ANCILLARY REVENUES HIT NEW HEIGHTS

Posted on 09/29/2016

It always intrigued me how Advertising Standards Canada (ASC) insisted airline ads couldn’t use the word ‘free’ to describe the various inclusions in ticket prices. Back then, that meant things like two seventy-pound bags, hot meals and enough booze to drink yourself silly. Although every passenger referred to these things as ‘free’, we were obligated to describe them as “complimentary” – a word for which the dictionary definition is, “given or supplied free of charge”! Go figure?

But the other word that airline passengers would frequently use that really bugged me was “entitlement” – as in, “It’s my entitlement to check two giant bags.” Semantics perhaps, but in common airline passenger parlance the word does tend to smack of, “It’s my God-given right”.
Well things have changed: The Good Lord giveth and the airlines taketh away.
As has been frequently pointed out in this column, call them what you will, those ‘complimentary’ items were never really ‘free’. With the old prix fixe pricing model, if you didn’t check a bag you were essentially subsidizing the passenger who showed up with two of them and if you didn’t eat or drink you were subsidizing the guy who gorged himself in the seat next to you. Today’s emerging à la carte model may have taken some getting used to but it is certainly a much fairer way to go – if you value it you can pay for it, if you don’t … you don’t!
The 2015 IdeaWorks annual review of all thing ancillary came out last week and the numbers seem to show little if any slowing in the growth of “non ticketed revenues.”
The 67 airlines the report studied raked in a combined $40.5 billion in ancillary earnings last year. Compared to 2008, when the top ten ancillary producing airlines generated a combined $8.4 billion, in 2015 the top two alone (UA and AA) combined for $10.9 billion!
There were some minor surprises in there. The top revenue earner on a per-passenger basis was Spirit with a healthy $51.8, which made up 43.4% of the airline’s total revenues. Ryanair however, a carrier generally considered the Godfather of squeezing every last ancillary cent out of its punters, only sold just $16.34 per passenger – a figure that was surpassed by Air Canada no less at $16.59. On closer inspection however, as a percentage of total revenues, the AC figure was 6.2% compared to Ryan’s 24%: A direct reflection of the Irish carrier’s significantly lower average fares and total passengers carried (41.1 million by AC versus an astonishing 106.4m by Ryan).
It was also surprising to see that WestJet generated less than AC with $13.20 per passenger for a total of $682 million or 8.3% of their total revenue. Southwest meanwhile, the airline after which WestJet modeled itself and the erstwhile low fare champion, generated $14.65 per passenger or 10.7% of its revenues. Of course Southwest prides itself on not charging for checked bags which, with 78% of their 144.6 million passengers checking at least one bag, adds up to an awful lot of money left on the table!
Going forward the percentage of ancillary revenues will almost certainly continue to climb as the legacy carriers are forced to make more things optional that are currently inclusions. It is to be hoped - as was the case when the legacy brigade began charging for checked baggage- that they won’t again simply add new ancillary fees to the existing fares.
Of course, following this week’s threatened class action suit accusing Air Canada and WestJet of possible collusion in 2014 when they introduced $25 baggage fees within days of each other, they might think twice about rushing to add more fees. Or put differently, complementary fees would draw very few compliments right now.
Don’t you just love the English language!