Top airlines source extra revenues of €25bn

Geoff Percival

The world’s 10 leading airlines pulled in a combined $29.7bn (€25.4bn) from ancillary revenues last year, further underlining the importance of non-air fare income streams for the aviation industry.

Such revenues are generated from everything sold by an airline outside of the basic flight ticket and include any number of items from baggage fees and onboard food and beverages to priority seating and boarding, car hire and hotel bookings.

The 2017 total is up by 6% on the $28bn in revenues generated from ancillaries, by the top 10 carriers, in 2016. Ten years ago such revenues for the world’s leading airlines stood at a combined $2.1bn.

“Ancillary revenue keeps on growing and has become a mandatory component for the revenue mix of all airlines,” said Michael Cunningham, senior vice-president of distribution at car hire software firm CarTrawler, which compiles the annual survey along with aviation research group IdeaWorks.

Investors were first delighted by it, and now have come to expect it. That expectation also occurs with consumers, who appreciate the flexibility and array of services delivered by airlines. The best producing airlines have become expert retailers of travel-related services, which includes the ability to book hotels, attractions and, of course, ground transport

IdeaWorks’ Jay Sorensen, who wrote the report, said: “Passenger fares may dip and climb, but ancillary revenue has grown steadily in its contribution to the industry’s bottom line.”

As with previous years, US giants United, Delta and American dominate the list and account for around $17bn of the revenues. However, leading airline United’s total fell 7.5% last year to $5.75bn. It is the only one of the top three whose add-on revenues came mainly from a la carte items, such as baggage charges, rather than its frequent flyer programme.

Ryanair — which makes all of its non-fare revenues from so-called a la carte items — jumped one place in last year’s standings, to fifth. One of only four European carriers to make the list — the others being Air France-KLM, Lufthansa, and EasyJet — Ryanair’s ancillary revenues jumped from $1.98bn to $2.3bn.

For the 12 months to the end of last March Ryanair posted an 8% rise in revenues to €7.15bn and after-tax profits of €1.45bn, which were up 10% on the previous year. In those results, it said ancillaries now deliver 28% of overall revenue and that it is “on track” to achieve its five-year goal of a 30% share.

Ryanair will publish earnings for the first quarter of its current financial year, covering the three months to the end of June, next Monday.

“We expect first quarter ancillary revenue to be up €104m year-on-year — or by 23% on an unadjusted basis. However, Ryanair’s fuel bill is expected to be up €93m to €606m given jet fuel prices and a year-on-year increase in carbon trading costs of €17m,” said Mark Simpson of Goodbody Stockbrokers.

Mr Sorensen said: “Ryanair and EasyJet have yet to begin the journey of offering loyalty benefits to consumers. However, their continuing focus on business travel strongly suggests this will, someday, occur.”

Ancillaries make up nearly 47% of US ultra-low cost carrier Spirit Airlines’ total revenues, comfortably more than any other so-called budget carriers, the report shows.

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