Airline Ancillary Revenue Projected to Reach $36.1 Billion in 2012
By James Shillinglaw
October 30, 2012 6:46 PM
Amadeus and IdeaWorksCompany unveiled their Amadeus Worldwide Estimate of Ancillary Revenue, which projects that airline ancillary revenue for 176 airlines will reach $36.1 billion worldwide in 2012, an 11.3 percent increase from 2011. North America continues to lead all other regions with ancillary revenue forecasted to reach $15.614 billion in 2012, followed by Europe at $10.077 billion, Asia/Pacific at $7.606 billion and Africa/Middle East at $1.733 billion.
Earlier this year Amadeus and IdeaWorksCompany reported the ancillary revenue disclosed by 50 airlines for 2011. These new statistics were applied to a larger list of 176 airlines to provide a global projection of ancillary revenue activity by the world’s airlines in 2012. The Amadeus Worldwide Estimate of Ancillary Revenue marks the third year Amadeus and IdeaWorksCompany have offered a projection of global ancillary revenue activity.
Ancillary revenue is generated by additional activities that yield revenue for airlines beyond the core movement of customers from A to B. This wide range of activities includes: commissions gained for hotel bookings, the sale of frequent-flyer miles to partners, and the provision of a` la carte services, which provide increased consumer choice.
“It’s encouraging to see ancillary revenue growing at over 11 percent this year which demonstrates the significant commercial potential for airlines,” said Holger Taubmann, senior vice president, distribution for Amadeus. “However, to capitalize on this, it is imperative that airlines adopt a multichannel approach, accessing the opportunity presented by in-direct travel agency sales of ancillary services. At Amadeus, helping airlines to benefit from the ancillary opportunity remains a top priority and we are now working with the 53 airlines which have chosen Amadeus Airline Ancillary Services to drive their ancillary revenue strategy.”
Taubmann said that in order to power the sale of ancillary services, it is paramount that airlines adopt the Electronic Miscellaneous Document (EMD), which provides industry standardization. Amadeus said it has been at the forefront of driving industry adoption of EMD, being the first GDS to issue an EMD through the travel agency channel. “We are committed to supporting our customers by deploying standards-based solutions that properly allow them to maximize the opportunity presented by ancillary services,” said Jula Sattel, senior vice president, airline IT for Amadeus. “In the first half of 2012, Amadeus issued 4.88 million EMDs. This is testament to the importance of ancillary services in driving revenues and supporting growth.”
The IdeaWorksCompany analysis performed earlier this year revealed natural groupings (or categories) based upon a carrier’s ability to generate ancillary revenue. The “percentage of revenue” results associated with four defined categories have been applied to a worldwide list of operating revenue disclosed by 176 airlines. The following describes the four categories:
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 percentage of revenue remained at 2.9 percent. Examples include Air Canada, Air New Zealand, Copa, Etihad, Finnair, and South African Airways.
Major U.S. Airlines: U.S.-based majors generate strong ancillary revenue through a combination of frequent-flyer revenue and baggage fees. The percentage of revenue for this group was 10.1 percent, which is a drop from the 2011 rate of 11.9 percent. Examples include Alaska, American and United.
Ancillary Revenue Champs: These carriers generate the highest activity as a percentage of operating revenue. The percentage of revenue achieved by this group was 19.7 percent, which is down slightly from 19.8 percent for 2011. Examples include AirAsia, Allegiant Air, easyJet and Spirit Airlines.
Low Cost Carriers: LCCs throughout the world typically rely upon a mix of a` la carte fees to generate good levels of ancillary revenue. The percentage of revenue for this group was 7.2 percent and is above last year’s 6.5 percent. Examples include Jazeera Airways, JetBlue, Norwegian, Pegasus, Southwest, and GOL.
The majority of the 11.3 percent increase can be attributed to increased passenger revenue posted by airlines all over the globe,” said Jay Sorensen, president of IdeaWorksCompany. “Low cost carriers will also contribute to the increase as they boost their ancillary revenue to higher levels through more products and better marketing. The next surge of activity will occur when the sale of optional extras becomes more prevalent in the automated booking systems used by travel agents. Look for airlines to become better retailers through all distribution channels during the next three years.”
Despite the International Air Transport Association (IATA) revising its projection of airline profitability up by $1.1 billion for 2012 to an expected total of $4.1 billion, the operating environment remains challenging. The current situation has made ancillary revenue more attractive, and needed, for airlines all over the world. If airlines were to forego the revenue contribution from the provision of ancillary services it would mean a loss for a great number. Ancillary revenue provides good amounts of cash to buy new aircraft interiors, invest in new equipment, and provide funds for expansion.