Aerospace & Defense

Airline Fee Revenues Skyrocket 1,200% Over 7 Years

United Airlines
Source: United Continental Holdings Inc.
If it weren’t for the various ancillary revenues that airlines have cobbled together over the past several years, the industry would likely be in much worse shape. In 2007, 23 airlines collected some $2.45 billion in fees, commissions and the sale of frequent flyer points. By 2013 that figure had ballooned to $31.5 billion for 59 airlines.

The data come from an analysis of financial filings by online car rental firm CarTrawler and research firm IdeaWorksCompany, which have been collecting the data since 2007. The report defines ancillary revenue as “a la carte, or unbundled, services, commission-based services — such as hotel or car rental bookings — and other ancillary services revenue from co-branded credit cards, loyalty programs and other activities.” A la carte services include the much-loved checked bag, early boarding and extra-leg-room seating fees.

For 2013, the average ancillary revenue for one of the 59 carriers reviewed totaled $16 per passenger, compared with a hoped-for net margin in the airlines industry of 2.4% or about $6 per passenger.

In the United States, the largest contributor to ancillary revenues is the sale of frequent flyer points, which accounts for 60% of average airlines ancillary revenues. Baggage fees account for 25%, other on-board a la carte fees account for 10% and travel retail revenues account for 5%.

The top 10 airlines for ancillary revenues collected more than $20 billion in 2013, 10 times more than the 2007 top 10 collected. Here is the 2013 top 10 list:

  1. United Continental Holdings Inc. (NYSE: UAL) — $5.7 billion
  2. Delta Air Lines Co. (NYSE: DAL) — $2.53 billion
  3. American Airlines (pre-merger) — $2.08 billion
  4. Air France/KLM — $1.71 billion
  5. Ryanair Holdings plc (NASDAQ: RYAAY) — $1.69 billion
  6. Southwest Airlines Co. (NYSE: LUV) — $1.62 billion
  7. easyJet — $1.39 billion
  8. Lufthansa Group — $1.28 billion
  9. Qantas Airways — $1.27 billion
  10. U.S. Airways (pre-merger) — $1.1 billion

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The combined total for American and U.S. Airways, now American Airlines Group Inc. (NASDAQ: AAL), of $3.63 billion would have placed the American Airlines in second place last year.

The airline that led in ancillary revenues in 2007 was United, with a total of $600 million. The only other U.S.-based carrier in the top 10 was Alaska Air Group Inc. (NYSE: ALK) in fourth place with a total of $194 million.

The low-cost carriers lead when ancillary revenues are calculated as a percentage of total revenues. The top airline here is Spirit Airlines Inc. (NASDAQ: SAVE), which derived 38.4% of its total 2013 revenues from ancillary revenues. According to the report, checked and cabin baggage fees account for 43% of Spirit’s ancillary revenues, while a passenger usage charge paid by all travelers who do not buy their tickets at an airport accounts for 30%. Advance seat selection produces 9% of the airline’s ancillary revenues and the sale of frequent flyer points accounts for 5%. The remaining 13% comes from other sources.

On a per-passenger basis, the airline that collects the most in ancillary revenues is Jet2.com, with $55.61, followed closely by Spirit, which collects $51.22 in ancillary revenues for each passenger. U.S. carrier Allegiant Travel Co. (NASDAQ: ALGT) ranks fourth with collections of $44.87 per passenger, while United is sixth with $40.97 and Alaska Air is 10th with $32.61.

Among the most lucrative services were Southwest’s Early-Bird check-in, from which the airline raked in $195 million in revenues in 2013. Russia’s Aeroflot added $173.6 million for the sale of frequent flier miles, more than double its 2012 total.

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