A $10 priority-boarding fee here, a $25 checked-bag fee there; pretty soon, you’re talking real money. $22.6 billion, in fact. Acc...
A $10 priority-boarding fee here, a $25 checked-bag fee there; pretty soon, you’re talking real money.
$22.6 billion, in fact. According to a report released Monday, that’s how much ancillary revenue 50 airlines around the world reported making in 2011, a 66-percent jump from the $13.5 billion that the 47 airlines that reported such income made in 2009.
The annual Amadeus Review of Ancillary Revenue Results looked at the financial filings made by 108 carriers and tallied the non-ticket revenues for the 50 that disclosed them. Those revenues include both à la carte fees, such as those for checked bags, priority seating and cabin amenities, and the revenues airlines earn through co-branding partnerships with credit card companies.
The top five earners by dollar value:
- United Continental: $5.2 billion
- Delta: $2.5 billion
- American: $2.1 billion
- Qantas: $1.4 billion
- Southwest: $1.2 billion
Yes, Southwest, despite the fact that airline allows passengers to check two bags for free. In fact, 2011 represented the first year that the carrier cracked the top 10.
According to the report, it did so by earning $142 million through its EarlyBird priority-seating service, $96 million from its Business Select program and $250 million through its Rapid Rewards co-branded credit card partnership with Visa.
Less surprising, perhaps, low-cost carriers dominated the results when calculated as a percentage of total revenue. Fee-dependent Spirit topped that list, earning one-third (33.2 percent) of its total revenue via ancillary revenue, followed by UK-based carrier Jet2 (27.1 percent), Allegiant (27 percent), easyJet (20.8 percent) and Ryanair (20.5 percent).
Clearly, and however they’re calculated, ancillary revenues have become the lifeblood of the industry, providing billions of dollars in revenue at a time when high oil prices and economic jitters continue to take a toll on the business.
According to the International Air Transport Association, the global industry posted an estimated net profit of $7.9 billion last year on revenues of $597 billion, a post-tax margin of 1.3 percent. This year, the organization expects net profits to drop to $3 billion or just 0.5 percent of revenues.
Given those pressures and the difficulty of raising fares in tough times, it’s unlikely that the airlines will forgo their ancillary revenues anytime soon. The rate at which those revenues increase may slow — many airlines have already snagged the low-hanging fruit of bag fees, change fees, food and beverage, etc. — but that will simply push some to get more, shall we say, creative.
Related: United hikes airfares up to $10
Pre-ordering upgraded meals before your flight? KLM is now charging 12 to 15 euros on select flights. Permanent RFID-equipped bag tags that let passengers bypass the lines at the ticket counter? Qantas sells its Q Bag Tag for AUD$50. And Vueling, the Spanish low-cost carrier, will hold the middle seat empty, board you early and provide a drink and a snack for 60 euros, or around $73. No doubt, others are in the works.
“We’ve seen the industry move swiftly to grasp some clear opportunities for providing ancillary services, such as baggage fees, extra legroom and on-board catering,” said Holger Taubmann, senior vice president of distribution at Amadeus. “The next wave of innovation in ancillary services will come from those airlines which develop new products that support their brand positioning and deliver value to the traveler by meeting their individual needs and preferences.”
Don’t say you weren’t warned.
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