ANCILLARY REVENUE

Generating game
The eighth IdeaWorksCompany annual ancillary revenue report provides some food
for thought for Asia-Pacific carriers, writes Colin Baker
he global airline industry continues to
successfully grow ancillary revenue - but
Asia-Pacific legacy carriers have some
catching up to do!
That was the m essage from the eighth
IdeaWorksCompany report into the segment, which
reveals that in 2014, 63 global airlines covered in the
report generated US$38.1 billion of ancillary revenue
- up nearly 21% on 2013.
Highlights of the report include:
Ancillary revenue per passenger among the 63
airlines is US$1 7.49, which is 8.5% more than
the 2013 result.
Activity among low cost carriers (LCCs) jumped
more than US$2.9 billion, or 32.8%.

A n cilla ry revenue among US major airlines

increased more than US$2.6 billion, or 18.7%.
However, the top 10 tables are largely made up
of US and European carriers. Asia has a very well
developed LCC sector which aggressively pursues a
la carte revenue. However, this same level of interest
is not copied by the region's long haul network
airlines. Its almost as if they are afraid to touch the
topic of ancillary revenue out of a misguided belief
it's inconsistent with their service style," says Jay
Sorensen, president of IdeaWorksCompany.

Financial disclosure, with the exception

of Australia, is also skimpier in the region
. . . much less is revealed in annual
reports and investor materials are less
robust. Ancillary revenue is a certain thing
for all airlines, and yes, even Cathay,
Thai, JAL and Singapore will eventually
embrace it. They are after all, smartly
managed airlines, and the adoption of
ancillary revenue is a smart move.
JAY SORENSEN
president, IdeaWorksCompany
Sorensen adds: Financial disclosure, with the
exception of Australia, is also skimpier in the region
... much less is revealed in annual reports and
investor materials are less robust. Ancillary revenue
is a certain thing for all airlines, and yes, even Cathay,
Thai, JAL and Singapore will eventually embrace it.

They are after all, smartly managed airlines, and the

adoption of ancillary revenue is a smart move."
Sorensen picks out AirAsia, AirAsia X and
Tigerair as regional leaders in the experimentation,
development and promotion of a la carte services.
However, all three are weak in the area of loyalty
marketing ... yes even AirAsia w ith its BIG
programme.
It's a similar story in China, where LCCs are
leading the way - but the whole country is lagging on
a global basis. Spring Airlines performs great among
Chinese carriers, and poorly against a global set of
LCCs. But that's OK, because they are introducing
a new service concept in a market that does not
endorse commercial revolutions, says Sorensen.
They are wise to take a go slow approach as
consumers learn about the savings provided by a la
carte methods. It also allows other carriers to catch
up so Spring is not the only carrier in the market with
this approach."
In terms of total revenue, the top 10 is dominated
by US carriers, with the top three being United
Airlines (US$5,861 million), followed by American
Airlines/US Airways and Delta Airlines. Qantas is the
only Asia-Pacific carrier in the top 10, with US$1,387
million of ancillary revenue, thanks in no small part to
its frequent flyer programme. A big portion of the
ancillary revenue total is generated by the sale of
miles or points to banks that issue co-branded credit
cards," says the report, giving Qantas as an example.
In terms of ancillary revenue as percentage of total
revenue, Spirit Airlines in the US again leads the way
with 38.7%, but there are three Asia-Pacific carriers
in the top 10 - Tigerair, Jetstar and AirAsia X - all
just above the 20%-mark.
In terms of ancillary revenue per passenger,
UK leisure carrier Jet2.com comes out top with
US$55.61. There are three Asia-Pacific carriers in
the top 10 - Qantas, AirAsia X and Korean Air. I
think onboard retail is a major component of Korean
Air's healthy ancillary revenue numbers . . . along with
the inclusion of other retail activities accomplished
online and through their frequent flier programme,
says Sorensen.
While LCCs may have led the way in the global
ancillary revolution, mainline carriers are catching us
fast, says the report. Alaska, Korean Air, Qantas,
United, and Virgin Atlantic have advantages over
LCCs because these carriers have long relied upon
global distribution systems (GDS). Switching on the
sale of a la carte items through a G DS has been
problematic due to technical and contract issues,

TOP 10 AIRLINES-2 0 1 4
TOTAL ANCILLARY REVENUE
CARRIER

ANCILLARY REVENUE (US$ MILL,)

United Airlines

5,861

American/US Airways

4,651

Delta Airlines

3,213

Ai France/KLM

2,046

Ryanair

1,907

Southwest

1,885

Lufthansa Group

1,633

easyJet

1,457

Qantas Airways

1,387

10

Alaska Air Group

921

ANCILLARY REVENUE AS A 0 OF TOTAL REVENUE

AIRLINE

% OF REVENUE

Spirit

38.7

W izz Air

33.7

Allegiant

32.4

Jet2.com

28.5

Ryanair

24.6

Tigerair

21.8

Jetstar

20.8

Flybe

20.7

AirAsia X

20.0

10

Volaris

19.5

ANCILLARY REVENUE PER PASSENGER

AIRLINE

REV. PER PAX (US$)

Jet2.com

55.61

Spirit

51.22

Qantas Airways

45.67

Allegiant

44.87

AirAsia X

44.43

United Airlines

40.97

Virgin Atlantic

38.93

Korean Air

34.41

W izz Air

33.92

10

Alaska Air Group

32.61

Note: Air France/KLM and easyJet total ancillary revenue figures

and W izz Air revenue per pax figures are IdeaWorksCompany
estimates based upon past disclosures updated for current
report. Source: IdeaWorksCompany

but progress is rapidly occurring.

The report, sponsored by CarTrawler, is due to be
released in September.

AsianAviation | September 2015 33

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