Airlines Make a Record Profit in Extra Fees

Airlines are on track to collect $42.6 billion in ancillary revenue this year, according to a new study.

learn more about Philip LeBeau

By Philip LeBeau • Oct 29, 2013

This story originally appeared on CNBC

Customers might not like them, but airlines sure do. In fact, airlines are on track to collect a record $42.6 billion in ancillary revenue, according to a new study.

That's a 17.9 percent increase compared to last year, according to carTrawler and IdeaWorks, which track ancillary fees for airlines around the world.

"On one level, I'm surprised by how quickly it (ancillary revenue) is growing," said Jay Sorensen, President of IdeaWorks "I am not surprised because there is an obvious financial need on behalf of the airline industry."

In recent years, carriers around the world, especially in the U.S. and Europe, have added or raised fees for everything from checking bags to printing out boarding passes. It has added to the bottom line of nearly every airline in the world.

"These fees have become, for many airlines, the difference between a profit and a loss, and that is not lost on airline executives all over the world," said Sorensen. "That is why I think we are going to see more and more activity in this direction."

Here is the breakdown of ancillary revenue using data from IdeaWorks and carTrawler for the last three years and this year's forecast:

  • 2010: $22.6 billion
  • 2011: $32.5 billion
  • 2012: $36.1 billion
  • 2013 (est): $42.6 billion

Airlines receive 60 percent of ancillary revenue from frequent-flier programs, 25 percent from baggage fees, 10 percent from onboard/seating services fees and 5 percent of fees from travel services, according to the study.

Frequent-flier miles, credit cards climbing

For years, airlines have realized the value of co-branded credit cards which allow them to further profit. In the last two or three years, airlines these credit-card and frequent-flier programs. Increasingly, airlines are selling additional miles to retailers, banks and other businesses, which use these frequent flier miles to attract customers.

Sorensen says it's all about locking in customers.

"(Airlines) want to push the credit card, because they generate revenue whenever someone uses the credit card, but also, the more engaged the customer becomes in the credit-card relationship, the more loyal they become to a particular airline brand," he said.

Baggage fees now account for 25 percent of the ancillary revenue generated by airlines, up 5 percentage points from last year. Sorensen sees them growing outside the U.S. and thinks they will become "more prevalent" globally.

Fees Greatest in North America

North American airlines, which have been among the most aggressive adding fees, are well ahead of the counterparts around the world when it comes to collecting ancillary revenue. This year, carriers in North America are expected to bring in $17.2 billion, easily ahead of European airlines who are projected to collect $12.6 billion, according to the study.

Recently, the big push among airlines has been allowing customers to board early or pick their seat for a small fee. This is the type of as à la carte fee airlines are pursuing because it gives customers the choice of paying up or simply ignoring the option.

As for those flying who don't like the growth in airline fees or feel they are being nickel and dimed, Sorensen says little is likely to change.

"The majority of the consumers do everything they can to avoid these fees, they take carry-ons, they don't eat anything on the airplane, so for the majority of the consumers these fees are almost they don't apply," said Sorensen. "For the consumers that are willing to pay more for comfort and convenience the answer is no, we have not reached a breaking point yet."

Philip LeBeau

CNBC Auto and Airline Industry Reporter

Related Topics

Editor's Pick

Have More Responsibilities at Work, But No Pay Bump? Use This Script to Get the Raise You Deserve.
Black and Asian Founders Face Opposition at All Levels — Here's Why That Has to Change
Business News

The Scam Artist Who Robbed Backstreet Boys and NSYNC Blind. 'Some of the Guys Couldn't Pay Their Car Payment.'

In the 1990s, Lou Pearlman made millions creating the Backstreet Boys and NSYNC. It was all a giant Ponzi scheme.

Business News

Google Gears Up to Compete With Microsoft-Backed ChatGPT — Here's What It Means

ChatGPT is building its user base faster than the most popular consumer apps created to date.

Thought Leaders

Why Investors Are Bullish on EdTech in 2023

EdTech enables educators to reach more students than ever before with the ability to deliver content beyond the limitations of a language barrier or timezone.

Business News

Frontier Airlines Just Announced Its All-You-Can-Fly Summer Pass for $399. What's the Catch?

As travel begins to pick up, the airline hopes unlimited travel will jumpstart its business.

Thought Leaders

5 Small Daily Habits Self-Made Millionaires Use to Grow Their Wealth

We've all seen what self-made millionaires look like on TV, but it's a lot more subtle than that. Brian Tracy researched what small daily habits these successful entrepreneurs adopted on their journey from rags to riches.