Jump in global airline ancillary revenue this year

PETALING JAYA: Global airlines are projected to earn US$82.2bil (RM337.3bil) in ancillary revenue this year, a jump from US$67.4bil last year.

The amount is triple what airlines had made in 2010 at US$22.6bil.

Baggage fees will make up the biggest portion of the income at 27%, followed by a la carte services (25%), onboard services such as food, seating and duty free (21%), insurance, hotel and car hire (21%), and sale of frequent flier miles to banks (12%).

These projections were made in a study by consulting firm IdeaWorksCompany and online car rental distribution company CarTrawler involving 184 airlines.

“It is terrific to see such healthy growth in worldwide airline ancillary revenue,” said Aileen McCormack, CarTrawler’s chief commercial officer.

The International Air Transport Association (IATA) predicts nearly 4.1 billion passengers will spend US$776bil worldwide on air transport this year, and ancillary revenue account for 10.6% of that.

On fuel, IATA believes the airline industry will spend US$129bil this year, and “it is reasonable to suggest ancillary revenue will someday exceed the airline industry’s annual fuel bill. It is amazing to view bag fees as a meaningful hedge against the price of jet fuel”, the study said.

The study said low-cost carriers throughout the world typically rely upon a mix of a la carte activity to generate good levels of ancillary revenue. The percentage of revenue for this group remained unchanged for a second year at 11.8% for 2017. Low-cost carriers include Brussels Airlines, China United Airlines, Condor, Interjet and Jazeera Airways, the study said.

AirAsia Bhd is one of the highest earners of ancillary income in the region. Last year, AirAsia’s ancillary revenue reached RM1.26bil, accounting for 18.4% of total group turnover.

The biggest contributor was baggage fees (45%), followed by cargo (10%) and 19% from food and beverage, seat selection and travel insurance. The airline flew 56.6 million passengers and expects a 29% increase this year to 73 million.

For the second quarter this year, its per passenger ancillary revenue was RM47-RM49 totalling RM471mil for the period, and its group CEO Tan Sri Tony Fernandes hopes the figure will reach RM60 per passenger next year.

Recently, Fernandes said AirAsia will monetise data and boost ancillary revenue by becoming an “Amazon in the sky”.

The airline wants to roll out e-wallet services for its South-East Asian travellers and opt for an in-flight digital purchasing system to remove cash and merchandise trolleys and rebrand its online dutyfree store to include home delivery services.