European airlines led in the sale of ancillary adds-on for 2019 with US$31.5 billion in revenue while their Asian counterparts are second with US$$21.1 billion, according to a report by CarTrawler and IdeaWorksCompany.
The study reveals the total la carte revenue collected by airlines worldwide in 2019 from this key sales component was an estimated US$75.6 billion,
The report notes that “the prevalence of low cost carriers (LCC) in a region actually drives the level of ancillary revenue; a higher concentration of low cost carriers (LCCs) boosts ancillary revenue and a la carte results.”
A la carte activities include fees paid for checked baggage, assigned seats, buy-on-board meals, early boarding and onboard entertainment.
The study points out the lines that once separated traditional airlines and LCCs have become blurred. Traditional airlines, like Etihad Airways, are now adopting basic economy fares and generating a la carte revenue from standard seat assignments, WiFi service, premium snack items in economy cabin and more .
“Meanwhile, LCCs increasingly aim for business travellers, which is a core market for traditional airlines,” adds the report.
Aileen McCormack, chief commercial officer at CarTrawler, says: “It is beyond doubt now that carriers which prioritise extensive choice architecture and a superior customer experience are significantly increasing their chances of reporting healthy profit margins.
“The adoption of a sophisticated ancillary revenue strategy must now be seen as a necessary step for all airlines that want to stay relevant as we enter a new decade.”
Here’s a snapshot of how a la carte activity varies by region in 2019.
• Europe/Russia leads the world for a la carte activity with LCCs generating more than 27% of operating revenue. Traditional airlines meanwhile are making moves to increase a la carte activity – Air France/KLM loyalty members now accrue miles for fees paid for premium meals, seat assignment and baggage; Aeroflot Group introduces basic economy fares; SAS Scandinavian establishes a business unit to grow ancillary revenue; Ryanair optimises its checked bag and early boarding service.
• Within Latin America, Mexico’s LCCs are posting big ancillary revenue results. Azul, Viva Aerobus and Volaris are among the top 15 worldwide for ancillary revenue as a percentage of total revenue. Young LCCs, such as Amazonas, FlyBondi, JetSMART, Sky Airline and Wingo, have captured the interest of traditional airlines which are beginning to adopt a la carte methods of LCCs.
• Asia Pacific full service airlines are adopting the a la carte model. Examples are seen in Cathay Pacific, Qantas and Singapore Airlines charging fees for advance seat assignments for lower-priced fares. China Eastern, Hong Kong Airlines, Malaysia Airlines (domestic routes), Philippine Airlines (domestic routes) are offering basic economy fares.
• Canada/USA with low LCC penetration of about 9% is dominated by American, Delta, Southwest and United. These four big players are dipping their wings into the a la carte segment through basic economy fares (no checked bag, no advance seat assignment and last to board).
• Africa and Middle East has the lowest share of LCC activity and thus the lowest level of a la carte activity. Entry of low cost enterprises like Air Arabia, flydubai, Flynas and Kulula is changing the scenario. Wizz Air is also coming to the region through a joint venture in Abu Dhabi, and this will bring about an expansion of a la carte activities by incumbent airlines. Meanwhile, the region’s big players namely Emirates and Etihad are charging fees for standard seat assignments for lower-priced economy fares.
• Featured image credit: FabrikaCr/Getty Images
