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Delta leads ancillary revenue gains in 2Q-2010, as nearly USD1 billion in bag charges accrues

22-Sep-2010

The US Department of Transportation has reported rising US airline ancillary revenues of USD2.1bn in 2Q-2010. As part of their second-quarter revenue, airlines collected USD893 million in baggage fees and USD594 million from reservation change fees from April to June. In addition, miscellaneous ancillary revenue reached USD618 million for the quarter. Delta Airlines, after a slow start, has now leapfrogged other carriers, taking USD407 million in ancillaries for the quarter, almost twice the level of its nearest competitors. Opposition grows, fuelled by the "Mad as Hell" campaign.

But the results come in the face of growing opposition to the way airlines display fees and several travel groups have joined together to launch the "Mad as hell about airline fees" campaign urging the Department of Transportation to mandate fee transparency as part of its Notice of Proposed Rulemaking on consumer issues released in the spring.

"The airlines are asking travellers to put on a blindfold and hand over their wallets every time they buy a ticket," said Charles Leocha, director of the Consumer Travel Alliance. "There is no way for a traveller to find the vast majority of extra fees charged by airlines on their websites, because those fees aren't even listed. That's why two-thirds of air travellers said in a recent survey that they had been surprised by hidden fees at the airport. If airlines want to charge ancillary fees, they should be required to disclose those fees through every distribution channel in which they sell their tickets."

Second quarter ancillary revenue results for the US industry

Total second quarter 2010 airline revenue from all ancillary sources that can be identified, including fees and frequent flyer sales was USD2.1 billion, with Delta Air Lines reporting the most, USD681.6 million.

Total Ancillary Revenue*
Ranked by 2nd Quarter 2010  (USD millions)

2Q 2010 Rank

Airline

2nd Quarter 2009

3rd Quarter 2009

4th Quarter 2009

1st Quarter 2010

2nd Quarter 2010

Percent Change 2Q 2009-2Q 2010 (%)

1

Delta**

407.0

447.5

425.7

592.1

681.6

67.5

2

American

246.5

261.2

253.3

261.1

292.3

18.6

3

US Airways

228.2

230.8

231.8

238.1

255.6

12.0

4

Southwest

148.4

155.7

157.2

167.5

201.7

35.9

5

United

158.5

168.5

146.2

155.5

179.1

13.0

6

Continental

136.0

130.5

129.1

142.8

160.7

18.2

7

AirTran

65.7

68.0

61.2

62.5

65.5

-0.3

8

JetBlue

48.5

48.7

48.1

42.5

47.7

-1.6

9

Alaska

28.7

47.3

42.2

41.6

46.3

61.3

10

Spirit

36.8

36.8

36.1

40.0

41.9

13.9

 

Industry Total***

1,818.3

1,954.4

1,790.6

1,856.9

2,105.0

15.8

Baggage Fee Collections

Fees from baggage fee charges alone amounted to just under USD900 million for the quarter. Delta's revenues from this source more than doubled compared with 2Q-2009.

Baggage Fee Revenues

Ranked by 2nd Quarter 2010  (USD millions)

2Q 2010 Rank

Airline

2nd Quarter 2009

3rd Quarter 2009

4th Quarter 2009

1st Quarter 2010

2nd Quarter 2010 (%)

Percent Change 2Q 2009-2Q 2010 (%)

1

Delta*

118.4

129.5

131.1

217.8

256.0

116.2

2

American

118.4

119.5

129.2

128.5

152.1

28.5

3

US Airways

104.1

111.4

122.5

120.7

135.6

30.3

4

Continental

63.2

66.0

69.7

76.6

91.0

44.0

5

United

67.4

77.9

64.6

71.1

84.8

25.8

6

AirTran

40.5

40.2

34.3

35.0

39.2

-3.2

7

Alaska

6.2

25.2

21.8

21.2

25.4

309.7

8

Spirit

16.2

16.4

14.3

16.0

16.8

3.7

9

Frontier

13.5

14.9

14.4

13.9

15.5

14.8

10

Allegiant

12.0

10.3

10.2

14.8

14.4

11.9

 

Industry Total**

669.6

739.8

741.6

768.5

892.8

33.3

Reservation Change Fee Collections

A little publicised, but massively remunerative income stream comes from the almost cost-free changes to bookings, as travellers for example shift flights off the base of non-flexible fares. As a gross figure however, the industry has seen a decline in this type of charge - the exception again being Delta, whose income from reservation changes increased by 80.5% in the quarter.

