The CarTrawler Yearbook of Ancillary Revenue by IdeaWorksCompany Table of Contents 2014 CarTrawler Yearbook of Ancillary Revenue ............................................................................... 4 Summary of the Results ....................................................................................................................... 4 About Individual Airline Listings ....................................................................................................... 11 Europe and Russia .................................................................................................................................... 18 The Americas ............................................................................................................................................ 39 Asia and the South Pacific ...................................................................................................................... 63 Middle East and Africa ............................................................................................................................. 80 Currency Exchange Rates Used for the Worldwide Statistics .................................................. 84 The free distribution of this report is made possible through the sponsorship of CarTrawler. Established in Ireland in 2004, CarTrawler is a leading international technology company. CarTrawler builds and performance-manages multi-brand car rental solutions for airlines, online travel retailers and hotel groups. Today, many of the biggest names from across the travel industry offer their customers car rental at 30,000 pick-up locations in 174 countries through the CarTrawler car rental marketplace. The company is led by CEO Mike McGearty with more than 200 staff working from offices in Boston, Dublin and London. CarTrawler also owns and operates online car rental brands Holiday Autos and Argus Car Hire. For more visit www.cartrawler.com. Issued 08 September 2014 by IdeaWorksCompany.com LLC Shorewood, Wisconsin, USA www.IdeaWorksCompany.com 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 1 About Jay Sorensen, Writer of the Report Jay Sorensen‘s research and reports have made him a leading authority on frequent flier programs and the ancillary revenue movement. He is a regular keynote speaker at the annual MEGA Event, spoke at IATA Passenger Services Symposiums in Abu Dhabi and Singapore, and has advised the US Congress on ancillary revenue issues. His published works are relied upon by airline executives throughout the world and include first-ever guides on the topics of ancillary revenue and loyalty marketing. He was acknowledged by his peers when he received the Airline Industry Achievement Award at the MEGA Event in 2011. Mr. Sorensen is a veteran management professional with 30 years experience in product, partnership, and Jay, with sons Anton and Aleksei, on the marketing development. As president of the North Fork Trail in North Cascades IdeaWorksCompany consulting firm, he has enhanced National Park in Washington. the generation of airline revenue, started loyalty programs and co-branded credit cards, developed products in the service sector, and helped start airlines and other travel companies. His career includes 13 years at Midwest Airlines where he was responsible for marketing, sales, customer service, product development, operations, planning, financial analysis and budgeting. His favorite activities are hiking, exploring and camping in US national parks with his family. About Eric Lucas, Editor of the Report Eric Lucas is an international travel, natural history and business writer and editor whose work appears in Michelin travel guides, Alaska Airlines Magazine, Westways Magazine and numerous other publications. He is the author of eight books, including the 2013 Michelin Alaska Guide and the 2014 Michelin Hawaii Guide. Eric has followed and written about the travel industry for more than 25 years. He lives in Seattle, Washington, where he grows and sells organic garlic; visit him online at www.TrailNot4Sissies.com. Eric, at his favorite summer retreat, Steens Mountain, Oregon. Disclosure to Readers of this Report IdeaWorksCompany makes every effort to ensure the quality of the information in this report. Before relying on the information, you should obtain any appropriate professional advice relevant to your particular circumstances. IdeaWorksCompany cannot guarantee, and assumes no legal liability or responsibility for, the accuracy, currency or completeness of the information. The views expressed in the report are the views of the author, and do not represent the official view of CarTrawler. 