There is a piece of good news globally for the airlines sector – most of them are actually making huge stable profits. But equally it has spelled bad news for airplane fliers – as most of the fees on things that were free earlier are pinching their pockets when they decide to fly. Intricate research has been performed by consulting group IdeaWorks on the ancillary revenue earned by airlines which is designated to be the actual cause for such growing profits year on year while airfares are being kept low to catch up with competitors. Let’s take a closer look at what the research findings have been and how the majority of the airline companies are compromising on passengers’ hard-earned money to maintain their profitability chart. Here’s the story.
The research remains indicative
Ancillary revenue refers to everything an airline charges for, except the airfare, which could refer to fees on checked baggage, preferred seating, in-flight meals, drinks and snacks, hotel check-ins, early check-in and early redemption of frequent flight pointers. While tracking the ancillary revenue, IdeaWorks stated that without such fees the airline industry would have been in a loss.
When IdeaWorks examined the financial reports of 59 airlines around the globe, they noticed that the non-ticket fees accounted for more than 10% of the industry revenue in 2013. While reporting on ancillary revenue, New York Times put it nicely: “The great advances in technology presents for airlines themselves to essentially sell more things to the customers, whether the product is in-flight entertainment, food and drink, customized services to elite-status passengers or products at the destination, including hotel packages, sports and concert tickets, restaurant and theater reservations. On an airplane, you have a captive market, and with sophisticated technology, you can sell to passengers in very personal ways.”
Survey results speak on ancillary revenue
On surveying the financial playbook of the 59 airlines, it was found that Spirit Airlines (SAVE, Financial) topped the list of ancillary revenue earners as this component comprised 38.4% of the overall revenue earned by the company in the previous year. That is pretty obvious as Spirit literally is heard to charge for every small thing – such as baggage and preferred seating as well as a $10 fee for printing the boarding pass. Well, one thing that could be surely hinted at through this survey is that most of the U.S. airlines were filling their coffers with the help of ancillary revenue.
Among the major airlines flying in the U.S., it was United Airlines (UAL, Financial) that topped the list on ancillary revenue having made nearly $5.7 billion in 2013 through the stated component. Collectively the top ten earners of ancillary revenue bagged close to $20.4 billion last year through non-ticket fees, as indicated by IdeaWorks.
To conclude
While airline companies are taking every step possible to reduce their operating costs, the ancillary revenue component is driving the growth in their bottom line. Therefore, they are trying to secure themselves from both ends – be it through cost-cutting steps or through continued top line growth. Let’s see how the story turns out to be at the end of this year, so keep watching closely.