Ranked by 2nd Quarter 2010 Reservation Change Fee Revenue
Dollars in Millions (000,000)

2Q 2010 Rank

Airline

2nd Quarter 2009

3rd Quarter 2009

4th Quarter 2009

1st Quarter 2010

2nd Quarter 2010 (%)

Percent Change 2Q 2009-2Q 2010 (%)

1

Delta*

100.7

112.0

106.5

165.3

181.8

80.5

2

American

109.6

120.4

104.0

114.4

121.0

10.4

3

United

81.1

79.4

71.2

74.7

83.7

3.2

4

US Airways  

64.0

61.0

57.3

62.7

65.6

2.5

5

Continental

59.8

56.0

52.6

58.9

61.1

2.2

6

JetBlue

30.0

28.7

30.4

25.8

30.0

0.0

7

Alaska

15.3

15.6

13.4

13.5

12.7

-17.0

8

AirTran

12.3

12.2

13.5

14.2

12.2

-0.8

9

Spirit

5.9

5.9

5.9

5.6

5.4

-8.5

10

Hawaiian

6.6

6.5

4.7

4.5

4.6

-30.3

 

Industry Total**

606.5

613.5

565.6

553.9

594.0

-2.1

Other non-ticket revenues

In addition to the fees, airlines reported ancillary revenue of USD618 million from passengers and from other sources. This revenue category includes revenue from such activities as frequent flyer award programme mileage sales and pet transportation fees.

Other fees, such as revenue from seating assignments and on-board sales of food, drink, pillows, blankets and entertainment are reported in a different category with other items and cannot be identified separately.

Miscellaneous Operating Revenue*
Ranked by 2nd Quarter 2010 Miscellaneous Operating Revenues (USD millions)

2Q 2010 Rank

Airline

2nd Quarter 2009

3rd Quarter 2009

4th Quarter 2009

1st Quarter 2010

2nd Quarter 2010

Percent Change 2Q 2009-2Q 2010 (%)

1

Delta**

187.9

206.0

188.1

209.0

243.8

29.7

2

Southwest

148.2

148.4

150.4

160.7

193.7

30.7

3

US Airways

60.1

58.4

51.9

54.7

54.4

-9.5

4

Spirit

14.7

14.5

15.9

18.4

19.7

34.0

5

American

18.4

21.3

20.1

18.1

19.2

4.3

6

AirTran

12.9

15.6

13.3

13.3

14.1

9.3

7

United

10.0

11.2

10.4

9.6

10.6

6.0

8

American Eagle

6.1

6.3

6.7

7.3

10.0

63.9

9

Continental

13.1

8.5

6.9

7.2

8.5

-35.1

10

Alaska

7.2

6.5

7.0

6.9

8.2

13.9

 

Industry Total***

542.2

601.1

483.4

534.4

618.2

14.0

Ancillaries stabilising as portion of revenues

Despite these substantial increases in non-ticket revenue, remained relatively steady. Combined passenger fees and ancillary revenue from other sources constituted 6.0% of the total revenue of the 28 carriers that reported receiving ancillary revenue. Spirit Airlines reported the largest percentage of operating revenue from ancillary revenue of any carrier at 24.2, the only carrier to report a substantial increase - which could be related to its strategy of keeping a lid on its fare levels. Most airlines have taken the opportunity of a tighter capacity market to squeeze yields higher.

