Airlines won 5 percent of a total $708 billion in sales last year charging for sandwiches, entertainment and seat assignments and the figure has the potential to double, an airline trade group said.
Five years ago, the percentage of revenues coming from ancillary fees was close to zero, Tony Tyler, head of the International Air Transport Association, said in Singapore yesterday. Carriers will find new things to charge for as they add products and services that match customer needs, he said.
Ryanair Holdings Plc Chief Executive Officer Michael O’Leary had previously explored having standing cabins and charging for the use of toilets on his planes as a means to get more income.
Unbundling services that were previously part of the total price for an airline ticket played a key role in helping airlines post a combined $12.9 billion in net earnings last year. Larger network carriers that had previously avoided the practice favored by low-fare startups are discovering the benefits of making money on other services.
“Ancillary is evidence that people are prepared to pay for what they value,” said Tyler. “It’s a lesson that traditional carriers have learned from budget carriers.” The charge has been led by U.S. airlines, he said.
Earlier this month, Ryanair, Europe’s biggest discount airline, reported third-quarter non-ticket revenue jumped 13 percent as more customers reserved seats and paid for priority boarding. JetBlue Airways Corp. said in January its ancillary revenue rose 15 percent to $670 million in 2013.
Chicago-based United Continental Holdings Inc. aims to generate $3.5 billion in ancillary revenue by 2017 through new purchase options for customers and improved pricing on existing products. Sales of non-ticket items should grow 25 percent, Tony Fernandes, chief executive officer of AirAsia Bhd., the region’s biggest budget airline, said in January.
Fees for now have been mainly for onboard meals, baggage, seating options, and entertainment, though the scope of revenue generation will be broadened in the future. Customers may be able to make orders while on flight and pick up their purchase upon arriving at airports, said Brian Peace, IATA’s chief economist.
While selling items like liquor may be feasible because airports have plenty of stores stocking that, having other products available for just-in-time pickup may be more complex, given that airlines fly to dozens of airports, said Tyler.
“Making it happen is more difficult than thinking about the idea,” he said.
With assistance from Anurag Kotoky in New Delhi. Editors: Anand Krishnamoorthy, Chua Kong Ho. To contact the reporters on this story: Andrea Rothman in Toulouse at [email protected]; Kyunghee Park in Singapore at [email protected] To contact the editors responsible for this story: Anand Krishnamoorthy at [email protected]; Benedikt Kammel at [email protected]