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Airfares Might Be Low, but Airlines Still Earn Billions Charging for “Extras”

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A just released report finds that income from ancillary fees has once again grown to comprise an ever greater share of airlines’ revenue per passenger.

More and more airlines are finding that income from airfare has an ever dwindling effect on the bottom line. Both ultra-low-cost carriers and legacy airlines are increasingly turning to alternative revenue sources, earning billions in profits while cutting fares at the same time.

A new report from the Wisconsin-based consulting firm IdeaWorksCompany sponsored by the corporate ground transportation logistics firm CarTrawler, confirms that in 2016, extra fees collected over and above the price of air travel were more lucrative than ever before. The 2016 Top 10 Airline Ancillary Revenue Rankings report found that top airlines now earn up to 46 percent of gross revenue from ancillary sources alone.

The report notes that just five years ago, the top airlines in the study earned just $2.1 billion from ancillary income, compared with more than $28 billion last year. While some of that income is derived from invented fees like charging for carry-on and checked bags, charging to print boarding passes or collecting fees for everything from in-flight meals to allowing passengers to choose seats, some of the income influx also comes from less obvious sources. Legacy carriers, for example, earn substantial income from licensing agreements with banks offering branded credit cards. EasyJet, on the other hand, does a better than average job of selling passengers everything from ground transportation to lodging through its website.

“Some of the best in this category have extensive holiday package business with route structures built upon leisure destinations,” IdeaWorks CEO Jay Sorensen, who authored the report, explained. “Allegiant in the US and Jet2.com in the UK share the common bond of emphasizing leisure travel. These are essentially holiday package companies that own an airline.”

While revenue from outside the traditional business model of selling airfares at a profit certainly isn’t anything new, one commercial airline CEO sees a future in which all revenue comes from ancillary sources, ideally through profit sharing with airports. In November of last year, Ryan Air chief Michael O’Leary shared his vision of offering free airfare in exchange for a piece of airport revenue at the Airport Operators Association Conference in London.

“If ADP (air passenger duty) is gone – at many airports I’m paying more than £20 already with APD and fees – if I start getting that back, why not?” O’Leary explained. “I’m doing seat sales this week at £4 and I’m paying the £13 APD – I’m paying you to fly with me.”

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RUAMKZ August 22, 2017

Keep in mind, if it's a full flight, and there is no overhead bin space left, they will check the bags for free(if you are on a standard economy ticket---- the new "basic" is a whole different story). Gate agents, when pressed for time, choosing between collecting money vs. on-time, the on-time departure will be the default choice.