United Airlines miles purchase is primary ancillary revenue generator

A good research report from IdeaWorks details the rise of ancillary revenue among the world’s airlines. Ancillary revenue is the money generated from fees like baggage, seat assignments, on board food and in flight entertainment. Frequent flier program fees and miles sales are also ancillary revenue. And for United Airlines, the sale of frequent flyer miles is responsible for 51% of the company’s $5.7 billion in ancillary revenue for 2013. United Airlines miles purchase is primary ancillary revenue generator propping up the company’s bottom line.

IdeaWorks researched financial statements and investor presentations of 114 airlines. The rise of ancillary revenue since 2007 across the airline industry is evident in the statements.

  • 2007 = $2.45 billion (23 airlines)
  • 2008 = $10.25 billion (35 airlines)
  • 2009 = $13.47 billion (47 airlines)
  • 2010 = $21.46 billion (47 airlines)
  • 2011 = $22.60 billion (50 airlines)
  • 2012 = $27.1 billion (53 airlines)
  • 2013 = $31.5 billion (59 airlines)
  • 2014 = ???

The average ancillary revenue for the 59 airlines raking in $31.5 billion in 2013 was $16 per passenger. Tony Tyler, CEO of IATA stated at an airline industry conference in June 2014 that airlines hope to achieve an average net profit of 2.4%, which is slightly less than $6 per passenger. Ancillary revenue is important to the bottom-line profitability of airlines.

Ancillary Revenue Income Range

IdeaWorks has tracked ancillary revenue since 2007. The top 10 airlines generated $2.1 billion in ancillary revenue in 2007. In 2013, the top 10 airlines generated $20.4 billion in ancillary revenue for nearly a 10-fold increase. United Airlines leads the pack.

Top 10 Airlines – Total Ancillary Revenue 2013 (data from IdeaWorks)

1. United Airlines = $5.70 billion (2007 = $600 million)

2. Delta Airlines = $2.53 billion

3. American Airlines = $2.08 billion

4. Air France = $1.71 billion

5. RyanAir = $1.69 billion (2007 = $521 million)

6. Southwest = $1.62 billion

7. EasyJet = $1.39 billion (2007 = $273 million)

8. Lufthansa Group = $1.28 billion

9. Qantas Group = $1.27 billion

10. US Airways = $1.10 billion

United Airlines, RyanAir and EasyJet were the only airlines in the top 10 for ancillary revenue in 2007 still in the top ten in 2013. This means seven airlines listed in the top ten for 2013 had less than $71 million in ancillary revenue in 2007 which was the 10th place spot for ancillary revenue in 2007.

The sell of frequent flyer miles contributes to a large portion of ancillary revenue among the legacy carriers. The addition of fees in the past seven years for checked bags, airplane food and drinks, inflight entertainment and ticket change fees all add to ancillary revenue.

Legacy carriers adopted many of the fees traditionally employed by low cost carriers like RyanAir and EasyJet to increase ancillary revenue. On top of the fees associated with flying, the legacy carriers have turned to the banks as an outlet for selling frequent flyer miles.

Here are some examples of increased ancillary revenue in 2013.

Aeroflot sales of frequent flyer miles to partners increased to $173.6 million in 2013, up from $73.5 million in 2012.

Hawaiian earned $6.6 million in 2013 from the sale of preferred seating.

Southwest earned $195 million in 2013 from Early Bird Check-in fees.

Pay for a seat and pay for all your bags and water too

As you will probably have realized if you fly low cost carriers, a large percentage of the airline revenue comes from ancillary fees.

In September, I flew Norwegian Airlines in Norway and Allegiant Airlines from Monterey to Las Vegas. When booking my tickets, I paid for carry-on and checked bags at the time of booking. The baggage fee is more than double the price when paying at the airport. Allegiant charged $20 for one carry-on bag. A passenger I overheard boarding the Allegiant plane in Las Vegas without a carry-on bag listed on his ticket argued with the Allegiant agent about the $50 bag fee. He lost the argument.

On board the Norwegian and Allegiant aircraft, there is a charge for water or any inflight food and beverage. I first experienced the water charge when flying RyanAir from London to Dublin in 1997. I had met a British couple on their way to Spain for a summer holiday and we sat in a Heathrow pub for about five pints. I was loaded on the RyanAir flight and I went to the back of the plane to the galley where there was an open and nearly full 1.5L bottle of water. The flight attendant was in the bathroom. I downed that bottle of water and returned to my seat. Then, I learned that water is not free and I had consumed about five GBP worth of water ($8 USD). In Dublin the flight attendants would not let any passengers off the plane and threatened to call the police. Fortunately, not on me. The incident they were more upset about was someone had stolen a Disney watch from the duty-free cart. The watch appeared under a passenger seat and I exited the plane carrying $8 of stolen water in my belly. RyanAir introduced me to ancillary fees long ago.

Norwegian donated 1 krone from the sale of each water bottle sold onboard to UNICEF.  The carrier sold 1.3 million bottles during 2013 and donated $212,000 to UNICEF. (IdeaWorks).

United Airlines 2013 Profile (text summary of IdeaWorks table)

  • Ancillary Revenue $5,703,000,000
  • As a % of Revenue 14.9%
  • Dollars per Passenger $40.97
  • 2013 Total Revenue $38,279,000,000
  • Passengers 139,209,000  
  • United disclosed ancillary revenue was $2.8 billion for 2013 during a
  • The objective is to grow ancillary revenue by 8% for 2014 and to $3.5 billion by 2017. 
  • United defined its ancillary revenue category in the 2013 Investor Day presentation:
  • – Unbundling:  checked bags and meals.
  • – New products:  streaming entertainment and Wi-Fi.
  • – Optimization:  Premier Access, United Club, Fare Lock and premium cabin upsell. 
  • Future frequent flier program objectives will include these elements:
  • – Grow the co-branded card portfolio.
  • Card spend increased 35% and active card members increased 16% over last 3 years.  Co-branded cards are offered in 15 countries with Japan and Mexico added during 2013.
  • – Expand the MileagePlus network of accrual partners.
  • – Increase the direct sale of miles to members.
  • – Create new products, such as the Small Business Network (B2B mileage accrual for business spending).
  • – Partner with innovative ventures such as RocketMiles. 
  • United disclosed mileage sales of $2.903 billion for 2013.  
  • Total ancillary revenue for 2013 was $5,703,000,000 represented by $2.8 billion (described above as ancillary revenue) and
  • $2.903 billion from the sale of miles. 

The 2014 Ancillary Revenue Report Series is a fascinating read to gain some insight to your preferred airlines. Jay Sorensen of IdeaWorks researched the report sponsored by CarTrawler is an Ireland based technology company in car rental solutions.


Ric Garrido of Monterey, California is writer and owner of Loyalty Traveler.

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About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

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