INTERNATIONAL. Airline consumer service extras such as buy-on-board meals, onboard entertainment, checked baggage and priority seat fees generated US$75.6 billion worldwide in 2019. That’s according to airline ancillary revenues consultancy IdeaWorks and technology platform CarTrawler.
The CarTrawler Global Statistics of a la Carte Revenue provides details for all regions, with European airlines leading with ‘a la carte’ revenue of US$31.5 billion and Asian carriers second at US$21.1 billion. The revenue figure for such services leapt by +106% between 2015 and 2019, said IdeaWorks.
“The pace with which ancillary revenue has transformed the airline industry has been exciting to observe,” said Aileen McCormack, Chief Commercial Officer at CarTrawler.
“It is beyond doubt now that carriers which prioritise extensive choice architecture and a superior customer experience are significantly increasing their chances of reporting healthy profit margins. The adoption of a sophisticated ancillary revenue strategy must now be seen as a necessary step for all airlines that want to stay relevant as we enter a new decade. We can see from our report that airlines in Europe and the Asia Pacific regions in particular have embraced this technology with remarkable success, as they realise that owning the last mile is a key component of long-term value for the customer.”
A snapshot of the study outlines how ‘a la carte’ activity varies by region; a higher concentration of low-cost carriers (LCCs) boosts ancillary revenue, said IdeaWorks.
- Europe/Russia leads the world for ‘a la carte’ activity, led by LCCs such as Ryanair and easyJet. Traditional airlines are making moves to increase these services. Air France/KLM loyalty members for example now accrue miles for fees paid for premium meals, seat assignment, and baggage. SAS Scandinavian established a business unit to grow ancillary revenue and Lufthansa’s CEO said that ancillary revenue had reached 8% of passenger revenue.
- Canada/USA has lower LCC penetration (at 9.8%) which is reflected in the dominance of the big four airlines: American, Delta, Southwest and United. The ‘a la carte’ efforts of the global network carriers get a big boost by using basic economy fares (no checked bag, no advance seat assignment and last to board) as a tool to check the threat of domestic LCCs and to bolster a pricing advantage on international routes, said IdeaWorks.
- Within Latin America, Mexico’s LCCs are posting big ancillary revenue results, with Viva Aerobus as a top global performer. Three of the region’s airlines are among the top 15 worldwide for ancillary revenue as a percentage of total revenue: Azul, Viva Aerobus, and Volaris. Young LCCs, such as Amazonas, FlyBondi, JetSMART, Sky Airline, and Wingo have captured the interest of traditional airlines which are beginning to adopt the ‘a la carte’ methods of LCCs.
- The Asia/Pacific region is also moving towards the ‘a la carte’ model. Cathay Pacific, Qantas and Singapore now charge fees for advance seat assignments for consumers buying lower priced fares. Basic economy fares are now offered by these traditional airlines: China Eastern, Hong Kong Airlines, Malaysian Airlines (domestic routes), Philippine Airlines (domestic routes).
- Africa and Middle East has the lowest share of LCC activity among the regions of the world and as a result, has the lowest level of ‘a la carte’ activity. But this is changing with Air Arabia, flydubai, Flynas, and Kulula firmly established as low fare enterprises. The region’s leading operator, Emirates, along with Etihad, now charges fees for standard seat assignments for lower priced economy fares. Wizz Air is coming to the region through a joint venture in Abu Dhabi, and this will bring about an expansion of ‘a la carte’ activities by incumbent airlines, said IdeaWorks.
