After writing recently about the perils of viewing ancillary revenue in isolation from the overall PRASM/PRASK picture, I was impressed to see the following from Steven Frischling’s Flying with Fish blog.
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 earning potential.
I’m a huge fan of ancillary revenue and the yet to be maximized upside of this category, but it is just one element in the overall revenue story.
On an only slightly related topic, one thing I liked when I was coming back through Chicago O’Hare yesterday was how United were pushing their economy plus package. It got me thinking about about some conversations I’ve had with industry players recently regarding when in the customer experience it is most effective to sell unbundled services. I’ve probably had this conversation four times in the past week with various people, but most of the time we were talking shopping versus servicing; we never discussed what United are doing in the photo below – have a girl standing around the air-side kiosks with a suitcase containing a built-in screen extolling the virtues of trading up to Economy Plus (complete with a Starbucks promotional tie-in). Looks like the guy in the photo took the bait.
September 30, 2010 at 7:53 am
The comparative RPM is an interesting issue. The higher the fare the higher the RPM. What is interesting is whether or not Southwest is really a low cost carrier. The answer is yes but it is also a high price carrier. This is something that NO ONE understands. When WN enters a market it comes in at a low price point. Once it reaches market maker status it keeps headline fares low but raises its prices – slightly. The difference is that WN has the lowest fares or equal but it SELLS a higher fare by approx. 10% which results in the higher gross RPM.
If the analysis – which if I had time I would do – could look at the historical perspective – it would show that the difference in airline RPM has been the same and stable for some time (at least that is what I believe). UA gets more cents per mile but has higher cost. What is interesting (and this is hidden) is that WM has ancillary services – they just bundle it into a fare family (e.g. the 2 biz class fares) and the buying of pre-boarding @ $10-15 so no BS please on WN being a no fees carrier. For UA they have a hard time collecting for the extra leg room of economy plus as a discrete service thus its typically bundled into the fare… which is reported as a fare not an ancillary. They also have one of the highest set of fees of any airline which in turn causes them to collect less fees.
Remember that the core premise of airline pricing is a lack of transparency. You need look no further than WN to show just how good they are at collecting more money than other airlines.
October 10, 2010 at 6:40 am
Some basics that a lot of non-airline people like Steve just don’t understand – you can’t compare WN unit revenue with DL without adjusting for stage length. Its like comparing city and highway mpg.
October 10, 2010 at 2:58 pm
Fair point about stage length. I actually posted that quote above a bit too quickly, and probably should have added a few such caveats myself. But it is still good that someone is trying to make some comparisons based on something other than implied frequent flyer program valuations and then calling that ancillary revenue.