Airlines worldwide are expected to generate US$58 billion in ancillaries this year. This figure represents just 12 percent of total airline revenues, suggesting “we are just at the start of the movement to monetise services and products passengers used to receive as part of the ticket price”, says the Centre for Asia Pacific Aviation (CAPA).

Published: 25 Jan 2010

Airlines worldwide are expected to generate US$58 billion in ancillaries this year. This figure represents just 12 percent of total airline revenues, suggesting “we are just at the start of the movement to monetise services and products passengers used to receive as part of the ticket price”, says the Centre for Asia Pacific Aviation (CAPA).

CAPA highlighted that air fares around the world, particularly in the US, have fallen sharply since the onset of the recession, making baggage fees (and other ancillary revenue items) an increasing lifeline for the airline sector. US airlines alone are expected to cross the US$4 billion-barrier in 2010 in terms of baggage revenue generation. But such charges, particularly in the US as network carriers adopt these strategies, have quickly become a flashpoint for airline differentiation and a catalyst for marketing innovation.

Baggage fees are one of the fast growing items in a portfolio developed largely by LCCs that also includes seat allocation, inflight services and products, related travel products (including insurance, car hire and accommodation), inflight advertising, airport lounges access and increasingly diverse opportunities including concert tickets, mobile phone credits and more.

Leaders

Several LCCs outside the US are, unlike Southwest and JetBlue, charging for checked baggage, with the fees accounting for significant proportions of their profits.

Ancillary revenues already account for greater than 15 percent of total revenue at leading LCCs, including Allegiant, Ryanair and easyJet. Allegiant was the largest ancillary revenue generator (as a percentage of total revenue) in 2008, followed by Ryanair, easyJet, Jet2.com and Vueling, according to CAPA research.

CAPA study to review Asia Pacific prospects

CAPA, in partnership with Travelport, has launched a study of Asia Pacific airline preparedness for, and participation in, the ancillary revenue revolution. Generally, take-up rates in the region have been slow, but some of the region’s leading full service airlines are joining their LCC counterparts in the region in developing this opportunity.

The extent to which this is occurring in the Asia Pacific region will be quantified for the first time in the CAPA-Travelport study. Airlines across the region will be surveyed this month regarding their strategies and targets for ancillary revenues, which will form the basis of a report later to be published later in the year.