European airlines lead 2018 a la carte revenue estimate with USD22.5 billion share of USD65 billion global total

22 February, 2019

IdeaWorksCompany and CarTrawler have revealed that Europe continues to hold the greatest share of a la carte airline revenues in 2018, but Asia is shrinking that share by growing at almost double the European rate over the past four years. But rather surprisingly it is Africa and the Middle East that has seen the largest rise in estimated a la carte airline earnings since 2014, albeit it still accounts for the second smallest regional share ahead of Latin America and the Caribbean.

Each year IdeaWorksCompany, a consultancy on airline ancillary revenues, through the sponsorship of leading technology platform CarTrawler, analyses the ancillary revenue disclosures for airlines all over the world. They recently estimated airline a la carte revenue at USD65 billion worldwide for 2018, but have now released a regional breakdown and comparisons to the 2014 performance figures.

These latest annual results are applied to a larger list of carriers (which numbered 175 for 2018) to estimate ancillary revenue activity for the world's airlines. A la carte activity is a significant component of ancillary revenue and consists of the amenities consumers can add to their air travel experience. These include fees paid for checked baggage, assigned seats, buy-on-board meals, early boarding, and onboard entertainment.

The 2018 Global Regions Snapshot demonstrates how a la carte activity varies by region and highlights how the prevalence of low cost carriers (LCCs) in a region actually drives the level of ancillary revenue; a higher concentration of low cost carriers (LCCs) boosts ancillary revenue and a la carte results.

TABLE - Europe accounts for more than a third of annual a la carte airline earnings, a figure that has doubled since 2014. North America and Latin American and the Caribbean's earnings also doubled, while the Asia/Pacific and Africa/Middle East regions saw their levels treble over the periodSource: IdeaWorksCompany

Europe leads the world for a la carte activity and LCCs generate nearly 25% of operating revenue for airlines based in Europe and Russia, according to the findings. The region is home to some of the largest ancillary revenue champions in the world, while recent moves by Europe's global network carriers to implement basic economy fares on transatlantic routes, supports the highest level for a la carte activity in the world.

North America has lower LCC penetration (at 10.5%), but this would jump to nearly 22% if Southwest Airlines were tallied as a LCC. But the carrier's "bags fly free" policy deters significant a la carte results, says the findings. The latest development for the big 3 global network airlines in the US is to encourage upgrades to standard economy fares by restricting or charging for access to seat assignments. This upgrades activity, along with assigned seating fees, is lifting ancillary revenue for these airlines.

Within Latin America, baggage fees are now permitted on domestic flights within Brazil, and these have been implemented by the country's major carriers. LCCs and a la carte methods are becoming more prevalent with new start-ups in the region within the last two years including Flybondi (Argentina), JetSmart (Chile), Norwegian Air Argentina, and Viva Air Peru.

The Asia/Pacific region has a significant number of LCCs surpassing USD1 billion in revenue, including AirAsia, AirAsia X, Cebu Pacific, Indigo, Jetstar, Scoot, SpiceJet, Spring Airlines, and Vietjet, identifies the research. More LCC activity is now occurring in China and with all of this activity, it is surprising that global network carriers have been slow to adopt ancillary revenue methods in that emerging market.

Africa and Middle East carriers have traditionally been fee-adverse and LCC activity in the region has trailed the rest of the world by a large margin. However, this is slowly changing with the big three carriers of the Gulf (Emirates, Etihad, and Qatar) all introducing assigned seating fees for the lowest-priced fares. These airlines still include a checked bag in these fares.

The report highlights how Newton's third law of motion states, "For every action, there is an equal and opposite reaction" is a good example of how ancillary revenue worldwide is evolving across the globe. The "action" is the relentless spread of LCCs, while the "opposing reaction" has been the surprisingly quick embrace of all-things-ancillary by the biggest and oldest names in commercial aviation and in particular versions of basic economy fares.

These fares are designed to mimic their low cost cousins by essentially offering a seat-on-a-flight. The addition of a checked bag, seat assignment, and priority boarding cost extra and therefore contribute to a la carte revenue. "At present the action and reaction are largely limited to flights within Europe and the US, and on transatlantic routes," says the research.