Airline Fee Profits On The Rise Again

This past Monday the U.S. Bureau of Transportation Statistics released the 2010 2nd Quarter financial data for U.S. airlines and the news was not surprising … ancillary revenue profits are continuing to increase.

I have been writing about the Bureau of Transportation Statistics findings for the past two years or so because I find this shift in airline revenue quite interesting … and it also demonstrates how airlines are finding new channels to keep airfares lower and competitive.

The 2010 2nd Quarter earnings show one clear winner as was seen in the 2010 1st Quarter earnings … Delta, the world’s largest airlines (well for the next few weeks anyway) is raking in the most money.

In the 2010 2nd Quarter the cost of fuel also increased, with the six major network airlines spending 25.5% of these operating expenses on fuel, vs the 22.1% they spent in the 1st quarter of the year.

While fuel costs rose 3.4%, passenger yields also increased in the 2nd quarter up 13%, vs the 11% increase seen in the 1st quarter…

…but onto the interesting stuff …

One of the most irritating fees airline travelers face is Change of Reservation fees. You want to switch flights … there is a fee for that, and Delta Air Lines let the pack, increasing their earnings in Change of Reservation fees by a staggering 80.5% from the 2009 2nd Quarter, bringing in US$181,800,000. Delta was followed by American Airlines at US$121,000,000 and United Airlines at US$83,700,000.

Once United Airlines and Continental Airlines merge … their combined Change of Reservations fees still would not match Delta, the combined United and Continental fees totaled US$144,800,000 … US$37,000,000 less than Delta.

The airline earning the least from Change of Reservation fees was Hawaiian Airlines at US$4,600,000, a decrease of -30.3% from the 2009 2nd Quarter.

All in all, major U.S. airlines brought in a total of US$594,000,000 in fees collected from those changing their reservations.

Airlines have fully embraced ancillary revenue channels, from the nickel-and-dime Spirit Airlines to the major legacy airlines such as United Airlines.  Ancillary revenue can be a bit hard to define, since it is the miscellaneous sales the airlines make, but they generally include Buy-on-Board meals, liquor, seat assignment fees, on-board pay-for entertainment, blankets & pillows, headsets, etc.

Once again … in the ancillary revenue area, Delta Air Lines tops out against all other airlines, having collected a massive US$681,600,000 in the 2010 2nd Quarter. The next closest airline behind Delta was American Airlines, having collected US$292,300,000 … or US$389,300,000 LESS than Delta.

The airline earning the least in ancillary revenue was Spirit Airlines at US$41,900,000. The Spirit Airlines ancillary revenue numbers are interesting, because the small airline’s ancillary revenue actually accounts for 24.2% of its total operating revenue, more than double what the next closest airline earns in ancillary revenue when compared to its total operating revenue.  Delta Air Lines’ ancillary revenue for example only accounts for 8.3% of its total operating revenue.

So how much did airlines actually earn on ancillary revenues this quarter … wait for it … are you ready … OK … here goes … US$2,105,000,000!

Now onto the fee everyone is waiting to see (OK, maybe not … but it is the fee complained about the most) … Baggage Fees.

Yup, that’s right, no matter how many times you see stories on how to avoid baggage fees on Facebook, on Twitter, on LinkedIn or on the news … it seems that baggage fees are increasing ever single quarter.

Top of the list? No surprise, the largest airline in the United States and the World … Delta Air Lines.   In the 2010 2nd Quarter Delta Air Lines brought in a whopping US$256,000,000 in checked baggage fees, an increase of 116.2% from the 2nd quarter of 2009 … and US$100,000,000 more than its next closest competitor airlines, American Airlines. American Airlines brought in US$152,100,000 in checked baggage fees this quarter.

Southwest Airlines doesn’t even rank in the top 10 airlines for baggage fees collected because they all two bags to be checked at no cost … so while they earn baggage revenue when passengers check more than two bags, or have overweight bags … they don’t even rank in this area.

All told, at the end of the 2010 2nd Quarter, major U.S. airlines collected US$892,800,000 in baggage fees, for an increase of 33.3% from the 2009 2nd Quarter.

As Delta Air Lines continues to build its financial strength in fees collected, the airlines ranks the lowest among major network carriers in terms of Passenger Revenue Per Mile (RPM), earning 12.6¢ per miles where as United Airlines is earning 13.4¢ per revenue mile.

…and who earns the most per Passenger Revenue Per Miles?  Southwest Airlines at 14.5¢.  The low cost carrier, with the least amount of passenger fees, once again leads the U.S mainline airlines in its earring potential.

So … where does this leave us as passengers? Well generally with a few dollars less in our pockets, but its always good to know where your money is going … even if you don’t like it.

Happy Flying!

Comments

  1. Thanks for posting… interesting to read about all this.

    If I were an economist, I’d like to see the ancillary revenues weighted against say… RPMs or some other figure to get more of a scale based on passengers carried. I’m too lazy to do it myself.

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