TravelNewsAsia.com

Ancillary Revenue Reported by Airlines Grew to €15.11 billion in 2010

Travel News Asia Latest Travel News Podcasts Videos Thursday, 2 June 2011

Strong revenue from baggage fees and co-branded credit cards placed US carriers in the first, second, and third slots, as revealed in the annual Amadeus Review of Ancillary Revenue Results.

IdeaWorks with support from Amadeus 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). This represents ancillary revenue growth of 38% over 2009 and 96% 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.

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 emphasised, pricing is more sophisticated, and an increasing number of features are presented during the booking process.

“Ancillary revenue has become an enduring part of airline income statements, as revealed by this study,” said 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 centre and via travel agencies. Sixteen airlines have signed up for the solution and we are continuing to evolve the product functionality.”

Research carried out by IdeaWorks shows that ancillary revenue has definitely grown beyond its low cost airline beginnings. The oil price peak of 2008 caused huge losses and prompted US airlines to start charging travellers for checked baggage. Ultimately, the ripple effect of these fees has eased the path for more airlines to consider à la carte additions and catalysed a stunning increase of 778% since 2007.

The list of top players in 2007 was dominated by carriers such as Ryanair, easyJet, and Aer Lingus. Since then, large carriers have learned how to generate large ancillary revenue numbers. Continental disclosed its ancillary revenue results for the first time when it merged with United. The combination has created an ancillary revenue giant with annual results in excess of €3.5 billion, or nearly $5 billion (based on current excess rates).

Second place Delta has embraced ancillary revenue as evidenced by the spread of baggage fees to transatlantic routes, and à la carte fees associated with inflight Wifi, on-demand movies, onboard dining, and SkyClub lounge passes. The big jump for 2010 can largely be attributed to more thorough financial disclosure of à la carte activity in its annual report and more SkyMiles programme revenue. The carrier disclosed revenue from the sale of various à la carte activities generated $2.1 billion during 2010 with an additional $1.6 billion from its SkyMiles frequent flier programme. IdeaWorks includes the sale of miles or points to partners as ancillary revenue activity.

Qantas disclosed “ancillary revenue” of A$334 million (€252 million) from traditional à la carte sources. However, it is the Qantas Frequent Flyer Programme that really piles on the profits. Revenue posted by the programme was A$1.108 billion (€835 million) for 2010. Points in the programme have seemingly gained the status of official currency through partnerships with major Australian retailers and banks. With 7.2 million members, that’s a stunning A$154 (€116) for every programme member.

Ancillary revenue as a percentage of total revenue provides a better measure of ancillary aggressiveness and marketing acumen. This method of measurement allows low cost carriers to dominate the top-10 list for 2009 and 2010.

These airlines are known for low fares and thus it is easier for ancillary revenue to represent a larger piece of the total revenue picture. They earn ancillary revenue through the complete array of à la carte activity. Consumers benefit from a menu-based approach. Rock bottom prices are possible for those who only travel with a carry-on bag, opt for non-assigned seating, and bring their own food and drink onboard.

AirAsia X has jumped to €29.45 (ancillary revenue per passenger) in 2010 from last year’s result of €17.07. The result posted by AirAsia X demonstrates that travellers on long flights tend to spend more online and while onboard. Consumers have embraced the long-haul - à la carte concept; the carrier’s continued growth and planned share offering are signs of this success.

The strong showing by a merged United and Continental is a significant development for 2010. United has been hard at work for years perfecting its à la carte product offer under the Travel Options by United brand name. Continental has been innovating too and added fare lock and extra legroom seating options during 2010. IdeaWorks estimates the combined revenue from the sale of United Mileage Plus and Continental OnePass miles was approximately $3 billion (€2.1 billion) for 2010. Synchronising the ancillary revenue efforts of these two airlines will undoubtedly produce higher results for 2011.

Ancillary revenue offers a broad appeal to virtually every type of carrier. It is a revenue art practiced by global airlines known for luxurious first class suites such as Emirates and carriers that sell a bare bones product of a seat with a 30-inch pitch such as Ryanair.

Amadeus Updates Ancillary Services Solution

Sixteen airlines have signed up for Amadeus Airline Ancillary Services, 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 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.

Julia Sattel, Amadeus VP Airline IT, added, “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 operations and processes; as the benefits are clear.”

Amadeus has developed a unique interactive catalogue which 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 maximise the value in their loyalty programmes by pricing à la carte services according to Frequent Flyer status. 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 also helps airlines maximise 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. Carriers on Altéa Departure Control System (DCS) can also now price and collect payment of excess baggage at check-in desks.

See recent travel news from: Travel News Asia, Amadeus, Ancillary Revenue

Subscribe to our Travel Industry News RSS Feed Travel Industry News RSS Feed from TravelNewsAsia.com. To do that in Outlook, right-click the RSS Feeds folder, select Add a New RSS Feed, enter the URL of our RSS Feed which is: https://www.travelnewsasia.com/travelnews.xml and click Add. The feed can also be used to add the headlines to your website or channel via a customisable applet. Have questions? Please read our Travel News FAQ. Thank you.

     
Advertising
Advertising
Copyright © 1997-2024 TravelNewsAsia.com