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 2 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 3 2014 CarTrawler Yearbook of Ancillary Revenue Summary of the Results IdeaWorksCompany researched the financial filings made by 114 airlines all over the world, 59 of which disclose ancillary revenue activity, to reveal that ancillary revenue1 reported by airlines reached $16 per passenger in 2013, easily surpassing global figures for profit per passenger. IdeaWorksCompany Analyzed Financial Statements from 114 Airlines Worldwide Asia / South The Americas Pacific 20% 29% Middle East Europe and and Africa Russia 11% 40% The carriers that comprise the 114 airlines provide financial statements or investor presentations and typically offer shares to the public. IdeaWorksCompany used a number of resources, such as airline stock indexes, to identify these publicly-held airlines. Some of the carriers included do not offer shares to the public, but provide financial information at airline websites. Airlines which are privately owned and don’t disclose financial results are not included in this analysis. Annual Financial Disclosures of Ancillary Revenue 2013 2012 2011 2010 2009 2008 2007 Results Results Results Results Results Results Results Posted by Posted by Posted by Posted by Posted by Posted by Posted by 59 Airlines 53 Airlines 50 Airlines 47 Airlines 47 Airlines 35 Airlines 23 Airlines $31.5 $27.1 $22.6 $21.46 $13.47 $10.25 $2.45 billion billion billion billion billion billion billion Annual results are associated with a fiscal period that ended in the year indicated. Ancillary revenue, consisting of a la carte charges, commissions on travel-oriented services, and the sale of frequent flier points, now provides the power to allow airlines to be profitable. Tony Tyler, Director General and CEO of IATA, stated at a recent conference the world’s airline industry hopes to achieve a 2.4% average net margin for 2014, which is less than $6 per passenger.2 1 The figures in this release relate to the revenue earned by the 59 airlines which disclosed through financial filings some type of ancillary revenue activity in 2013; including a la carte, or unbundled, services, commission-based services – such as hotel or car rental bookings – and other ancillary services revenue from co-branded credit cards, loyalty programs and other activities. 2 Tony Tyler's State of the Industry speech, International Air Transport Association, 02 June 2014. 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 4 Average ancillary revenue per passenger for the 59 airlines disclosing results for 2013 was $16. The high margins associated with checked bags and loyalty points easily ensure this amount provides profits beyond the $6 threshold predicted by IATA. Among the 59 disclosing carriers, 44 achieved ancillary revenue above $6, ranging from China Eastern at $6.43 to Jet2.com at $55.61 per passenger. The record number of airlines included in the 2013 fiscal year review testifies to the importance ancillary revenue plays in the health of the global airline industry. This year’s CarTrawler Yearbook of Ancillary takes a look back at the beginnings of this still- youthful method of boosting revenue. IdeaWorksCompany first tracked ancillary revenue activity seven years ago for 2007. That was before global airlines started charging extra for checked bags, early boarding, and extra leg room seating. Total annual ancillary revenue of just $71 million placed Alitalia in the top 10 ranking for 2007. Today, the #10 slot is held by US Airways at $1.1 billion. As a group, the 2007 top 10 carriers generated total ancillary revenue of nearly $2.1 billion. Seven years later, some of the original airlines remain on the top 10 list. But the total revenue volume for the top 10 has undergone drastic change by surging to $20.4 billion. It’s true, some have grown through mergers. But the primary reason for the bigger numbers is the fact that ancillary revenue has become so commonplace in today’s airline industry. Table 1: Top 10 Airlines – Total Ancillary Revenue (US dollars) Ancillary Annual Results – 2013 Annual Results – 2007 Source $5,703,000,000 United Various $600,000,000 United $2,528,183,000 Delta Various $521,429,760 Ryanair $2,079,000,000 American Various $272,846,172 easyJet $1,714,598,496* Air France/KLM Various $194,200,000 Alaska Air Group $1,689,457,120 Ryanair Various $91,306,080 Aer Lingus $1,623,500,000 Southwest Various $83,664,000 Air Berlin $1,385,021,933* easyJet Various $79,747,344 Korean Air $1,282,738,470 Lufthansa Group Various $78,585,787 WestJet $1,273,430,400 Qantas Airways 80% FFP $77,904,000 Austrian $1,102,700,000 US Airways Various $71,074,080 Alitalia $20,381,631,432 $2,070,759,229 Currency exchange based upon rates in effect when financial information was reviewed for each annual period. 