European airlines lead ancillary revenues, earning US$22.5 billion

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IdeaWorksCompany, an airline ancillary revenues consultancy, and CarTrawler, a technology platform providing transport solutions for online businesses, have released a report estimating that airline a la carte revenue worldwide reached US$65 billion worldwide for 2018. A big number, but it gets even more interesting when the regional details are added…

IdeaWorksCompany, through the sponsorship of CarTrawler, has analyzed the ancillary revenue disclosures for airlines all over the world. These results are applied to a larger list of carriers (which numbered 175 for 2018) to estimate ancillary revenue activity for the world’s airlines. A la carte activity is a significant component of ancillary revenue and consists of the amenities consumers can add to their air travel experience. These include fees paid for checked baggage, assigned seats, buy-on-board meals, early boarding, and onboard entertainment.

CarTrawler Global Statistics of a la Carte Revenue – Estimates
Airlines based in: 2018 2014 2018 over 2014

Increase

Europe $22.5 billion $11 billion +105%
Asia/Pacific $18.8 billion $6.5 billion +190%
North America $16.5 billion $8.2 billion +100%
Africa/Middle East $4.2 billion $1.4 billion +194%
Latin America/Caribbean $2.8 billion $1.4 billion +107%
Global Totals $64.8 billion $28.5 billion +128%
Source: A la carte revenue statistics derived by IdeaWorksCompany from 2017 and 2013 airline revenue results

 

Aileen McCormack, CarTrawler’s chief commercial officer, said:  “A la carte revenue, or the optional extras consumers can add to their airline shopping carts, has demonstrated outstanding growth globally. The overall revenue number has more than doubled in a short five-year period. It’s no surprise the amount has grown in Europe and North America. The largest increases have occurred in Asia, Africa, and the Middle East. The passenger growth on airlines in these regions is responsible for a good portion of the results. But clearly, something else is happening here, with traditional airlines engaging in more a la carte activities, and the increased presence of low cost carriers. Ancillary revenue is indeed changing the airline business all over the world.”

The 2018 Global Regions Snapshot table further demonstrates how a la carte activity varies by region. The prevalence of low-cost carriers (LCCs) in a region actually drives the level of ancillary revenue; a higher concentration of LCCs boosts ancillary revenue and a la carte results.

Europe leads the world for a la carte activity and LCCs generate nearly 25% of operating revenue for airlines based in Europe and Russia. The region is home to some of the largest ancillary revenue champs in the world: easyJet, Eurowings, Norwegian and Ryanair. Recent moves by Europe’s global network carriers, such as Air France/KLM, British Airways, and the Lufthansa Group to implement basic economy fares on transatlantic routes, supports the highest level for a la carte activity in the world.

North America has lower LCC penetration (at 10.5%), but this would jump to nearly 22% if Southwest were tallied as an LCC. But the carrier’s ‘bags fly free’ policy deters significant a la carte results. The latest development for the big three global network airlines (American, Delta and United) is to encourage upgrades to standard economy fares by restricting or charging for access to seat assignments.  This upgrade activity, along with assigned seating fees, is lifting ancillary revenue for these airlines.

 

2018 Global Regions Snapshot – Estimates
Airlines based in: Low Cost Carriers

Revenue Share (Among all airlines)

A la Carte as % of

Operating Revenue

(Among all airlines)

Top 3 for

A la Carte Revenue

(Alphabetical order)

Europe/Russia 24.7% 9.7% easyJet, Lufthansa Group, Ryanair
North America 10.5% 7.1% American, Delta, United
Latin America/

Caribbean

19.7% 7.3% GOL, LATAM, Volaris
Asia/Pacific 13.7% 6.6% AirAsia, China Southern, Jetstar
Africa/Middle East 4.4% 4.9% Emirates, Etihad, Qatar
Estimates based upon ancillary revenue statistics derived by IdeaWorksCompany from 2017 airline revenue results.  * Southwest not tabulated as a low-cost carrier for this snapshot calculation; the result would be 21.9% if counted as an LCC. Source:  Research and calculations by IdeaWorksCompany

 

Within Latin America, baggage fees are now permitted on domestic flights within Brazil, and these have been implemented by the country’s major carriers: Azul, GOL and LATAM. LCCs and a la carte methods are becoming more prevalent. The following LCCs began operations in the region within the last two years:  Flybondi (Argentina), JetSmart (Chile), Norwegian Air Argentina and Viva Air Peru.

The Asia/Pacific region has a significant number of LCCs surpassing $1 billion in revenue: AirAsia, AirAsia X, Cebu Pacific, Indigo, Jetstar, Scoot, SpiceJet, Spring Airlines and Vietjet. More LCC activity is now occurring in China with the development of 9 Air, Beijing Capital Airlines, China United Airlines, Lucky Air and West Air. With all of this activity, it is surprising that global network carriers have been slow to adopt ancillary revenue methods.

Africa and Middle East carriers have traditionally been fee-adverse and LCC activity in the region has trailed the rest of the world by a large margin. However, this is slowly changing with the big three carriers of the Gulf (Emirates, Etihad, and Qatar) all introducing assigned seating fees for the lowest-priced fares.  These airlines still include a checked bag in these fares.

Newton’s third law of motion states, “For every action, there is an equal and opposite reaction.” The “action” in the case of ancillary revenue worldwide is the relentless spread of LCCs. Norwegian, Eurowings,and WOW Air have truly upset the established pricing regime across the North Atlantic. Within Europe, the likes of easyJet, Ryanair, Volotea, Vueling and Wizz continue to activate European consumers with a la carte savings. The “opposing reaction” has been the surprisingly quick embrace of all-things-ancillary by the biggest and oldest names in commercial aviation. Like the fall of a row of dominoes, Air France/KLM, American, British Airways, Delta, Lufthansa and United have rolled out their own versions of basic economy fares.

These fares are designed to mimic their low-cost cousins by essentially offering a seat on a flight. The addition of a checked bag, seat assignment and priority boarding cost extra and therefore contribute to a la carte revenue. At present the action and reaction are largely limited to flights within Europe and the US, and on transatlantic routes. Asia, Africa and the Middle East have yet to be affected by the spread of basic economy. This reference suggests similarity to a virus, but ancillary revenue is actually an effective treatment. The global economy seems eager to deliver unstable fuel prices, which might plummet or unexpectedly rise. The future also suggests tough economic times due to political uncertainty or mounting trade wars.

Ancillary revenue, which includes the boost provided by the sale of a la carte extras, operates like a hedge against all this risk. It removes the fluctuations of airfares from a portion of a carrier’s revenue stream. It adds rewards for airlines when they exercise merchandising vigor. Best of all, it provides consumers the ability to choose the total trip price that’s best for them. Ancillary is an inoculation against the virus of financial failure, which seems ever present in the airline business.

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