Ancillary Revenue Compared to Total Operating Revenue*
Ranked by Percent of 2nd Quarter 2010 (USD millions)

2Q 2010 Rank

Airline

2nd Quarter 2009

3rd Quarter 2009

4th Quarter 2009

1st Quarter 2010

2nd Quarter 2010

Percentage Point Change 2Q 2009-2Q 2010 (%)

1

Spirit

20.5

20.6

21.0

21.7

24.2

3.7

2

Allegiant

12.2

9.3

8.8

9.9

9.9

-2.3

3

AirTran

10.9

11.4

10.2

10.3

9.3

-1.6

4

Delta**

9.0

9.3

9.5

8.6

8.3

-0.7

5

US Airways

8.3

8.2

8.6

8.7

7.9

-0.4

6

Virgin America

7.8

7.0

8.2

8.5

7.7

-0.1

7

Frontier

6.0

6.3

6.6

6.1

7.0

1.0

8

Hawaiian

7.1

6.7

6.7

6.6

6.7

-0.4

9

Southwest

5.7

5.9

5.8

6.4

6.4

0.7

10

Horizon

3.7

3.2

2.9

3.0

5.6

1.9

 

Industry Total***

5.9

6.0

5.8

6.0

6.0

0.1

Opposition mounts as comments are received in the DoT's NPRM process

While ancillary revenues seemed to be an unlimited source of new airline revenue, there is growing opposition from business travellers and travel organisations to the plethora of new fees - and most particularly to an alleged lack of transparency.

A recent story illustrates the tip of the iceberg when it comes to such fees with McDonalds, Ingersoll-Rand and Goodrich objecting if not to the fees, at least the way they are handled. The move comes as travel interests are organising against the fees. According to Bloomberg "almost 290 companies [are] urging broader disclosure of airline fees for bags, seat assignments and change ticket fees".

The groups were responding to the Notice of Proposed Rulemaking issued last spring on new consumer rules. The latest push by travel organisations, such as the Business Travel Coalition and the Consumer Travel Alliance, is a reaction to what they call hidden fees or the lack of transparency in fees.

Meanwhile, Sabre last week announced a new programme, rolling out what it calls Air Total Pricing, launched on 17-Sep-2010, which enables 57,000 subscribers to view ancillary services from 60-plus airlines worldwide. It also plans to publish its application which would allow OTAs, travel management and traditional travel agencies to develop their own programmes to accomplish the same thing.

But this is not the end solution it sounds to be. Although it allows the viewing of such fees, booking them is an entirely different matter since IATA’s Electronic Miscellaneous Documents settlement programme is only being used by a handful of airlines. Sabre’s new programme piggy-backs on its Cars Total Program, designed to help travellers make informed choices.

Sabre Travel Network Vice President Product Marketing Kyle Moore told TNOOZ that the acceptance of EMDs is slow but about 26 US airlines – 86% of Sabre's US bookings – are testing and filing ancillary offerings through the Airline Tariff Publishing Company. Southwest, is, of course, the exception. He indicated that while the Sabre action is a start, there is still much work to be done before achieving what business travellers and travel organisations want, the provision of fee information at booking to enable better control of travel costs.

The Consumer Travel Alliance (CTA) said calculating fees is entirely too time consuming for either travel departments or individual business travellers. Earlier this year, CTA released the results of a study showing that hidden fees charged by airlines on popular routes can increase the base cost of an airline ticket by an average of 54% for a typical traveller with two checked bags and extra legroom, or by an average of 26% for a comparable one-bag traveller.

“The CTA analysis tracked the time and effort it would take a typical two-bag traveller needing extra legroom to find and calculate the total cost of a flight from Washington DC to Orlando, Florida,” it said.

“Not a single one of the seven airline websites in the study offered a page or chart with specific fee information regarding extra legroom or seat upgrades. Although the airline sites disclosed baggage fees, those fees were often multiple clicks away from the main page and buried in diagrams and legal fine print. To compare baggage fees and attempt to find the fees for extra legroom, a typical traveller would have to visit seven different airline sites, view 47 different web pages, and dig through more than 11,000 words of airline fine print.”


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