Amadeus and IdeaWorks, which earlier this year reported on the ancillary revenue disclosed by 47 airlines in 2010, applied these statistics to a larger list of more than 200 airlines to provide a truly global projection of activity for 2011. 

Holger Taubmann, Amadeus VP distribution, Amadeus (pictured right)  said the rapid growth of ancillary revenues would lead to an increasing interest from full service carriers around the world, such as. KLM and Iberia, joining the ranks of carriers implementing the Amadeus Ancillary Services solution for travel agencies.

“The model is now focusing on services which increase the scope of the product offering and reinforce the brand rather than unbundle the ticket price,” he added.

The IdeaWorks analysis reveals four natural groupings or categories (listed below), which are based upon a carrier’s ability to generate ancillary revenue.

•  Ancillary revenue champs: These carriers generate the highest activity as a percentage of operating revenue. The average achieved by this group was 19.8%, which is slightly up from 19.4% for 2010. Examples include AirAsia, Aer Lingus, easyJet, Ryanair, and Spirit Airlines.

•  Major US airlines:  US-based majors generate strong ancillary revenue through a combination of frequent flier revenue and baggage fees. The average for this group was 11.9%, which is a sizable increase above the 2010 rate of 7.2%.  Examples include Alaska, American, and United.

•  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 average in this group was 6.5% and is above last year’s 5.4%.  Examples include AirTran, Blue1, IndiGo, Jazeera Airways, Pegasus, and Spring 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 and limited partner activity for a frequent flier program. The average here remained at 2.9%.  Examples include Air China, Emirates, Finnair, LAN, Qatar Airways, and Singapore Airlines. 

Julia Sattel, Amadeus VP airline IT (pictured left), said that outside of the US market and the global LCC sector, airlines tend to choose a model that complies with industry standards rather than a customised approach to the development and deployment of their ancillary services.

“Whatever the model, there is no doubt that the growth of ancillary sales is here to stay. The Electronic Miscellaneous Document (EMD) standard for the fulfilment of ancillary sales is rapidly gaining momentum. According to IATA, there are now 28 airlines in the world that are EMD capable, 15 of these are using Amadeus’ EMD Server and have issued over 2.5 million EMDs this year alone,” she added.

The US Major Airlines category produces the largest share of global ancillary revenue – $12.5 billion result (38% of the global total) – by just seven airlines namely Alaska Airlines, American, Continental, Delta, Hawaiian, United, and US Airways.

Compare this to the second largest piece of the pie at US$10.9 billion (34% of the global total), which is generated by a far larger group of 140 airlines, the Traditional Airlines category. The results showed that US-based airlines have readily adapted to a la carte world, but they also benefit from consumers who are keen to get frequent flyer miles.

IdeaWorks believes that the majority of ancillary revenue for US major airlines is generated by the sale of frequent flyer miles, notably those linked to co-branded credit card activity. This financial activity exceeds US$6.5 billion annually in the US alone. Baggage fees for US carriers represent approximately 20% of their ancillary receipts. The remaining revenue is produced by a large array of a la carte and commission-based activities.  

Other sources include on-board sales of food, beverages, Wifi, and hotel bookings. In addition, airlines offer an ever-increasing selection of services that add to traveller’s convenience such as priority security screening, early boarding and exit row seat assignments. 

Carriers in North America began to emphasise ancillary revenue after the oil price shock of 2008. Not surprisingly, this region leads the world for ancillary revenue production. IdeaWorks estimates the region achieved a stunning 72% increase above the level estimated for 2010. Ancillary revenue rose across the globe and was largely driven by traffic and passenger revenue increases as the industry recovered from the 2009 recession.  

According to IdeaWorks, 48% of the US$9.9 billion worldwide increase can be attributed to the higher overall level of revenue and passenger activity. The remaining 52% is attributed to carriers becoming more focused on ancillary revenue through better financial disclosure, stronger merchandising efforts, and adding more à la carte services for sale. 

• Infographic and blog post on how ancillaries are changing the economic landscape for airlines