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Homeroad warriorAirlines reap $28 billion from selling travel 'extras' to flyers

Airlines reap $28 billion from selling travel ‘extras’ to flyers

  • Airlines are offering flyers all sorts of extras, and it's adding up for them, a new report shows.
  • Both discount carriers and major airliners reported a collective $28 billion in 'ancillary' revenue last year.

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Nowadays, buying an airline ticket has a lot in common with a trip to the grocery store, or the purchase of a new car.

Like the pint of ice cream that wasn't on your shopping list—or the heated seats the car salesman convinced you that you needed—modern day extras on airfares can really add up.

"Shoppers don't know the total cost of all the things they put in their grocery carts till they check out," said Jay Sorensen, president of research firm IdeaWorks and the author of a new report that breaks down how airlines are reaping a windfall from extras. "And most people don't just buy the base model of a car. They start with the base model and then start adding on features."

After going up and down the figurative aisles on travel sites, flyers have a similar experience to a car dealership or grocery store, Sorensen added. "That's how air travel is now priced," he explained.

In 2007 the top ten airlines (ranked by total ancillary revenue), was $2.1 billion, according to an IdeaWorks report. Yet in 2016, the top ten ancillary revenue-earning airlines alone took in more than $28 billion from "beyond tickets"—sales of everything from baggage fees, commissions on care rentals and vacation packages to frequent flyer points and products sold in 'bundles.'

Airlines increasingly see themselves as retailers that up-sell and cross-sell as their focus shifts from optimizing the revenue per seat to maximizing revenues per passenger.Raymond Kollaufounder, AirlineTrends

Spirit Airlines markets itself as an "ultra" low cost carrier. However, at an average of $49.89 per passenger, the Florida-based airline topped the list of earnings per passenger from a la carte extras such as checked bags, assigned seat and extra legroom. In 2016, that represented 46.4 percent of the airline's overall revenue, according to the report.

Other bargain carriers like Allegiant and Frontier were also standouts: They earned, respectively, an average of $48.93 and $48.60 in ancillary revenue per passenger, according to the report. That represented 42.4 percent of Frontier's total 2016 revenue and 40 percent of Allegiant's.

When measuring total ancillary revenue, airline giants like United, Delta, American and Southwest topped the list, reaping $6.2 billion, $5.1 billion, $4.9 billion and $2.8 billion respectively.

These larger airlines, notes Sorensen, earn their high rankings due mostly to the sale of miles, or frequent flyer points to banks that issue co-branded cards. Yet Ryanair and EasyJet, also among the top ten earners (more than $1 billion each) earned the bulk of their ancillary income through a la carte fees and commissions on products sold on their websites, such as car rentals and travel insurance.

"Some of the best in this category have extensive holiday package business with route structures built upon leisure destinations," Sorensen noted in the report. "Allegiant in the US and in the UK share the common bond of emphasizing leisure travel. These are essentially holiday package companies that own an airline."

For these airlines, everything for revolves around the ability sell hotels, car rentals and attraction tickets to people traveling to vacation-oriented destinations, Sorensen added.

"Airlines increasingly see themselves as retailers that up-sell and cross-sell as their focus shifts from optimizing the revenue per seat to maximizing revenues per passenger," Raymond Kollau of trends research agency AirlineTrends, told CNBC recently. "For example, Ryanair now regards itself as a digital platform with an airline attached. It eventually aims to give away the seat ticket for free and earn their income via all kinds of ancillary services."

—Harriet Baskas is the author of seven books, including "Hidden Treasures: What Museums Can't or Won't Show You," and the Stuck at the Airport blog. Follow her on Twitter at @hbaskas. Follow Road Warrior at @CNBCtravel.


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