Ancillary Revenue reported by airlines grew to €15.11 billion in 2010 and has almost doubled since 2008
Strong revenue from baggage fees and co-branded credit cards placed US carriers in the first, second, and third slots, as revealed in the annual Amadeus Review of Ancillary Revenue Results, launched on Sunday.
IdeaWorks, the foremost consultancy in the area of airline ancillary revenues, with support from Amadeus, a leading travel technology partner for the global travel and tourism industry, has researched the financial filings made by 104 airlines all over the world to identify examples of ancillary revenue1. In 2007, only 23 airlines worldwide disclosed ancillary revenue activity -a modest result of €1.72 billion ($2.45 billion). The world has changed dramatically in four years with 47 carriers disclosing 2010 ancillary revenue activity of €15.11 billion ($21.46 billion). This represents ancillary revenue growth of 38% over 2009 and 96% since 2008. The amount listed by 47 carriers comes close to the €18.4 billion projected by IdeaWorks in autumn 2010 as the ancillary revenue associated with a global list of 150 carriers.
Two trends are obvious from the review of the financial disclosures made by airlines for the 2010 Amadeus Review of Ancillary Revenue Results. First, airlines already engaged in ancillary revenue activities are bringing more products to market. This occurs through the introduction of new à la carte features and the inclusion of distribution methods beyond the carrier’s website. Second, many of these airlines are becoming savvy retailers. Branding has been emphasised, pricing is more sophisticated, and an increasing number of features are presented during the booking process.
“Ancillary revenue has become an enduring part of airline income statements, as revealed by this study”, says Ian Wheeler, Amadeus VP Marketing and Distribution. True financial success for airlines is boosted when these services are available through online, travel agency, and corporate travel distribution channels. That’s why we are seeing growing momentum behind Amadeus Ancillary Services solution, which helps carriers sell à la carte ancillary services on their website, call centre and via travel agencies. Sixteen airlines have signed up for the solution and we are continuing to evolve the product functionality”.
Research carried out by IdeaWorks shows that ancillary revenue has definitely grown beyond its low cost airline beginnings. The oil price peak of 2008 caused huge losses and prompted US airlines to start charging travellers for checked baggage. Ultimately, the ripple effect of these fees has eased the path for more airlines to consider à la carte additions and catalysed a stunning increase of 778% since 2007.
The list of top players in 2007 was dominated by carriers such as Ryanair, easyJet, and Aer Lingus. Since then, large carriers have learned how to generate large ancillary revenue numbers. Continental disclosed its ancillary revenue results for the first time when it merged with United. The combination has created an ancillary revenue giant with annual results in excess of €3.5 billion, or nearly $5 billion, based on current exchange rates.
Sixteen airlines have signed up for Amadeus Airline Ancillary Services, of which nine will implement the solution both for the online and the travel agency channels. Amadeus aims to enable travel agencies in 15 countries to sell ancillary services on behalf of airlines by the end of 2011.
”At Amadeus, we are committed to helping airlines adapt and evolve their ancillary services strategy so that they can move their focus from pure revenue to delivering profitability”, said Julia Sattel, Amadeus VP Airline IT.
“Whilst the sale of ancillary services may have become standard, the processes are not, and non-standard processes can be costly. Our goal is therefore to deliver end-to-end, fully integrated and automated solutions across all airline operations and processes; as the benefits are clear”.
Amadeus has developed a unique interactive catalogue which clearly displays the range of additional airline services available allowing travel agencies to view, book and up-sell ancillary services quickly and efficiently. The catalogue has been launched in cryptic so that travel agents who prefer to use the long-standing GDS interface can also sell ancillary services on behalf of airlines.
Airlines can drive loyalty with their top customers and maximise the value in their loyalty programmes by pricing à la carte services according to Frequent Flyer status. Airlines using the Altéa Customer Management Solution (CMS) can now automatically cancel services which are not ticketed within a time limit and make them available for other passengers to book. This helps airlines maximise their revenue.