Buying an airline ticket now has a lot in common with a trip to the grocery store or the purchase of a new car.
After going up and down the aisles, “Shoppers don’t know the total cost of all the things they put in their grocery carts till they check out,” said Jay Sorensen, president of research firm IdeaWorks, “And most people don’t just buy the base model of a car. They start with the base model and then start adding on features. That’s how air travel is now priced.”
And like that quart of ice-cream that wasn’t on your shopping list and those heated seats the salesperson sweet-talked you into, when it comes to airfares, the modern day extras can really add up.
In 2007 the top ten airlines (ranked by total ancillary revenue), was $2.1 billion, according to an IdeaWorks report, but in 2016, the top ten ancillary revenue-earning airlines alone took in more than $28 billion from “beyond tickets” sales of everything from baggage fees and commissions on care rentals and vacation packages to frequent flyer points, advertising and products sold in fare ‘bundles.’
Which airlines earn the most from extras?
Spirit Airlines may be marketed as an “ultra” low cost carrier but, at an average of $49.89 per passenger, the Florida-based airline topped the list of earnings per passenger a la carte extras such as checked bags, assigned seat and extra legroom. In 2016, that represented 46.4 percent of the airline’s overall revenue, according to the report.
Allegiant, Frontier were also 2016 standouts, earning, respectively, an average of $48.93 and $48.60 in ancillary revenue per passenger, representing 42.4 percent of Frontier’s total 2016 revenue and 40 percent of Allegiant’s, according to the report.
When measuring total ancillary revenue, larger airlines United, Delta, American and Southwest topped the list, earning $6.2 billion, $5.1 billion, $4.9 billion and $2.8 billion respectively.
These larger airlines, notes Sorensen, earn their high rankings due mostly to the sale of miles or frequent flyer points to banks that issue co-branded cards. But Ryanair and EasyJet, also among the top ten earners (at $1.9 billion and $1.3 billion respectively) earned the bulk of their ancillary income through a la carte fees and commissions on products sold on their websites, such as car rentals and travel insurance.
“Some of the best in this category have extensive holiday package business with route structures built upon leisure destinations,” Sorensen notes in the report, “Allegiant in the US and Jet2.com in the UK share the common bond of emphasizing leisure travel. These are essentially holiday package companies that own an airline.”
For these airlines, everything for revolves around the ability sell hotels, car rentals and attraction tickets to people traveling to vacation-oriented destinations, Sorensen added.
Looking forward, “Airlines increasingly see themselves as retailers that upsell and cross-sell as their focus shifts from optimizing the revenue per seat to maximizing revenues per passenger,” said Raymond Kollau of trends research agency AirlineTrends “For example, Ryanair now regards itself as a digital platform with an airline attached. It eventually aims to give away the seat ticket for free and earn their income via all kinds of ancillary services.”
Here is list of Top Ten airlines for 2016, ranked by ancillary revenue per passenger. (Courtesy IdeaWorks)
- Spirit: $49.89
- Allegiant: $48.93
- Frontier: $48.60
- United: $43.46
- Jet2.com: $4246
- Qantas Airways: $42.38
- Virgin Atlantic: $42.45
- AirAsia X: $34.1
- Korean Air: $32.59
- Alaska Air Group: $31.41
And here are the Top Ten airlines for 2016, ranked by overall ancillary revenue. (Courtesy IdeaWorks)
- United: $6.2 billion
- Delta: $5.1 billion
- American: $4.9 billion
- Southwest: $2.8 billion
- Air France/KLM: $2.1 billion
- Ryanair: $1.9 billion
- EasyJet: $1.3 billion
- Lufthansa (network): $1.3 billion
- Qantas (excluding Jetstar): $1.1 billion
- Air Canada: $1.1 billion
(*IdeaWorks gathers financial information for these rankings from annual reports, investor presentations, financial press releases and other sources.)
(A slightly different of my story about ancillary income for airlines first appeared on CNBC)