Airlines make record $22.6 billion from fees, report finds

ByGary Stoller, USA TODAY
July 23, 2012, 7:44 AM

— -- U.S. airlines bring in more revenue from fees for bags and other products and services than do the world's other carriers, a new report released today reveals.

United, Delta and American finished in the top three — each generating billions in ancillary revenue outside airfares last year, according to the report by IdeaWorks, a consultant specializing in ancillary revenue and brand development.

The report analyzed financial filings of 50 airlines worldwide and found they combined to bring in $22.6 billion of ancillary revenue last year.

That's a 66% increase from ancillary revenue reported by 47 airlines two years ago.

"It's clear that airlines recognize the importance of ancillary revenue and are developing increasingly innovative ways to generate it," says IdeaWorks President Jay Sorensen.

Many airline passengers, though, are annoyed at buying a ticket and paying extra for services and products that once were free. The extra fees initially were charged by low-fare carriers but have now become a priority for all airlines — and essential for their profitability.

United Airlines, which merged with Continental Airlines in 2010, generated more ancillary revenue — $5.2 billion — than any other carrier last year, according to the IdeaWorks report, sponsored by Amadeus, a travel technology company with a computer reservation system used by travel agents and airlines.

Delta Air Lines was No. 2 in ancillary revenue — $2.5 billion — followed by American Airlines and Australia's Qantas Airways.

The top 10 airlines in ancillary revenue — the four airlines above and Southwest, Britain's EasyJet, Ireland's Ryanair, US Airways, Brazil's TAM and Alaska — generated 75% of the total amount disclosed by the world's airlines last year.

Southwest, which touts its no ticket-change or baggage fee policies, generated $142 million from its EarlyBird service, which provides early boarding for a $10 fee.

The report says Southwest reported a $250 million increase in revenue from its frequent-flier program — largely from an affiliated credit card program — and ancillary revenue of $96 million from its Business Select product, which provides priority airport screening, early boarding and a cocktail.

Ancillary revenue represents 15% to 33% of total revenue for low-fare airlines and is "a matter of financial survival" for them, the IdeaWorks report says.

It made up 33% of all the revenue U.S. ultra-discount airline Spirit reported last year — the highest percentage of any airline. Ancillary revenue represented 27% of overall revenue at Allegiant Air and the United Kingdom's

Qantas generated more ancillary revenue per passenger — $50.82 — than any other. Spirit was second with $41.75.

The Qantas frequent-flier program generates "an amazing amount of revenue" per passenger, largely through credit card affiliations, the report says.

The Australian airline "takes the novel approach of maintaining multiple bank relationships, unlike the usual method of selecting one bank per consumer market."

Qantas and other airlines are increasingly unveiling new products and services to bring in money.

For $49.95 Australian dollars, or about $52 U.S., Qantas sells a bag tag with wireless technology that enables a passenger to self-check a bag.

Spain's Vueling Airlines provides early boarding, leaves a middle seat empty, and serves a drink and a snack for 60 euros (about $74).

Air New Zealand's Skycouch is another unique idea to generate extra revenue, says Robert Buckman, director of airline distribution strategy for Amadeus North America. The Skycouch is a trio of specially designed coach seats that can be converted into a flat space for relaxing, sleeping or a child's play area.

Airlines will offer more products and services that are attractive and valuable to passengers and bundle them into packages, Buckman says. Such packages might also be targeted at seniors, young travelers, business fliers or other customer profiles, he says.

"We've seen that carriers are willing to engage in this new business model and are introducing new products," Buchman says. "They will start repackaging these products into customer-centric products."

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