2013 and 2007 carrier results were based upon recent 12-month financial period disclosures. * IdeaWorksCompany estimate based upon past disclosure updated for current Yearbook. Some of the biggest brands in the business are now engaged in all aspects of ancillary revenue. Most global airlines rely on a buffet of activities with a large emphasis placed on checked baggage and the sale of frequent flier miles or points to partners. Qantas is the most successful in terms of loyalty marketing results with approximately 80% of its ancillary revenue associated with its Qantas Loyalty business unit. The carrier deemphasizes a la carte activities by continuing to bundle elements such as baggage, food, and beverages in its basic fares. 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 5 When ancillary revenue is described as a percentage of revenue, it is low cost carriers that dominate the results in 2007 and 2013. Michael O’Leary, the outspoken CEO of Ryanair, once mused, “The other airlines are asking how they can put up fares. We are asking how we could get rid of them.”3 His idea was to rely upon ancillary revenue as a replacement for passenger fares. Ryanair was the top performer in 2007 at 16.2% when measured on the basis of ancillary revenue as a percent of total airline revenue. It can be said the “mighty have fallen” as the carrier slipped to 5th place for 2013. Leadership of the ancillary revenue revolution is now held by Spirit, Wizz Air, and Allegiant. These carriers have broken the 30% threshold that may forever elude Mr. O’Leary. Wizz Air joins the review this year courtesy of IPO filing disclosures; the IPO was canceled in June 2014 due to unattractive market conditions. Historically, the carrier always operated in stealth mode and guarded results like a state secret. Table 2: Top 10 Airlines – Ancillary Revenue as a % of Total Revenue Ancillary Annual Results – 2013 Annual Results – 2007 Source 38.4% Spirit Various 16.2% Ryanair 34.9% Wizz Air Various 14.2% Vueling 32.6% Allegiant Various 12.8% Allegiant 27.7% Jet2.com Various 9.0% Air Deccan 24.8% Ryanair Various 8.8% easyJet 23.6% Tigerair Various 6.8% AirAsia 20.6% Jetstar Various 6.8% SkyEurope 19.6% AirAsia X Various 5.8% Alaska Air Group 19.2%* easyJet Various 4.2% Aer Lingus 17.6% AirAsia Group Various 4.2% WestJet 2013 and 2007 carrier results were based upon recent 12-month financial period disclosures. * IdeaWorksCompany estimate based upon past disclosure updated for current Yearbook. Spirit Airlines earns its top listing through aggressiveness. The airline is simultaneously proud of complementary objectives. It’s proud of its ability to deliver ultra-low Spirit Airlines -Ancillary Revenue Sources fares for consumers, and equally proud of pushing the limit on fees. It Passenger Usage Advance Seat introduced the idea of charging fees for Charge* Selection large carry-on bags in 2010.4 That 30% 9% same year, the average fare charged to Sale of FFP consumers fell to its lowest point since Checked and Miles 5% the carrier had changed to a low fare Cabin Baggage Other Items strategy in 2005.5 Not surprisingly, the 43% 13% non-ticket component (ancillary Source: 2013 Form 10-K for Spirit Airlines revenue) increased from $3.38 to * Fee applies to all bookings except those made at the airport. $31.28 during the same period. 3 “Flying for 'free' on Ryanair” BBC News article dated 13 May 2011. 4 “Airline to charge for carry-on bags” CNN article dated 06 April 2010. 5 S-1 Registration Document for Spirit Airlines dated 17 September 2010 (page 54). 