Airlines Enjoy An Ancillary Revenue Bonanza In 2020

Four airlines made more than 50% of their total revenues in 2020 from ancillary revenue. According to the 2021 CarTrawlerYearbook of Ancillary Revenue report, produced by IdeaWorksCompany, Allegiant, Spirit, Viva Aerobus, and Wizz Air all broke through the elusive barrier, with Wizz Air taking top billing.

Four airlines made more than 50% of total revenues in 2020 from ancillary charges. Photo: Getty Images

Ancillary revenue grows in importance for many airlines

Ancillary revenue is that revenue generated from non-core products and services. In the airline industry, the core product is a seat on a flight. All the extras – charges for meals, drinks, seat selection, checked-in bags, flight changes, queue jumping – constitute ancillary revenue.

Globally in 2020, ancillary revenue is estimated to have earned airlines around nearly US$60 billion. That’s down on 2019 levels due to fewer people flying in 2020. But as the ancillary revenue report confirms, ancillary revenue is increasing in importance as a proportion of total revenue.

“Ancillary revenue was a crucial source of support for airlines in 2020,” says Aileen McCormack, Chief Commercial Officer at CarTrawler.

“Four airlines also broke through the 50% threshold, which placed ancillary revenue as the predominant revenue source. This has been an elusive objective for top-performing low-cost carriers since the ancillary revenue revolution began.”

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Wizz the top-performing ancillary revenue airline

The report included data from 75 airlines who accounted for 68.9% of IATA’s worldwide airline
industry passenger traffic in 2020. Hungary-based Wizz Air made 55.9% of its total 2020 revenues from ancillary charges. Hot on Wizz’s heels was Spirit, who made 55.8% of total 2020 revenue from ancillaries. There followed Viva Aerobus on 52.6% and Allegiant Airlines on 51.8%.

Frontier came ever so close to cracking the 50% mark. Frontier made 49.2% of its total 2020 revenues from ancillaries. Ryanair, whose boss Michael O’Leary once canvassed charging passengers to use the toilet, is losing its touch. That airline only made 36.7% of total 2020 revenues from ancillary charges.

Source: CarTraweler / IdeaWorks

Of course, context is everything here. Fewer people were flying in 2020 than in previous years. Fares were often discounted, further reducing revenue from selling the core product. A pre-occupation with inflight hygiene saw an increased take-up of ancillary products like seat selection, particularly for forward-positioned seats. People wanted to get on and off planes quickly and were prepared to pay to do so.

“Seats providing extra personal space have also been more highly valued during the pandemic,” says IdeaWorks in a statement.

Wizz Air made of its total 2020 revenue from ancillary charges. Photo: Wizz Air

Frequent flyer programs big contributors to airline revenues

Also rating a mention was the revenue generated for airlines from their frequent flyer programs. The standout performer here was full-service airline Qantas. They generated US$546,456,696 from their frequent flyer program in 2020. That’s far less overall than the big North American airlines. But on a per-member basis, Qantas generated $40.48 in 2020 – streets ahead of other carriers.

With the number of members self-medicating their way through the 2020 travel downturn courtesy of the online Qantas wine store, that’s no surprise.

American Airlines generated $25.13 per AAdvantage member in 2020. United Airlines picked up $25.39 per MileagePlus member. Delta Air Lines made $21.27 per SkyMiles member.

The US-based airlines do well from co-branded credit card programs. A relatively loose credit regime in the US caters to that. The five largest US airlines (Alaska, American, Delta, Southwest, and United) generated revenue of $19.5 billion from their frequent flyer programs in 2019, or an average of $25.71 per passenger. More than 90% of revenue came courtesy of co-branded credit card programs. The total dropped by 43% to $11.1 billion for 2020. However, when measured on a per passenger basis, the result was $37.64, a 46.4% increase.

Source: CarTraweler / IdeaWorks

Full-service airlines look outside the airport

Full-service airlines cannot go as hard on ancillary revenue charges as low-cost and mid-market carriers. While many full-service airlines are tentatively dipping their toes into the arena, looking enviously at what low-cost carriers get away charging passengers for, full-service carriers often have to look outside the airport to boost their incomes – credit cards, online wine stores, shopping malls, and insurance products are examples of this.

But all airlines have one thing in common. They are looking to diversify their revenue streams. As this week’s ancillary revenue report reveals, some airlines are becoming very good at doing that.