Friday, June 17, 2011

Ancillary revenue’s importance

A major study done over the last two years on the airline’s ancillary revenue of dozens of airlines shows that 2009 was a breakout year when a la carte programs and commission-based services netted airlines worldwide a revenue stream exceeding US$13.5 billion a 43 percent increase from the previous year.

By the end of 2010 that figure had grown to more that $21.4 billion, nearly double what was raised in 2008.

Those are some of the important findings from Amadeus Review of Ancillary Revenue Results announced at the end of May announced by Amadeus and a Shorewood, WI, company called Ideaworks.

“Many of these airlines are becoming savvy retailers,” says the report. The number of a la carte products and services are increasing and branding and pricing are becoming more sophisticated. Forty-seven airlines disclosed the information for the most recent Amadeus/Ideaworks study.

Offering passengers products and services for sale is, obviously no longer the purview of low cost carriers. The top four airlines participating in the report, United/Continental, Delta Air Lines, American Airlines and Qantas Airways took in more than US$8.3 billion.

Naturally, services like baggage handling; commissions from hotel and car rental bookings, co-branded credit cards, and loyalty programs produced most of the yearly ancillary revenue. The report, which was released at the end of May, made no specific mention of the amount spent on products within the cabin. Amadeus promises a more comprehensive compilation of ancillary revenue by sometime this summer.

Jay Sorensen, of Ideaworks was one of the people behind this report, and previous ones for Amadeus. He has some ideas for airlines that are looking to increase the amount passenger purchase. Some are bold, such as eliminating complimentary drinks to passengers. As long as the passenger can get a free beverage, the less likely they are to open their wallets for food. Another has been to add a pre-paid option such as the ones in place at several airlines. The latter, he says, still has a ways to go before it is adopted throughout the industry. This, he said would not only raise revenue, but would also allow the airline to better manage galley stock and cut back drastically on waste.

Sorensen also produced some examples of per passenger food and beverage revenue, though figures are still hard to pin down. EasyJet reported a per-passenger spend of €1.98 for food, while Jetstar raised €1.73 and US Airways reported €2.6 per passenger last year.

It’s been 10 years since Michael O’Leary the CEO of Ryannair floated the idea of bundled fees taking the place of airfare. While that is clearly not happening, ancillary revenues have been a bulwark for many airlines against rising fuel prices and have become a permanent part of the operating mix for both low-cost and legacy carriers. 

Monday, June 6, 2011

Amenity bag evolution

We're not certain if this is the first time WESSCO International's Anita Gittelson has been called "the godmother of the modern-day amenity kit" but the company's work in matching high-end brands in interesting amenity concepts for airline customers has been a part of the industry for quite a while. 

Anita, along with Robin Padgett of Emirates and several others are featured in this New York Times story on amenity bags. The report details WESSCO's groundbreaking work, teaming Essentiel Elements products with Delta Air Lines. Along with the kits was information on how to purchase some of the Essentiel Elements line of products. The newspaper explores the opportunity of selling first and business class amenity bags in the future. 

“It was a marvelous introduction to the public of a brand that was just starting to move,” and Delta got a commission on the sale, Anita tells the New York Times
Ancillary revenue is, indeed becoming much more important for the airlines. Last year, a Wisconsin company called Ideaworks completed a study with Amadeus which showed that that airlines earned more than US$21.4 billion in ancillary revenue in 2010. More on this in the July/August issue of PAX International

Thursday, June 2, 2011

Gulf Air catering and corporate responsibility

Gulf Air, under the direction of former International Travel Catering Association President Samer Majali, is taking steps to reduce its carbon emissions and is modifying some of its catering practices to achieve the goal. 

The carrier cut emissions by 20,000 tons last year. At a presser May 31, Majali laid out a number of objectives and steps in the airline's Corporate Social Responsibility (CSR) strategy. The airline plans to cut back on weighty catering equipment in its Falcon Gold premium cabin. The second initiative will create some potential business for airline caterers at Gulf Air's destination cities. To cut back on the weight that results in double-catering, the carrier plans single catering on "certain outbound routes."

A full rundown of the airlines CSR program can be found here