Airlines to Make $49.9 Billion on Customer Fees

According to a new piece of research by two travel industry companies:

IdeaWorksCompany, the foremost consultancy on airline ancillary revenues, and CarTrawler, the leading provider of online car rental distribution systems, project airline ancillary revenue will reach $49.9 billion worldwide in 2014. The CarTrawler Worldwide Estimate of Ancillary Revenue represents a massive increase of 121% from the 2010 figure of $22.6 billion.

Put another way, the fees have obviously worked as a way to improve airline sales, and most likely profits.

Most of the additional revenue generated comes from two sources:

Revenue from optional services, such as onboard sales of food and beverages, checked baggage, premium seat assignments, and early boarding benefits was determined to represent $28.5 billion of the projected global 2014 total. The smaller share, at $21.4 billion, comes from non-fee activity such as the sale of frequent flier miles to program partners, and commissions earned on the sale of services to travelers, such as hotel accommodations and car rentals

While these sources are relatively new, they get added to other weapons the airline industry uses to improve profits — bankruptcy and mergers. Balance sheet problems were severe enough to force predecessor of American Airlines Group Inc. (NASDAQ: AAL) into bankruptcy in 2010. As it emerged from the process it married itself with U.S. Airways. At about the same time, Delta Air Lines Inc. (NYSE: DAL) combined with Northwest and United with Continental, which created United Continental Holdings Inc. (NYSE: UAL).

One of the theories behind these mergers is that they eliminate thousands of employees, allow for route consolidations and turn the costs of two executive suites into one.

Besides fees and mergers, the airlines have gotten another lift that they could not have anticipated. Oil prices have plunged, driving many carriers’ stocks to 52-week highs. Between clever management and luck, the airline business has suddenly turned from an industry in which it was hard to make profits into one with good margins. A portion of these have been carried on the backs of customers.

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