The CarTrawler Worldwide Estimate of Ancillary Revenue forecasts a 17.2% increase in ancillary revenue worldwide above 2013 to US$49.9 billion for 2014, with $28.5 billion of the total composed of a la carte fee activity.
Airline ancillary revenue worldwide set to increase this year. (Image credit: solid-istanbul/iStock)
Earlier this year CarTrawler, leading provider of online car rental distribution systems, and consultancy on airline ancillary revenues IdeaWorksCompany reported the ancillary revenue disclosed by 59 airlines for 2013. These statistics were applied to a larger list of 180 airlines to provide a truly global projection of ancillary revenue activity by the world’s airlines in 2014.
The latest CarTrawler ancillary revenue estimate marks the fifth year IdeaWorksCompany has prepared a projection of global ancillary revenue activity.
According to the report, revenue from optional services such as onboard sales of food and beverages, checked baggage, premium seat assignments, and early boarding benefits represented $28.5 billion of the projected global 2014 total.
Non-fee activity such as the sale of frequent flier miles to program partners, and commissions earned on the sale of services to travellers, such as hotel accommodations and car rentals made up the balance of US$21.4 billion
Mike McGearty: Build customer proposition around passenger data,to grow ancillary revenue and loyalty. (image credit: CarTrawler)
Mike McGearty, CEO of CarTrawler, said: “Relevance is key to successful ancillary revenue generation. Data science has the power to unlock the secrets of customer behaviour, enabling airlines to align their technology strategy with their customers’ needs. The airlines that build their customer proposition around passenger data, will grow ancillary revenue and increase customer loyalty,” says
Analysis performed by IdeaWorksCompany during the past five years reveals natural groupings (or categories) based upon a carrier’s ability to generate ancillary revenue. The “percentage of revenue” results associated with four defined categories (listed below) have been applied to a worldwide list of operating revenue disclosed by 180 airlines.
- 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, extra legroom seating and partner activity for a frequent flier programme. Most European carriers now charge fees for the first checked bag. The average percentage of revenue increased to 3.6% from 3.1% last year. Examples include Etihad Airways, China Southern, Lufthansa, and Avianca.
- 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 remained at 9.9%, which was the same rate that applied for 2013. Examples include Alaska, American, and Delta.
- Ancillary revenue champs: These carriers generate the highest activity as a percentage of operating revenue. The percentage of revenue achieved by this group grew to 23.6% from 21.6% for 2013. Examples include AirAsia X, Allegiant, Pegasus, and Wizz Air.
- Low cost carriers: LCCs throughout the world typically rely upon a mix of a la carte activity to generate good levels of ancillary revenue. The percentage of revenue for this group was 12.1% and is above last year’s 10.5%. Examples include IndiGo, Jazeera Airways, Jeju Air, JetBlue, Norwegian, and Spring Airlines.
Onboard sales of food and beverages contribute to hike in ancillary revenue. (Image credit: Shutterstock)
The report also revealed the major US airlines category produces a significant share of global ancillary revenue. The US$15.4 billion result (30.9% of the global total) is generated by just seven carriers – Alaska Airlines, American, Delta, Hawaiian, Southwest, United, and US Airways. These carriers rely upon their frequent flier programmes to generate a significant share of ancillary revenue. For example, 73% of Alaska’s ancillary revenue is produced by its Mileage Plan frequent flier programme. The largest category at 35.2% is generated by carriers classified as traditional airlines. This group consists of 112 carriers out of the total 180 airline sample.
IdeaWorksCompany believes the majority of ancillary revenue for major US airlines is generated by the sale of frequent flier miles, mostly linked to co-branded credit cards. Baggage fees for US carriers represent approximately 25% of their ancillary receipts. The remaining revenue is produced by an array of a la carte and commission-based products. The profile for Southwest is certainly different because it does not charge for the first or second checked bag.
• Download the Worldwide Estimate of Ancillary Revenue report here.
