for choice and convenience of complimentary products has forced the travel industry to reinvent itself with airlines leading the way. Consumers are more loyal to carriers that address their needs. Unbundling boosts profit margins through the sale of optional services, as do the commissions earned through the booking of ancillary products such as car rental. In the past 12 months alone, CarTrawler has provided 250 million airline passengers with access to car rental through their airline of choice. This figure continues to grow as the aviation industry embraces the benefits of expanding their retailing reach in response to consumer demand.”
“Statistics help tell the ancillary revenue story, and every year key numbers are getting larger,” says Jay Sorensen, president of IdeaWorksCompany. “The most aggressive airlines easily have more than 20 percent of their revenue produced by a la carte fees. The best performers realize more than $30 per passenger from ancillary revenue. This can be almost totally generated through optional extras as with Spirit and AirAsia X, or largely achieved through the co-branded credit cards held by consumers at Qantas and Virgin Atlantic. Whatever the source, it is revenue desperately needed by airlines during troubled economic times.”
Gone are the days when low cost carriers posted the largest ancillary numbers., the analysis says The top 10 “Total Ancillary Revenue” list is dominated by the major brands of global network carriers. Joining the list for 2012 are Air France/KLM and Korean Air, which disclosed ancillary revenue activity linked to a wide array of optional extras such as bag fees, onboard retail, and premium seating.
The trend for 2012 indicates increased disclosure of ancillary revenue results by airlines. In addition to Air France/KLM and Korean Air, the list includes four new global airline additions to the total of 53 disclosing carriers. easyJet flew against this trend by opting to not provide ancillary revenue results for 2012. easyJet results were estimated by IdeaWorksCompany using last year’s reported ancillary revenue with adjustments applied for a la carte initiatives described by the company for 2012. The airline simply has too large an ancillary revenue presence to be excluded from the top 10 lists.
Low fare airlines dominate the “% of Total Revenue” top 10 list, as ancillary revenue is naturally a larger piece of the revenue pie for a lower-fare carrier such as Ryanair or Jetstar. Spirit Airlines maintained its top position with a nearly 10 point lead over its closest low-cost peer. Consumers continue to choose the carrier’s “ultra low cost” methods; traffic is up more than 22 percent and load factors were virtually unchanged for 2012 compared to the prior year, the report says.
This revolution won’t be stopping in the heretofore comfy confines of Europe’s global airlines, the study notes. Pegasus, a low cost airline thriving in Turkey on the edge of the Europe market, filed its first annual report with abundant references to ancillary revenue. Further afield in India, the government opened the ancillary revenue floodgates by blessing the adoption of a la carte pricing for an industry serving more than 1.2 billion people.
CarTrawler and the IdeaWorksCompany said it will release an 80-page compilation of results and overall rankings from the 53 disclosing airlines during summer 2013.