Study says airlines will boost ancillary revenue 67% in 2010

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The world’s airlines stand to collect about $22.6 billion in ancillary revenue in 2010, compared with about $13.5 billion last year, according to a guide released by Amadeus and IdeaWorks.

And the carriers are just skimming the surface of revenue potential, the guide contends.

“At Amadeus, we expect to see ancillary revenues grow significantly as airlines are only now beginning use the high-yield travel agency channel to sell their range of ancillary services,” said Philippe Chereque, Amadeus executive commercial vice president. “Amadeus is talking to a number of airlines to help them with this.”

Chereque pointed out that the amount Amadeus and IdeaWorks predict the airlines will collect is less than 5% of the operating revenue generated by airlines.

Airlines could increase ancillary revenue by as much as 300% if they get aggressive like Allegiant and Spirit, Chereque said.

The airlines’ extra fees have created some backlash, especially in the U.S., where lawmakers have proposed legislation that would curb add-on charges and force airlines to reveal the all-in cost for flights.

Amadeus officials acknowledge that achieving transparency has proved difficult, but that it is in airlines’ best interests to do it.

“As ancillary services represent an ever larger proportion of revenue and add more and more layers of complexity to the airline offer, it is vital that airlines consider the end-to-end process of selling, fulfilling and delivering ancillary services,” Chereque said.

“This is difficult even when things are going smoothly. But when a flight is canceled due to bad weather, an airline has to re-accommodate a plane full of passengers, each with their own combination of assigned seats, in-flight entertainment, additional bags and preferred meals. Successfully translating ancillary revenue into additional profit rests on an airline’s ability to manage such situations efficiently.”

Still, passengers appear to be accepting many of the extra fees as part of their flight cost, and airlines will continue to look for even more revenue sources.

“The numbers for 2010 will certainly increase,” Amadeus said. “Each airline category will likely achieve a higher percentage as a la carte pricing methods are perfected and become more pervasive. For example, coordination among alliance partners has compelled Europe-based airlines to adopt baggage charges on codeshare transatlantic routes.”

The guide cites some specific examples of ancillary services:

● AirAsia provides 10 pre-flight entree choices at its website.

● Continental implemented flexible pricing for seating with extra legroom. When demand rises, so does the price.

● EasyJet offers early boarding for 12 months through its EasyJet Plus membership card.

● KLM is testing a meal program that enables customers to place an order before their flight. The option is available on eight long-haul routes from Amsterdam, including Calgary, Dubai and Sao Paulo.

Technology provides even greater opportunity for ancillary revenue streams, Chereque said.

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