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Worldwide carriers’ ancillary revenues jump 11.3 percent

A new study finds that  the amount of revenue collected by airlines worldwide from sources other than ticket sales jumped by 11.3 percent this year—and two leading technology companies have teamed up to introduce another way for carriers to sell more things to passengers.

The third annual study of airline ancillary revenue, conducted by IdeaWorks and Amadeus, estimates the total of such revenues for 2012 at $36.1 billion for the world’s airlines. That will account for 5.4 percent of total revenues, the companies said, and compares with last year’s total of $32.5 billion.

The statistics define ancillary revenues to include not just the fees that carriers charge for checked bags, early boarding, food and beverage and preferred seating, but also from the sale of frequent flyer miles to partner companies and the collection of commissions for things like hotel bookings generated through the airlines.

In fact, the companies said they believe that at U.S. airlines, the majority of ancillary revenues—about 50 percent—come from the sale of frequent flyer miles, especially those linked to airline credit card spending. “This financial activity exceeds $6 billion annually in the U.S. alone,” they said.

The study found that airlines in North America are well ahead of those in other nations in the amount of ancillary revenues they collect—not only due to the large size of the North American market, but also because of “how thoroughly (these) airlines have embraced ancillary revenue methods.”

The report noted that bag fee revenues at U.S. carriers have declined slightly. “Some of this is due to increased fee waivers for travelers with elite frequent flyer status, and travelers checking fewer bags,” they said. “However, a meaningful amount of baggage revenue is now generated by the fees paid by banks that issue credit cards. These banks make payments to the airlines for the provision of ’first bag free’ benefits associated with a growing number of airline credit cards.”

IdeaWorks president Jay Sorenson predicts even more ancillary revenues will be generated in the years ahead. “The next surge of activity will occur when the sale of optional extras becomes more prevalent in the automated booking systems used by travel agents. Look for airlines to become better retailers through all distribution channels during the next three years,” he said.

Meanwhile, a new technology partnership could soon help airlines in that effort by making it a lot easier for passengers to make all kinds of purchases at their seats.

GuestLogix, a provider of payment technology solutions, recently announced a new partnership with Panasonic Avionics, one of the top suppliers of in-flight entertainment systems for global airlines.

The two companies will combine their technological expertise to make Panasonic’s seatback screen systems capable of handling credit card payments for all kinds of in-flight transactions. Guestlogix said the partnership will mean “turning hundreds of thousands of seatback screens into revenue-generating storefronts.” It’s now available to Panasonic Avionics’ airline customers worldwide.

“Shifting onboard retail control into the hands of passengers and ultimately giving them the ability to order and pay for duty-free, food and beverage, destination-based content or even in-flight entertainment itself from the seatback will allow ancillaries to be generated throughout the entire duration of the flight and not just during the finite period when flight attendants are able to provide cart service,” said Brett Proud, executive vp-new markets and products for GuestLogix.

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