Sunday, November 2, 2014

Baggage Fees and The Airline Industry

Ancillary revenue has become a major part of airline industry revenue, but few realize just how important it is to airlines. In a previous article, Fools learned about how ancillary, or add-on, revenue is defined and which airlines are the biggest revenue generators. Unsurprisingly, the budget/discount airlines rely on ancillary revenue the most, but traditional airlines such as United Airlines (NYSE: UAL  ) are increasingly relying on it, too. Let's take a look at some industrywide figures that help explain the importance of this revenue to airline profitability, and at who is doing what.

Source: Motley Fool Flickr account.

Growth of ancillary revenue
It's hard to put an exact figure on industrywide profitability from ancillary revenue, because not all airlines disclose the data and/or break out profits generated from ancillary revenue. However, it's safe to assume that activities like baggage checking, seat allocation, booking fees, and on-board entertainment are high-margin activities. With this in mind, here is a comparison of industrywide ancillary revenue, garnered from The CarTrawler Yearbook of Ancillary Revenue by IdeaWorksCompany, versus estimates for airline profitability.