IdeaWorksCompany, the foremost consultant on ancillary revenue, and CarTrawler, the leading provider of online car rental distribution systems, project airline ancillary revenue will reach €99.2 billion worldwide in 2019, compared to €84.3 billion in 2018. The CarTrawler Worldwide Estimate of Ancillary Revenue represents an almost fivefold increase from the 2010 figure of €20.5 billion, which was the first annual ancillary revenue estimate.
Earlier this year, CarTrawler and IdeaWorksCompany reported the ancillary revenue disclosed by 76 airlines for 2018. These statistics were applied to a larger list of 160 airlines to provide a truly global projection of ancillary revenue activity by the world’s airlines for 2019. This marks the tenth year IdeaWorksCompany has prepared a projection of ancillary revenue activity.
Ancillary revenue is generated by activities and services that yield cashflow for airlines beyond the simple transportation of customers from A to B. This wide range of activities includes commissions gained from hotel bookings, the sale of frequent flyer miles to partners, and the provision of a la carte services − providing more options for consumers and more profit for airlines.
“Global ancillary revenue is projected to pass the $100 billion mark in 2019, marking an almost five-fold increase in the segment’s value since 2010,” says Aileen McCormack, Chief Commercial Officer at CarTrawler. “This statistic alone underlines the significance of airlines providing a sophisticated array of ancillary products along with a superior customer experience. To put it simply, the airline industry has been transformed and carriers must now adopt a wide-ranging ancillary suite if they are to cater for individual passengers’ needs and thrive in today’s marketplace. Airlines must realise that the customer experience does not end with the flight, and the very best operators in the market are distinguishing themselves from the competition by using intelligent data insights to own the last mile.”
Analysis performed by IdeaWorksCompany during the past nine years reveals natural airline groupings 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 compilation of operating revenue disclosed by 160 airlines. The following describes the four categories:
|CarTrawler Worldwide Estimate of Ancillary Revenue – by Carrier Type for 2019|
|Airline Category||Total Ancillary Revenue||Frequent Flyer & Commission Based||A la Carte Activity|
|US Major Airlines||€26.4 billion||€17.9 billion||€8.4 billion|
|Ancillary Revenue Champs||€21.0 billion||€1.0 billion||€19.9 billion|
|Low Cost Carriers||€11.9 billion||€0.54 billion||€11.4 billion|
|Traditional Airlines||€39.9 billion||€11.1 billion||€28.7 billion|
|Global Totals||€99.2 billion||€30.5 billion||€68.4 billion|
|Source: 2018 ancillary revenue statistics extrapolated by IdeaWorksCompany to 2019 IATA global airline revenue prediction.|
IATA predicts almost 4.6 billion passengers will spend €816.2 billion worldwide on air transport for 2019. Applying the global ancillary revenue estimate to IATA’s statistic yields a result of €21.70 per passenger. Back in 2010, the per-passenger average was a far smaller €7.64. Ancillary revenue now represents 12.2% of global airline revenue, which greatly exceeds the 5.0% operating profit margin (EBIT earnings before interest and tax) predicted by IATA for 2019.
Ancillary revenue also equals more than half of the industry’s annual fuel bill. IATA estimates the airline industry will spend €187 billion on fuel during 2019, which has jumped substantially from the 2017 level of €135.2 billion. The sum of the industry’s global ancillary revenue provides an abundant hedge against fuel prices. Ancillary revenue also has proven to be a stable revenue source, even as passenger yields (revenue per mile) have been dropping since 2012. Competitive pressure from new airlines, capacity additions by existing carriers, and economic troubles have not affected the continued upward trajectory of ancillary revenue’s growing contribution to airline income statements.
There are risks. The results produced by any product or service can be punished by the marketplace through reduced demand, lower prices, and a drop in revenue. Traditional airlines can overreach by aggressively charging fees for services that don’t align with consumer expectations. This occurs when airlines quickly implement fees before modifying how their brand is presented. For instance, neglecting how to accommodate children when seat assignments are not purchased by parents. Low cost carriers also face risks when venturing into new areas. For example, many try to attract business travelers with premium services, such as more leg room, early boarding, and onboard treats. These higher yield customers might be tempted to fly once or twice, but if the LCC fails to deliver as promised, they will quickly return to the comfort of flying a traditional airline.
The big results projected in this worldwide estimate prove ancillary revenue is a necessary and powerful component of the global airline industry. However, when consumers feel they don’t have a choice, and airlines become careless about implementation and indifferent to offering good value, this mighty revenue stream could become as unpredictable as the price of jet fuel or a politician’s desire to regulate.