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 6 Spirit’s results include the passenger use fee paid by all passengers except those who opt to buy tickets at airport locations. This “optional fee” qualifies as ancillary revenue only under the most liberal interpretation. The fact the fee can be avoided by buying tickets at the airport does indeed make it optional, but in practice the fee is paid by the vast majority of Spirit’s customers. The fee, which ranges from $8.99 to $16.99 each way, is part of the base fare displayed at the carrier’s website. Consumers must scroll through the fine print at the bottom of the page to learn it can be avoided by booking at the airport. It’s the type of opaque practice that one low cost carrier on the other side of the Atlantic no longer seeks. Michael O’Leary began his charm offensive at the end of 2013 by remaking Ryanair into a kinder and gentler airline. The carrier introduced a number of new policies to significantly enhance the customer experience. These include a 24-hour grace period for bookings, lower bag fees, and the addition of a free 2nd small carry-on.6 Cabin crew will also stop the seemingly continuous announcements to sell cigarettes and lottery cards on flights between 9 p.m. and 8 a.m. Civility will have a price, as this limits a la carte revenue. As airlines search for every penny, peso, and pound, the a la carte methods used by global and low cost carriers are beginning to converge. British Airways, the very icon of airline civility, now has seat assignment fees for many travelers and bag fees for some fares within Europe. The airline disclosed in its 2013 annual report revenue of £40 million ($68 million) from seat assignment fees and approximately £45 million ($77 million) from checked baggage. Equally iconic Singapore Airlines took a different approach, and launched an entirely new low cost carrier to scoop up its share of ancillary revenue. Its Scoot Airline unit is as aggressive as any other LCC and even suggests on its home page that consumers pre-pay bag fees online to “avoid being slapped with hefty baggage fees” at the airport.7 All of these behaviors provide evidence the ancillary revenue revolution has reached every nook and cranny of the airline industry in terms of geography and business models. Table 3: Top 10 Airlines – Ancillary Revenue per Passenger (US dollars) Ancillary Annual Results – 2013 Annual Results – 2007 Source $55.61 Jet2.com Various $14.36 Allegiant $51.22 Spirit Various $13.75 Vueling $45.67 Qantas Airways 80% FFP $12.27 Ryanair $44.87 Allegiant Various $10.58 Aer Lingus $44.43 AirAsia X Various $10.32 LTU $40.97 United Various $8.65 United $38.93 Korean Air Various $8.27 easyJet $34.41 Wizz Air Various $8.19 Spanair $33.92* Virgin Atlantic 80% FFP $8.08 Alaska Air Group $32.61 Alaska Air Group Various $7.19 Austrian Currency exchange based upon rates in effect when financial information was reviewed for each annual period. 2013 and 2007 carrier results were based upon recent 12-month financial period disclosures. * IdeaWorksCompany estimate based upon past disclosure updated for current Yearbook. 6 “Michael O'Leary promises 'significant' enhancements to Ryanair experience” Irish Independent article dated 31 December 2013. 7 Home page advertisement viewed at FlyScoot.com June 2014. 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 7 The top 10 list of airlines based upon ancillary revenue on a per passenger basis provides a diverse array of airlines. Topping the list is Jet2.com which is a leisure-oriented airline with bases in Scotland and northern England. The carrier has clearly mastered a la carte skills and readily promotes a variety of extras in its booking path and eagerly offers holiday elements such as car rental and hotel accommodations. Qantas and Virgin Atlantic make the list due to very successful co-branded credit card portfolios. The definition of ancillary revenue offered by IdeaWorksCompany includes the revenue produced by frequent flier programs along with a la carte items such as checked bags and the commissions earned on services such as car rental and hotel bookings. Loyalty programs are becoming increasingly integrated into the business of ancillary revenue. Co- branded credit cards in the US now include perks such as checked bags, early boarding, and airport lounge access. These represent optional extras once directly purchased by consumers, that have become card amenities purchased by banks from airline partners. United Airlines has made its MileagePlus program into an ancillary revenue powerhouse. The carrier disclosed mileage sales in excess of $2.9 billion for 2013.8 Spending by co-branded credit cardholders increased 35% and active card members increased 16% over the last three years.9 Activity has spread far beyond the US with co-branded cards