Ancillary Fees Continue To Be A Major Revenue Center For Carriers Large And Small

Scheduled passenger airlines reported a profit margin of 5.1 percent in the second quarter of 2011, up from the 0.5 percent loss margin in the first quarter but a smaller profit margin than the 9.0 percent margin during the second quarter of 2010, according to a report of preliminary data released Monday by the DOT's Bureau of Transportation Statistics (BTS).

BTS Graph

BTS, a part of the Research and Innovative Technology Administration, reported that the network airlines reported an operating profit margin of 5.5 percent as a group in the April-to-June period. The low-cost group's profit margin was 4.2 percent. As part of their second-quarter revenue, the airlines collected $887 million in baggage fees and $612 million from reservation change fees from April to June.

In addition to baggage and reservation change fees, airlines reported ancillary revenue of $709 million from passengers and from other sources. This revenue category includes revenue from frequent flyer award program mileage sales and pet transportation fees. Total second quarter 2011 airline revenue from all ancillary sources that can be identified, including fees and frequent flyer sales was $2.208 billion, with Delta Air Lines reporting the most, $691 million. 

Baggage fees and reservation change fees are the only ancillary fees paid by passengers that are reported to BTS as separate items. Other fees, such as revenue from seating assignments and on-board sales of food, beverages, pillows, blankets, and entertainment are reported in a different category with other items and cannot be identified separately.

BTS Graph

The combined baggage and reservation change fees from passengers combined with ancillary revenue from other sources constituted 5.5 percent of the total revenue of the 28 carriers that reported receiving ancillary revenue. Spirit Airlines reported the largest percent of operating revenue from ancillary revenue of any carrier, 29.7 percent.

The six network carriers posted a profit margin of 5.5 percent in the second quarter with a combined operating profit of $1.6 billion.  In the second quarter of 2010, the network carriers reported a profit margin of 9.0 percent with a profit of $2.4 billion. The seven low-cost carriers reported a 4.2 percent profit margin, with profits of $283 million for the 11th consecutive profitable quarter. The seven regional airlines reported a 2.5 percent profit margin that included profits of $49 million.
 
Operating margin measures profit or loss as a percentage of the airline’s total operating revenue. The top three operating profit margins of the three carrier groups were reported by network carriers Alaska Airlines and Continental and low-cost carrier Spirit Airlines. Horizon Airlines reported the top loss margin of any carrier.

Network carriers operate a significant portion of their flights using at least one hub where connections are made for flights on a spoke system. Low-cost carriers are those that the industry recognizes as operating under a low-cost business model, with lower infrastructure and aircraft operating costs and with less reliance on the hub-and-spoke system. Regional carriers provide service from small cities, using primarily regional jets to support the network carriers’ hub and spoke systems. The selected network, low-cost and regional groups consist of those airlines in each group with the highest reported operating revenue in the most recent complete calendar year.

FMI: www.bts.gov