|ANCILLARY REVENUE TO REACH US$36.1 BILLION WORLDWIDE IN 2012|
|The IdeaWorks and Amadeus estimate of ancillary revenue forecasts an 11.3 per cent increase for next year|
Today, IdeaWorksCompany and Amadeus announced the results of The Amadeus Worldwide Estimate of Ancillary Revenue, which projects that airline ancillary revenue will reach US$36.1 billion worldwide in 2012.|
Earlier this year, Amadeus and IdeaWorksCompany reported the ancillary revenue disclosed by 50 airlines for 2011. These statistics were applied to a larger list of 176 airlines to provide a global projection of ancillary revenue activity by the world’s airlines in 2012.
The “percentage of revenue” results included four categories:
Traditional Airlines – this category represents a catch-all for the largest number of carriers. Ancillary revenue activity may consist of fees associated with excess or heavy bags and limited partner activity for a frequent flier program. The average percentage of revenue remained at 2.9 per cent. Examples include Air Canada, Air New Zealand, Copa, Etihad, Finnair, and South African Airways. The estimated 2012 ancillary revenue for this category is more than US$12 billion.
Major US Airlines - US-based majors generate strong ancillary revenue through a combination of frequent flier revenue and baggage fees. The percentage of revenue for this group was 10.1 per cent, which is a drop from the 2011 rate of 11.9 per cent. Examples include Alaska, American, and United. The estimated 2012 ancillary revenue for this category is more than US$12 billion.
Ancillary Revenue Champs - These carriers generate the highest activity as a percentage of operating revenue. The percentage of revenue achieved by this group was 19.7 per cent, which is down slightly from 19.8 per cent for 2011. Examples include AirAsia, Allegiant Air, easyJet, and Spirit Airlines. The estimated 2012 ancillary revenue for this category is more than US$5 billion.
Low Cost Carriers - LCCs throughout the world typically rely upon a mix of à la carte fees to generate good levels of ancillary revenue. The percentage of revenue for this group was 7.2 per cent and is above last year’s 6.5 per cent. Examples include Jazeera Airways, JetBlue, Norwegian, Pegasus, Southwest, and GOL. The estimated 2012 ancillary revenue for this category is more than US$5 billion.
The US Major Airlines category produces a significant share of global ancillary revenue and is generated by six airlines: Alaska Airlines, American, Delta, Hawaiian, United, and US Airways. The category decreased this year largely because Delta redefined how it discloses ancillary revenue results; the carrier now excludes revenue from some aviation-related businesses.
IdeaWorksCompany believes the majority of ancillary revenue for US major airlines is generated by the sale of frequent flier miles notably those linked to airline credit cards. This financial activity exceeds US$6 billion annually in the US alone. Baggage fees for US carriers represent approximately 20 per cent of their ancillary receipts. The remaining revenue is produced by an array of à la carte and commission-based products.
Other sources include onboard sales of food, beverages, Wi-Fi, and commissions from hotel bookings. In addition, airlines offer an increasing selection of services such as priority security screening, early boarding, exit row seat assignments, and single visit access to airport lounges.
The Traditional Airline Category (for carriers outside the US) also relies on the sale of frequent flier miles to partners such as the banks that issue airline credit cards. Baggage revenue is most likely limited to excess bag charges, as only a few of these airlines charge for the first piece.
The Low Cost Carriers and Ancillary Revenue Champs categories feature an array of revenue from optional services and commission-based products. These carriers have the lowest level of revenue produced by frequent flier program activity. Their co-branded credit card portfolios are younger and smaller, and revenue levels usually don’t match those associated with long-established airlines.
North America continues to lead all other regions, at a predicted US$15.5 billion ancillary revenue for 2012, largely due to its large market size and how thoroughly airlines have embraced ancillary revenue methods. Revenue results are projected to dip largely due to the methodology change described earlier for Delta.
Baggage fee revenue disclosed by airlines to the US Department of Transportation has dropped. Some of this is due to increased fee waivers for travellers with elite frequent flier status and travellers checking fewer bags. However, a meaningful amount of baggage revenue (not typically disclosed by carriers) is now generated by the fees paid by banks that issue credit cards. These banks make payments to the airlines for the provision of “first bag free” benefits associated with a growing number of airline credit cards.
Activity elsewhere in the world shows significant increases ranging from 11.7 per cent for Europe, to 30.2 per cent for Latin America and the Caribbean.
“The majority of the 11.3 per cent increase can be attributed to increased passenger revenue posted by airlines all over the globe,” says Jay Sorensen, president, IdeaWorksCompany.
“Low cost carriers will also contribute to the increase as they boost their ancillary revenue to higher levels through more products and better marketing. The next surge of activity will occur when the sale of optional extras becomes more prevalent in the automated booking systems used by travel agents. Look for airlines to become better retailers through all distribution channels during the next three years.”