US carriers leading the way on ancillary revenue
By September 21, 2016 14:57

US carriers leading the way on ancillary revenue

Leading airlines of the world collected around $40.5 billion in ancillary revenue in 2015 rising to 8.7% of total sales. Across all of airlines, United topped the list of revenue made from ancillaries last year with $6.2 billion. American ($4.7bn) was not far behind, Delta ($3.7bn) has some way to go to match its rivals and as such, even though United are the impressive standout one must assume that Delta still retains the possibility to  earn far more revenue in the near term. In Europe, Air France/KLM ($2.1bn) were higher than IAG and Lufthansa but still remain so very far behind the US airlines it borders on ludicrous. The European flag carriers therefore still have a great deal to do on progressing ancillary revenue earnings.

Of all ancillary revenues the fastest growing is seat selection. The kings of ancillary revenue remain the ULCCs and the LCCs with Spirit the top of the table with 43 per cent of total revenue or $51.80 per passenger driven by ancillary sales.

Ancillary revenues and the growth of the same is more important now than ever as fares continue to fall in every major market save for Australia where on the main they are static.

The US Bureau of Transportation Services data shows that average airfares in the USA (unadjusted) fell 3.5% year on year in August. Month on month July 16 to August 16 airfares declined 5.5%. The year on year decline comes on the back of the 4.6% year-on-year decline posted for July 2016.

All the while fuel prices are recovering slowly from their February 2016 lows of $26 a barrel, standing at this moment at $44 a barrel.

Falling unit revenues remain the core worry for airlines across the globe and PRASM figures are declining almost across the board for mainline carriers in the USA, Europe, Africa and APAC, with only the Middle East’s Etihad and Emirates seemingly dodging the falling PRASM bullet. Delta saw PRASM fall 9.5% for August and that revelation more than any other pricked the ears of industry watchers, but that should not have been the case as Delta saw its entire operation shutdown in August for a day with some 2,300 cancellations. Instead we should be looking far more closely at Alaska Air Group and United Continental Holdings, the former has purchased Virgin America Holdings just as its PRASM declines by 7.7% for Q2 2016 – that is a significant worry but if anyone can turn that situation around it is the team at Alaska.

So for some airlines the only way up is further development of ancillary revenues.
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Philip Tozer-Pennington
By September 21, 2016 14:57