The new normal is that airlines nickel-and-dime their customers. They believe that passengers are very short-sighted and only look at the base fare when buying tickets. Therefore, they now charge separately for all kinds of things that were simply included in the fare 10 years ago. These payments are called ancillary revenues and come as an unpleasant surprise for quite a few passengers.
The top-10 carriers as rated by total ancillary revenue, generated $2.1 billion in 2007. This amount has skyrocketed to $29.7 billion in 2017 according to a report by IdeaWorksCompany.
Ancillary revenues enable airlines to advertise low fares while maintaining a predictable revenue flow from the sale of optional extras. Bag fees and assigned seating are major revenue producers.
Table 1 shows that the 4 big US airlines collect the highest amounts of ancillary revenue. Frequent flyer programs represent 26% of total ancillary revenue, for example from the sale of miles to hotels, credit card companies, rental car companies, etc.
|Table 1: Top-10 Total ancillary revenue, 2017|
|Frequent Flyer program||A la carte such as baggage||Travel retail commissions|
|Alaska Air Groep||$1,339,700,000||64%||36%|
Table 2 displays the top-10 performing carriers in terms of ancillary revenue per passenger. Obviously, low coast airlines dominate this top-10, but it also lists 2 traditional carriers: United Airlines and Qantas.
Low cost carriers rely upon a la carte activity by aggressively seeking revenue from checked bags, assigned seats, and extra leg room seating. Interestingly, Ryanair and easyJet do not appear on this list as they have moved to capture more business travelers who hate nickel-and-diming.
Low cost airlines do not offer the best deal by definition. Norwegian, for example, offers a higher overall price than American Airlines and United Airlines even though they include carrier imposed surcharges. Spirit squeezes the most out of its customers (almost $51 per passenger).
|Table 2. Ancillary revenue per passenger, 2017|
|$38.83||United||Frequent Flyer Program|
Tags: ancillary revenues, base fares, airline fees