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Airlines' revenue from extras gets big boost in 2012: report

[SINGAPORE] The devil is in the details, and - increasingly for airlines - so is the money.

Last year, airlines made US$27.1 billion from ancillary revenue - 20 per cent more than they did in 2011 - selling the extras of flying that passengers have come to accept as optional, from baggage allowance to extra legroom.

Part of the boost might be driven by an increase in the number of airlines reporting ancillary revenue, with 53 airlines disclosing the figures last year - three more than in 2011 - according to a report by consultancy IdeaWorksCompany. Even so, 2012's ancillary revenue has more than doubled from 2009's US$13.47 billion, outstripping the 13 per cent growth in the number of airlines disclosing this particular kind of revenue since then.

"Statistics help tell the ancillary revenue story, and every year key numbers are getting larger. The most aggressive airlines easily have more than 20 per cent of their revenue produced by a la carte fees," said Jay Sorensen, president of IdeaWorksCompany.

"The best performers realise more than US$30 per passenger from ancillary revenue . . . Whatever the source, it is revenue desperately needed by airlines during troubled economic times."

Notably, selling flight extras is no longer the domain of budget carriers. Last year, premium carriers such as Korean Air and Air France- KLM joined the top 10 airlines raking in dough from ancillary revenue.

"Air France, while long singing the praises of optional extras, made the additional leap of excluding checked bags from its lowest fares on select routes within Europe. KLM took a similar approach by assessing bag fees for consumers not belonging to its frequent flier programme," said the IdeaWorksCompany report. Economy comfort seating alone on KLM contributes 65 million euros (S$106.3 million) annually on its transcontinental routes, the report found.

With the exception of American and US Airways, the top 10 airlines in nominal terms for 2012 made more from ancillary revenue than they did in 2011. "The decreases are minimal and might be explained by fluctuations in the baggage fees and other items reported to the US Department of Transportation which are used to calculate these rankings," the IdeaWorksCompany report said.

While premium carriers dominate the top 10 list for ancillary revenue in nominal terms, budget airlines unsurprisingly continue to feature heavily in the percentage stakes.

Florida-based low-cost carrier Spirit Airlines took pole position in 2012, as it did in 2011, but with a higher percentage of total revenue coming from ancillary sources - 38.5 per cent, up from 33.2 per cent.

Within this region, Tiger Airways came in fifth, at 20.8 per cent. AirAsia X was seventh with 18.7 per cent and its parent, AirAsia Group, was ninth with 18.2 per cent.

"This is a revolution like any other, one that is borne of difficult times when traditional methods are no longer effective at propping up the status quo," the report said.