Airlines projected to generate $23b in ancillary revenues in 2010

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A new study published by Amadeus and US consulting firm IdeaWorks predicts that airlines will generate €18.4 billion ($22.6 billion) in ancillary revenues this year.

IdeaWorks president Jay Sorensen say baggage fees, which drove an estimated 43% increase in ancillary revenues in 2009, continue to be the primary driver of increased ancillary revenues in 2010. He says passenger convenience fees, which include priority boarding and pre-assigned seats, are also on the rise.

"What is amazing about this area [passenger convenience fees] is it's very profitable," Sorensen told reporters at the Amadeus Horizons 2010 conference in San Francisco. "The cost of a seat assignment or boarding early is almost none."

Amadeus and IdeaWorks used Horizons to release their Amadeus Guide to Ancillary Revenue by IdeaWorks 2010. While IdeaWorks has now put together ancillary revenue guides for three years this is the first time it has been sponsored by Amadeus. Sorensen says this is also the first time the annual guide has included an estimated ancillary revenue figure for the entire industry.

Previously industry ancillary revenue figures published by IdeaWorks only included airlines that publicly disclose their ancillary revenues. IdeaWorks earlier this year reported that airlines generated €11 billion in ancillary fees in 2009, a 43% increase compared to the €7.7 billion generated in 2008.

Sorensen says the €11 billion figure for 2009, which ATI first reported in July, included 46 airlines which disclosed their ancillary revenues last year. He says the 2010 estimate released this week includes 150 airlines although the model used for this estimate was created by closely studying the figures released by the initial group of 46 carriers.

Sorensen says IdeaWorks plans to tabulate next year a 2010 figure based on airline disclosures and expects another "significant increase". Also next year it will report a 2011 estimate for the same 150 carriers included in its just released 2010 estimate.

He says about four-fifths of the 43% increase reported for 2009 compared to 2008 was actually generated by more ancillary revenue activity. The remaining one-fifth was generated by "better disclosure activity" as some carriers that didn't report ancillaries in 2008 began providing an ancillary figure in 2009. Sorensen says bag fees were the biggest single driver in the increase last year as "baggage lit up all the US carriers".

Sorensen says baggage fees "are here to stay" and sees the fees spreading more to international routes. "We feel the era of no fee for the first checked bag will gradually disappear," he says, although adding "there will always be exceptions to rules".

He also predicts that "free meals in coach will gradually disappear" including on international flights. Although Sorensen says again there will be some exceptions to the rule and it will take time for this to become a universal trend globally.

IdeaWorks only includes in its reports ancillaries which are tied to the passenger journey including a la carte features, commission based products, frequent flier activities and advertising sold by airlines. It excludes air cargo and third-party maintenance services. Figures from airlines such as GOL which include cargo in their ancillary reports are adjusted so that the same definition applies across the board.

While Amadeus is sponsoring this year's 122-page guide, which includes sections detailing ancillaries at several carriers, the IT provider was not involved at all in editing the guide

"It's a topic dear to our hearts," says Amadeus vice president marketing and distribution Ian Wheeler. "We wanted to be associated with this area of growing revenue."

Amadeus recently completed development of a new produce called Amadeus Airline Ancillary Services. It is currently only being used by one airline, Corsairfly, but over the next year will be rolled out to airlines across the globe as well as travel agents. Typically travel agents are not able to sell ancillary services as ancillary products can only be purchased directly on airline websites, a limitation Amadeus aims to remove with its new product.