Business

World's biggest airlines racked up $35B in ancillary revenue from things like bag fees last year

World's biggest airlines racked up $35B in ancillary revenue from things like bag fees last year

The world's largest airlines raked in more than $35 billion US in ancillary revenues last year, a figure that has grown by more than 16 times in barely the past decade.

That's one of the main takeaways from a new report by Wisconsin-based consultancy IdeaWorksCompany, which partnered with Irish travel firm CarTrawler in an annual ranking of ancillary revenues in the airline industry.

Broadly speaking, ancillary revenues are everything that airlines earn from things outside of base ticket prices. That would include everything from checked bag and seat selection fees, to travel insurance, duty free items and refreshments served on board.

Fees add up

In a report released Wednesday, the two companies crunched the numbers on 76 airlines around the world that disclose information on ancillary revenues, to see which ones are squeezing the most extra cash out of every possible source.

At some airlines — especially discount regional carriers such as Spirit and RyanAir — those fees are anywhere from one third to almost half of the airline's entire income.

But on the whole, it's the bigger airlines that are really raking in the big money from them. The results were very top heavy, as U.S. airlines are better than almost anyone in raking in that extra coin — more than $17 billion from just U.S. airlines alone.

In 2007, the first year that the annual report was done, all of the airlines included only took in $2.1 billion in such fees put together.

American Airlines took in more than anyone, at more than $7.2 billion last year. United came next at just over $5.8 billion, while Delta was just behind at $5.5 billion. Southwest, the fourth largest carrier in the country, was the fourth most lucrative in the ancillary world at more than $4 billion.

Canada's biggest airline, Air Canada, ranked tenth on the list, taking in $1,452,733,488 in ancillary revenue last year. But that figure isn't just nickel-and dime fees that fliers pay directly for things like checked bags, fuel surcharges and other irritants.

Loyalty programs

Like many airlines, Air Canada participates in a loyalty program, Aeroplan. Those plans make money for airlines because the programs effectively buy tickets from the airlines in exchange for seats, and then resell those seats to credit card partners and retailers who offer those seats as consumer enticements.

Loyalty programs are a major cash cow for lots of airlines, which is why the CarTrawler report includes it in the calculation of extra ancillary fees. The U.S. airlines in the report all took in more than $20 worth of revenue, on average, from every passenger in their respective loyalty programs. Qantas is even more lucrative, as the Australian carrier in $37.51 for every person in its loyalty program. By Qantas' own estimates, more than a third of all the spending on Australian credit cards happens on a card in which the user earns Qantas miles for their efforts.

Air Canada, meanwhile, booked more than half a billion dollars from Aeroplan, but that works out to roughly $11.22 per passenger.

Considering the amount of loyalty program money Air Canada seems to have left on the table, it's no wonder that the airline recently bought out Aeroplan from the company that owned it, and announced plans to revamp it into something entirely Air Canada-specific soon.

"It's actually quite a spectacular financial move in terms of how different things will be for them in the future," IdeaWorks president Jay Sorensen said in an interview. "They're going to realize more of this margin."

Westjet

Air Canada's rival Westjet didn't get into the top 10, but it, too, is getting better at taking in money from sources beyond tickets.

The company booked $466 million Cdn in ancillary revenue last year, an increase of more than 10 per cent from the previous year's level. That's $18.79 in ancillary fees for every passenger the company flew last year, and that figure is expected to grow over time.

That's mainly because WestJet launched discount airline Swoop to much fanfare last year. Ultra low cost carriers such as Swoop — which sell bare bones, one-way flights for under $100 a pop — offer lots of opportunities for upselling.

According to an investor presentation, Swoop hopes to rake in more than $40 per passenger in ancillary fees this year. Swoop only has six aircraft for now, but the airline's very existence means it should allow WestJet to rake in more ancillary fees as it grows, said Sorensen.

"[WestJet] numbers include the results of Swoop and one would imagine that as Swoop becomes a larger component that will boost their ancillary revenue activity moving forward," he said.