Changing Structure of Airline Revenues

Airlines are accumulating a greater share of their revenues in 2010 from fees and charges on top of the basic fare.

Reflecting a wider global trend in the airline industry, the United States’ Bureau of Transportation Statistics has published a report saying that air fares increased in price for the second quarter of 2010. The average domestic air fare is now $341, the highest since the fourth quarter of 2008 – and the fourth quarter with price rises in air fares in a row. Just a year ago, the average fare was 40 dollars less. BTS, a part of the Research and Innovative Technology Administration, reports average fares based on domestic itinerary fares, round-trip or one-way.

Fares are based on the total ticket value, which consists of the price charged by the airlines plus any additional taxes and fees levied by an outside entity at the time of purchase. Fares include only the price paid at the time of the ticket purchase and do not include other fees, such as baggage fees, paid at the airport or onboard the aircraft. Averages do not include frequent-flyer or “zero fares” or a few abnormally high reported fares.

What’s especially interesting in the report is the reflection of the fundamental change in the way airlines make money that can be seen all over the world: the share of ancillary revenues is increasing rapidly. Today, airlines accumulate 30% of their revenues with ancillaries, namely extra fees and charges on top of the basic fare. Ten years ago, 84% of airlines’ revenues came directly from ticket sales; in 2010, it’s only 70%.