Issues & Trends – October 2011
Airline ancillary services revenue soars to $US32.5 billion says report
THE spotlight continues to fall on airline efforts to grow ancillary revenue with Amadeus this month releasing a report estimating that airline ancillary revenue has soared to $US32.5 billion – and that this is what is saving the world’s airlines from plunging into financial loss.
“Ancillary revenue has become a crucial component in the global airline industry’s profit toolbox,” said an Amadeus statement accompanying the report.
“IATA slashed its 2011 industry profit outlook to $US4 billion and revealed that carriers will spend $US10 billion more on jet fuel this year.
“The $US32.5 billion contributed by ancillary revenue has lifted the airline industry from a loss making position and continues to provide a very effective hedge against runaway fuel bills.”
The Amadeus Worldwide Estimate of Ancillary Revenue for 2011 is the second released by the GDS company follow-ing the initial report compiled in 2010.
Once again Amadeus has worked with IdeaWorks, a consultancy whose specialisations include ancillary revenue.
Earlier this year, Amadeus and IdeaWorks reported the ancillary revenue disclosed by 47 airlines in 2010. The two companies say they have applied these statistics to a larger list of more than 200 airlines to provide “a truly global projection of activity for 2011”.
“As ancillary revenues continue to grow rapidly, we are now seeing increasing interest from full service carriers around the world,” said Amadeus vice president distribution Holger Taubmann, citing KLM’s and Iberia’s implementation of the Amadeus Ancillary Services solution for travel agencies.
According to Taubmann: “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.”
The IdeaWorks analysis has come up with four categories of carriers based on their 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 per cent, which is slightly up from 19.4 per cent 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 flyer revenue and baggage fees. The average for this group was 11.9 per cent of total revenue which is a sizable increase on the 2010 rate of 7.2 per cent. 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 per cent and is above last year’s 5.4 per cent. 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 flyer program.
The average here remained at 2.9 per cent. Examples include Air China, Emirates, Finnair, LAN, Qatar Airways, and Singapore Airlines.
Echoing comments made recently by Sabre’s Hans Belle (travelBulletin, August), Amadeus vice president airline IT Julia Sattel said: “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.”