offered in 15 countries with Japan and Mexico added during 2013. United’s experience nicely summarizes the state of ancillary revenue today. It’s ever growing in terms of revenue results, consumer acceptance, and geographic coverage. Perhaps it’s time to stop referring to the movement as a “revolution.” Ancillary revenue has become so commonplace, and such a necessary part of economics, that it has matured from a revolutionary state to something benignly called . . . “a good business practice.” Specific ancillary services identified in this Yearbook Airlines are increasingly more revealing about their approach to ancillary revenue. During the course of its global review of ancillary revenue activities, IdeaWorksCompany uncovered the following examples: • Aeroflot sales of frequent flier miles to partners leaped to $173.6 million for 2013 from a 2012 result of $73.5 million.  Air Greenland generated $8.1 million from the operation of its 100% owned Hotel Arctic, the world’s “most northerly 4-star hotel.”  Allegiant has an exclusive agreement with Enterprise Holdings to provide car rentals packaged with air travel. The relationship generated 844,858 car rental days during 2013.  Norwegian donated 1 krone from the sale of each water bottle sold onboard to UNICEF. The carrier sold 1.3 million bottles during 2013 and donated $212,000 to UNICEF.  Hawaiian realized revenue of $6.6 million from the sale of preferred seating for a 12-month period during 2013.  Southwest realized $195 million during 2013 from its EarlyBird check-in feature which provides earlier boarding and better access to overhead carry-on space.  Volaris, a low fare airline in Mexico, generated $1.8 million from the sale of memberships in its V- Club, which provides access to members-only low fare deals.  Spirit gained $28.5 million from the sale of Free Spirit mileage credits to loyalty program partners, such as the issuer of its co-branded credit card. Currency exchange based upon rates in effect when financial information was reviewed for each annual period. 8 United Continental Holdings Annual Report for 2013. 9 United Airlines Investor Day presentation dated November 19, 2013. 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 8 Tables 1a and 3a – euros The following tables reflect actual euro disclosures by Euro-zone airlines. All other financial disclosures have been converted to euros using rates in effect for 2013 and 2007. Carrier rankings remain the same as dollar-based tables but year over year changes for individual carriers will be different due to exchange rate fluctuations. Table 1a: Top 10 Airlines – Total Ancillary Revenue (euros) Primary Annual Results – 2013 Annual Results – 2007 Source € 4,209,954,600 United Various € 416,116,752 United € 1,866,304,691 Delta Various € 362,104,000 Ryanair € 1,534,717,800 American Various € 189,476,508 easyJet € 1,265,760,000* Air France/KLM Various € 134,662,086 Alaska Air Group € 1,247,200,000 Ryanair Various € 63,407,000 Aer Lingus € 1,198,467,700 Southwest Various € 58,100,000 Air Berlin € 1,022,394,742* easyJet Various € 55,380,100 Korean Air € 946,950,000 Lufthansa Group Various € 54,573,463 WestJet € 939,932,400 Qantas Airways 80% FFP € 54,100,000 Austrian € 814,013,140 US Airways Various € 49,357,000 Alitalia Currency exchange based upon rates in effect when financial information was reviewed for each annual period. 2013 and 2007 carrier results were based upon recent 12-month financial period disclosures. * IdeaWorksCompany estimate based upon past disclosure updated for current Yearbook. Table 3a: Top 10 Airlines – Ancillary Revenue per Passenger (euros) Primary Annual Results – 2013 Annual Results – 2007 Source € 41.05 Jet2.com Various € 9.95 Allegiant € 37.81 Spirit Various € 9.55 Vueling € 33.71 Qantas Airways 80% FFP € 8.52 Ryanair € 33.12 Allegiant Various € 7.35 Aer Lingus € 32.79 AirAsia X Various € 7.17 LTU € 30.24 United Various € 6.00 United € 27.25 Korean Air Various € 5.74 easyJet € 25.40 Wizz Air Various € 5.69 Spanair € 25.04* Virgin Atlantic 80% FFP € 5.61 Alaska Air Group € 24.07 Alaska Air Group Various € 4.99 Austrian Currency exchange based upon rates in effect when financial information was reviewed for each annual period. 2013 and 2007 carrier results were based upon recent 12-month financial period disclosures. * IdeaWorksCompany estimate based upon past disclosure updated for current Yearbook. 2014 Yearbook of Ancillary Revenue Results © IdeaWorksCompany.com LLC Page 9