Summary:
- The CarTrawler Worldwide Estimate of Ancillary Revenue, produced in partnership with consultancy IdeaWorksCompany, forecasts a 22% annual increase in airline income from ancillary revenues in 2017 to USD82.2 billion.
- Airline ancillary revenues in 2017 will be more than triple the figure achieved in 2010 (USD22.6 billion), which was the first annual ancillary revenue estimate.
- The latest estimate suggests that airlines will make USD20.13 in ancillary revenue per passenger in 2017, up from USD8.42 in 2010, boosted by increasing income from a la carte services.
- Analysis on airline ancillaries performed over the past seven years has enabled IdeaWorksCompany to define some clear groupings (or categories) based upon an airline's ability to generate ancillary revenue.
Ancillary revenue is generated by activities and services that yield revenue for airlines beyond the simple transportation of customers from A to B. This wide range of activities includes commissions gained from hotel bookings, the sale of frequent flyer miles to partners, and increasingly in the modern age the provision of a la carte services − providing more options for consumers and more profit for airlines.
The latest estimate suggests that airlines will make USD20.13 in ancillary revenue per passenger in 2017, up from USD8.42 in 2010. This has been boosted by increasing income from a la carte services which has grown considerably from USD4.54 per passenger at the start of the decade to an expected USD13.96 per passenger this year.
Analysis on airline ancillaries performed over the past seven years has enabled IdeaWorksCompany to define some clear groupings (or categories) based upon an airline's ability to generate ancillary revenue. These are:
- Traditional Airlines (average percentage of revenue in 2017 - 6.7%, up from 5.8% in 2016) - a general category that houses the largest number of carriers and where ancillary revenue activity mainly consist of fees associated with excess or heavy bags, extra legroom seating and partner activity for a frequent flyer programme.
Examples: Cathay Pacific, Copa Airlines, Etihad Airways, and Iberia. - Major US Airlines (average percentage of revenue in 2017 - 14.2%, up from 12.3% in 2016) - US-based majors generate strong ancillary revenue through a combination of frequent flyer revenue and baggage fees with a 2017 spike likely due to an expansion of bundled fare offers and ever-growing frequent flyer revenue.
Examples: Alaska Airlines, American Airlines, Hawaiian Airlines, and United Airlines. - Ancillary Revenue Champs (average percentage of revenue in 2017 - 30.9%, up from 25.5% in 2016) - these carriers generate the highest activity as a percentage of operating revenue.
Examples: Frontier Airlines, Ryanair, Spirit Airlines, and Wizz Air. - Low Cost Carriers (average percentage of revenue in 2017 - 11.8%, unchanged on 2016) - LCCs throughout the world typically rely upon a mix of a la carte activity to generate good levels of ancillary revenue.
Examples: brussels airlines, China United Airlines, Condor, Interjet, and Jazeera Airways.
Ancillaries are not a new phenomenon and airlines have for years sold Duty Free onboard aircraft. No frills carriers became the masters of the trade when they started to break the price of an air tickets into its constituent parts and allowed passengers to purchase what they then required (checked bags, priority boarding, food and drink etc).Many legacy airlines have since adopted the unbundled offering on short haul flights to compete with low cost rivals, and just like the blurring between low cost, hybrid and legacy airline models, we are seeing the same with ancillary offerings as operators add to their service and hospitality with additional offers.
For example, AirAsia has added a 24-hour business-style airport lounge at its Kuala Lumpur International Airport home to attract premium passengers; easyJet achieved a 14% increase in flexible business fare sales during 2016, while Jetstar Airways has introduced its 'Business Hub' booking site and FlexiBiz bundle for corporate agents and business travellers.
On the opposite side of the business, United Arab Emirates (UAE) carrier Etihad Airways has this week introduced a selection of inflight product 'luxuries' aimed at enhancing the travel experience and providing more choice for passengers in Economy Class flying on its cheapest fares. The comfort items and amenities are available to purchase at "attractive prices," according to the airline, on a selected number of routes to and from Abu Dhabi. It has already introduced a range of enhanced services for Economy Class customers, including pay-for lounge access and chauffeur transfers at a number of airports on the airline's global network, neighbour-free seats and extra-legroom seats.
Linda Celestino, vice president guest experience and delivery at Etihad says the new offering will provide passengers "more power and control over their experience" through options to "customise and personalise their journey". The airline says it will monitor guest satisfaction with the aim to expand the range of items for sale in the future.
The new selection includes Christian Lacroix male and female amenity kits and Christian Lacroix cotton sleepwear in a range of sizes (on all ultra long haul flights except US routes), Piper-Heidsieck Cuvee Brut NV champagne (on all long and ultra long haul flights except USA routes) and Coffee Planet cold brew coffee (on London, Paris and all Australian sectors). Snack boxes complementing the custom free meal service will be added from Jan-2018. Prices will range from USD 4 / AED 15 for a glass of coffee to USD 35 / AED 130 for the sleepwear.