Airlines to net $36 billion in fees and upsells this year worldwide
Airlines continue to look beyond selling tickets to earn revenue, as is made clear by an annual forecast of their fee-based income streams.
This year 176 airlines will collect $36.1 billion in so-called ancillary revenue, such as fees to redeem frequent flier miles and fees for checking bags, according to a study released today by Amadeus IT Group, a corporation that processes transactions for the travel industry, and IdeaWorksCompany, a consulting firm.
The add-on revenue will be about 5.4% of global airline revenue of $667 billion for the year, a rise from a 4.8% share in 2010.
Less impressive than it first appears
The 11% growth in ancillary revenue over last year is nearly half explained by a rise in air travel and general revenue.
In the case of US airlines, growth for US carriers was modest at 4%.
About half of US ancillary revenue is generated by the sale of frequent flier miles, mostly through airline credit cards. That’s hardly an innovative income stream.
Asia Pacific is seeing the biggest growth in the sales of ancillary revenues, with a 21% rise expected this year.
The travel agency channel is important to future ancillary growth, especially in Europe and Asia Pacific, says Amadeus.
Worldwide airlines also plan to use their frequent-flier-program data to target products to fliers more effectively.
The next biggest growth area may come if airlines target their most lucrative customers with fresh products. Case in point: American Airlines’ Five-Star, a former VIP-only package of services now available to others at many US airports for about $125 and including a personal escort through the airport.
The top fees unrelated to frequent flier miles continue to be baggage fees, something not yet fully explored outside of North America. US airlines in the first half of this year may collect more than $3 billion in baggage fees alone this year, according to the Research and Innovative Technology Administration.
A few ancillary champs
North American carriers have led the world in ancillary fees, starting after oil prices soared in 2008. About a third of the global total is generated by just six airlines, all in the US: Alaska Airlines, American, Delta, Hawaiian, United, and US Airways.
United Continental is far and away the biggest largest earner, generating more than $4 billion.
Low-cost airlines dominate the table that ranks airlines by the proportion of their total income derived from ancillary sources, with Spirit Airlines, Jet2, and Allegiant leading.
For low-cost airlines, fee-based revenue is often vital. A few earning more than 20% of revenues from these add-on charge at a typical rate of more than $30 per passenger. For more details, see our earlier story: “Winners in the battle for airline ancillary revenue.”
A note on the third-annual study: IdeaWorks and Amadeus project ancillary revenue by studying the revenue disclosed by 50 airlines and extrapolating out to a larger list of 176 airlines.