Monday 26 August 2019

Here's how airlines will collect €69 billion in extra charges this year

'Ancillary revenue champs'

Stock photo: Deposit Photos
Stock photo: Deposit Photos
An air hostess at work. Photo: Deposit
Airplane interior. Stock photo: Deposit

Oliver Smith

The amount of money airlines collect from optional extras, such as bag charges, seat selection and credit card fees, has grown by 264pc in seven years.

A new report on “ancillary” revenue, which includes all income beyond the standard airfare, has estimated that carriers will rake in $82.2bn (€69bn) in extras for 2017, up from $67.4bn (€56.7bn) last year, and $22.6bn (€19bn) in 2010.

It all adds up to $20 (€16.80) per passenger.

Ancillary sources now account for 10.6pc of all revenue – up from 4.8pc seven years ago. But for some airlines the figure is far higher.

IdeaWorksCompany, the firm behind the report, pinpoints several “Ancillary Revenue Champs”, such as Ryanair, Wizz, Frontier and Spirit. As a percentage of total revenue at these carriers, ancillary sources accounts for between a fifth and half.

But the biggest growth in ancillary revenue this year was among traditional airlines, with the likes of British Airways increasingly attempting to compete with their low-cost rivals by charging for food and drink, for example, or for seats with extra legroom.

An air hostess at work. Photo: Deposit
An air hostess at work. Photo: Deposit

Aer Lingus recently announced new, unbundled transatlantic fares that saw its lead-in prices to North America drop to €169 each-way.

The basic 'Saver' fares include one piece of 10kg cabin baggage, in-flight entertainment and on-board meals, but guests can choose to add 23kg checked baggage (from €37 to €50), seat selection (from €20), blankets (€5) and headphones (€3).

“With few exceptions, airlines all over the world are moving to a la carte methods to provide more choices for consumers while boosting ancillary revenue,” says the report.

“For example, throughout North America, Europe, and Australasia, basic economy fares are now prevalent for short- and medium-haul travel.”

British Airways' new food range
British Airways' new food range

It estimates that baggage fees account for 27pc of total ancillary revenue, and on-board sales of food, drink and duty-free goods for 21pc. Revenue from hotel partnerships and car hire, as well as frequent fliers programmes, also contribute.

A breakdown for individual airlines will not be available until next year, but IdeaWorksCompany’s annual Yearbook of Ancillary Revenue, published in the summer, offered more detail for 2016. Ryanair took home $1.98bn (€1.66bn) in extras last year, the sixth highest figure of any airline. United topped the table with $6.22bn (€5.23bn).

Top 10 | Airlines that earn the most ancillary revenue*

  1. United - $6.22bn (€5.23bn)
  2. Delta - $5.17bn (€3.33bn)
  3. American - $4.9bn (€4.12bn)
  4. Southwest - $2.83bn (€2.38bn)
  5. Air France/KLM - $2.1bn (€1.77bn)
  6. Ryanair - $1.98bn (€1.67bn)
  7. EasyJet - $1.36bn (€1.14bn)
  8. Lufthansa - $1.35bn (€1.14bn)
  9. Qantas - $1.19bn (€1bn)
  10. Air Canada - $1.18bn (£993m)

*Figures are for 2016

Spirit Airlines was found to be more reliant on extras than any other, with 46.4pc of of its revenue in 2016 coming from ancillary sources (compared to 26.8pc for Ryanair).

The Florida-based airline is one of just a handful of carriers to charge for carry-on luggage, with fees rising from $37 (€31) if paid at the time of booking to $65 (€55) if paid at the airport gate, while its checked baggage fees range from $30 (€25) to $60 (€50).

It all amounts to ancillary revenue of $49.89 (€42) per passenger – more than any other airline.

The Yearbook also provided a more detailed breakdown for a handful of airlines. EasyJet, for example, relies on baggage fees for 47pc of its ancillary revenue, while seat selection accounts for seven per cent.

NB: Exchange rates correct on date of publication.

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