If you think seat selection, extra baggage and loyalty program fees have been adding up lately then you’re certainly on the money (as are the airlines).
New data from CarTrawler and IdeaWorksCompany has projected airline ancillary revenue will increase to US$117.9 billion (AU$181b) for 2023, a massive jump from US$102.8 for 2022 and beating the 2019 record of US$109.5b.
The two companies said that ancillary revenue is generated by activities and services that yield cashflow beyond the transportation of customers from A to B. This range of activities includes commissions gained from hotel bookings, the sale of frequent flyer miles to partners, and a la carte services, such as baggage and seat assignment fees. This represents the share directly paid by consumers.
CarTrawler and IdeaWorksCompany reported the ancillary revenue of 125 airlines to provide a global projection of ancillary revenue by the world’s airlines for 2023 to get this whopping figure.
The world’s airline industry has not yet recovered to 2019’s record results for traffic and passenger revenue. This will likely occur in 2024, so chart-topping ancillary revenue for 2023 might appear to many as a surprise. The following four factors are the primary contributors to the big gain anticipated for 2023:
- Many more people are flying: IATA predicts a larger than 28 per cent increase for global airline traffic in 2023 compared to 2022 with an amazing gain of more than 800 million passengers.
- Low-cost carriers are grabbing travelers: For 2020, IdeaWorksCompany calculated global low cost carrier market share at 25 per cent. By 2022 the LCC share jumped above 31 per cent. Simply said, coming out of the pandemic, the best ancillary revenue producers are carrying more passengers than ever.
- Assigned seat fees are being adopted by more carriers: Once largely limited to LCCs, fees for assigned seating now appear in the booking paths of global network carriers. For many airlines, the revenue rivals that of checked baggage. The trend has become so widespread that some carriers now are charging fees for “better” seats in business class.
- Co-branded cards deliver billions more: 15 top performing airlines disclosed a year-over-year frequent flyer program revenue gain of $8.3 billion for 2022, for a giant 41% increase. The carriers include American, GOL, LATAM, Qantas, and United. Continuing growth of this activity is also expected in 2023.
Chief commercial officer of CarTrawler, Aileen McCormack, commented: “Ancillary revenue continues to be a consistent and predictable revenue driver for airlines in the face of unpredictable fare price fluctuations. Although the global airline industry is yet to fully recover post-Covid and return to the heights of 2019, 2023 is expected to see ancillary revenue reach a record high of $117.9 billion worldwide – up from the previous record of $109 billion in 2019 – demonstrating the increasing importance for airlines to identify additional revenue streams.
“Low-cost carriers continue to have the edge on driving ancillary revenue streams, accounting for approximately 31 per cent of market share in this area. However, we are increasingly seeing US airlines gaining momentum with the successful roll out of loyalty programmes and frequent flyer benefits. I expect airlines in Europe and the rest of the world are taking note of this development and evidence of the real returns it’s bringing in terms of yield.
“As we see passenger numbers continue to rise, we expect airlines to continue to pivot and devise new ancillary revenue streams. Within our own partner base at CarTrawler, we’re seeing greater demand for the inclusion of car rental services in loyalty programmes, so airlines and hotel groups can reach a wider customer base with the most relevant rewards. Next year, we expect this area of our business to expand further as we continue to invest and deliver on our company strategy, by enhancing our proposition through innovation.”
(Featured Image: iStock/Smitt)
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