Airlines rake in billion$ in ancillary income

Topping the top-10 list is United Airlines, with US$6.2bil earned in ancillary income in 2016, followed by Delta at US$5.1bil. About half of United Airlines

THE two American airlines embroiled in separate tussles over the way they handled passenger seating recently are also earning big bucks in ancillary income.

Topping the top-10 list is United Airlines, with US$6.2bil earned in ancillary income in 2016, followed by Delta at US$5.1bil. About half of United Airlines’ amount was from frequent flyer programmes, meaning it sold travel miles or points to banks that had co-branded credit cards.

Besides that, airlines earn ancillaries from selling food, drinks, more legroom, seat selection, insurance and baggage fees.

United Airlines faced its worst public relations nightmare some months ago when it dragged Dr David Dao from his seat to give it to its own staff. Over the last weekend, Delta got its share, giving away the seat of Ann Coulter, the American conservative social and political commentator, to a fellow passenger even though Coulter had pre-booked and paid in advance for extra legroom.

Globally, the top-10 carriers earned about US$28bil in ancillary income last year, which is a 13-fold increase from US$2.1bil in 2007. All this was revealed by IdeaWorksCompany, which analysed 138 airlines for the data.

They estimated worldwide airline ancillary revenue for 2016 at US$67.4bil, a 13.8% increase year-on-year.

The rest on the top-10 list are American Airlines (US$4.9bil), Southwest Airlines (US$2.8bil), Air France/KLM (US$2.1bil), Ryanair (Ireland) US$1.98bil, easyJet (Britain) US$1.36bil, Lufthansa Network US$1.35bil, Qantas (Jetstar contribution not included) US$1.19bil and Air Canada US$1.18bil.

Ancillary income is an important financial component for low-cost carriers (LCCs) globally, and although AirAsia is not on the top-10 list, ancillary income is an engine of growth and it wants to rev it up from RM50 per passenger now to RM60 next year. For the 2017 first quarter, AirAsia earned RM455mil in ancillary income, representing 20% of total income.

The survey showed that LCCs have seen a lift in ancillary income from 10%-33% five years ago. US-Spirit Airlines tops the list with 46.4% of its total revenue coming from ancillary, Frontier (42.4%), Allegiant (40%), Wizz Air (39.4%), Ryanair (26.8%) and Jetstar 22%.

By passenger, AirAsia X made it to a separate list, earning RM34.41 per passenger in ancillary last year, while Sprint’s income was US$49.89.

Since ancillary income is a growing business, even players like Emirates and British Airways are into the game. Emirates charges for seat selection, and British Airways for snacks for short-haul flights. Now, Etihad Airways wants to sell extra elbow room for adjacent seats.

Bidding for seat upgrades is gaining popularity across airlines, as they can earn more and fill the seats at the same time. Airlines are also warming up to the idea of opening their premium lounges, once the domain of the rich and famous, for a fee. All this is to drive up earnings so that they can keep ticket prices low, as they need to be as competitive as they can be.

Airlines will continue to look for new ways to charge passengers to increase income but they need the latest technology to empower them, as booking engines must be less cluttered and more user-friendly.

So, every time you book extra legroom or a meal on any airline, remember that you are helping the airline grow its ancillary revenue.

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