Airline Ancillary Revenue and Loyalty Guide for 2012 The best single resource in your quest for revenue success. Contents

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2 Airline Ancillary Revenue and Loyalty Guide for 2012 The best single resource in your quest for revenue success. Contents Welcome Aboard An Introduction by Jay Sorensen... 5 Airlines Woo Members with Wild, Weird and Wonderful Rewards... 8 Beyond Merely Rewarding to Really Brand-Building... 9 Crafting a Rewarding Alternative Reward Strategy... 9 Adventure & Outdoor Fun Fun Treats & Little Luxuries Member Auctions & Raffles Personal Growth Rewards from the Airline Special Events & Rare Items Unique Travel Experiences Points, Pillows and Porsches: Car and Hotel Rewards at the Top 30 Airlines For every action there is an equal and opposite reaction San Francisco is sexier than a toaster Making rewards easy or not-so-easy The top 30 list represents the world s largest airlines Online methods are more rewarding for members Car and hotel rewards deliver about a penny per mile value The laws of attraction help explain loyalty Worldwide Report of Reward Availability for Introduction to the Report Carriers Included in the Analysis Components of the Reward Booking Data Reward Query Methodology Airline Data Section Notes Commentary on Individual Airline Results Graph: Overall Reward Availability Graph: Long-Haul Flights Reward Availability Graph: Flights 251 to 2,500 Miles Reward Availability Graphs - Reward Availability by Month Air Berlin topbonus Air Canada - Aeroplan Air France/KLM Flying Blue AirTran A+ Rewards Alaska Airlines Mileage Plan American - AAdvantage British Airways Executive Club Cathay Pacific Asia Miles Airline Ancillary Revenue and Loyalty Guide 2012 IdeaWorksCompany.com LLC Page 1

3 Delta - SkyMiles Emirates - Skywards GOL Smiles Iberia Iberia Plus JetBlue True Blue LAN Airlines - LanPass Lufthansa/SWISS/Austrian Miles & More Qantas Airways Frequent Flyer SAS Scandinavian - EuroBonus Singapore - KrisFlyer Southwest Rapid Rewards Turkish Miles&Smiles United Mileage Plus US Airways Dividend Miles Virgin Australia Velocity Rewards Appendix Table of Query Dates Used in This Report Worldwide Report of Ancillary Revenue for Introduction to the Report Tables 1a and 3a Top 10 Airlines Ancillary Revenue Defined About Individual Airline Listings Europe and Russia The Americas Asia and the South Pacific Middle East and Africa Currency Exchange Rates Used for the Worldwide Statistics Shocking News: A la Carte Shopping is Good for Consumers Airlines worldwide have lost $36.7 billion in the last 10 years Customers pay for conveniences they value Profit-based services deliver higher quality for consumers Consumers win when they have choices Keeping Corporate Travelers from the Candy Store of a la Carte Goodies Airlines tempt travelers with tasty a la carte delights Luxury hotels excel at a la carte fees Strange and wonderful treats are around every corner Profit From Innovation: Benefits of Ancillary Revenue Reach All Over the World There are plenty of fellow travelers on this path Ancillary revenue reaches beyond airlines Others are watching ancillary revenue developments These airlines innovate to boost ancillary revenue Innovation and rewards always require some risks Airline Ancillary Revenue and Loyalty Guide 2012 IdeaWorksCompany.com LLC Page 2

4 About Jay Sorensen, Writer of the Report Jay, with sons Anton and Aleksei, on the Highline Trail in Glacier National Park in Montana. Jay Sorensen s research and reports have made him a leading authority on frequent flier programs and the ancillary revenue movement. For 2012 he was a speaker at the FFP Spring Event at the Freddie Awards in New York, and at the IATA Passenger Services Symposium in the Middle East; and chaired the ancillary revenue track at the MEGA Event in San Diego. His published works are relied upon by airline executives throughout the world and include first-ever guides on the topics of ancillary revenue and loyalty marketing. He was acknowledged by his peers when he received the Airline Industry Achievement Award at the MEGA Event in Mr. Sorensen is a veteran management professional with 28 years experience in product, partnership, and marketing development. As president of the IdeaWorksCompany consulting firm, he has enhanced the generation of airline revenue, started loyalty programs and co-branded credit cards, developed products in the service sector, and helped start airlines and other travel companies. His career includes 13 years at Midwest Airlines where he was responsible for marketing, sales, customer service, product development, operations, planning, financial analysis and budgeting. His favorite activities are hiking, exploring and camping in US national parks with his family. About Eric Lucas, Editor of the Report Eric Lucas is an international travel, natural history and business writer and editor whose work appears in MSN.com, Michelin travel guides, Alaska Airlines Magazine, Westways Magazine and numerous other publications. Founding editor of Midwest Airlines Magazine, he is the author of six books, including the 2009 Michelin British Columbia Green Guide. Eric has followed and written about the travel industry for more than 20 years. He lives in Seattle, Washington, where he grows and sells organic garlic; visit him online at Eric, at his favorite summer retreat, Steens Mountain, Oregon. Airline Ancillary Revenue and Loyalty Guide 2012 IdeaWorksCompany.com LLC Page 3

5 Disclosure to Readers of this Report: IdeaWorksCompany.com LLC makes every effort to ensure the quality of the information in this report. Before relying on the information, you should obtain any appropriate professional advice relevant to your particular circumstances. IdeaWorksCompany cannot guarantee, and assumes no legal liability or responsibility for, the accuracy, currency or completeness of the information. Terms of Use for this Report: You may not disseminate any portion of the Report through electronic means, including mail lists or electronic bulletin boards, without the prior consent of IdeaWorksCompany. You may make one hard copy by downloading and printing it. You may store the document as a file on your computer. Please contact IdeaWorksCompany if you require multiple downloads for use within your company, and for all other uses. Except as expressly permitted in this Terms of Use, the Report may not be reproduced, transmitted, or distributed without permission. You may not commingle any portion of the Report with any other information and shall not edit, modify, or alter any portion. IdeaWorksCompany provides the Report and services as is and without any warranty, or condition, express, implied or statutory. IdeaWorksCompany specifically disclaims any implied warranty of title, merchantability, fitness for a particular purpose, and noninfringement. In no event shall IdeaWorksCompany be liable for lost profits or any special, incidental, or consequential damages arising out of or in connection with the Report (however arising, including negligence). Distribution of this Report is protected by the Economic Espionage Act of 1996 of the United States and the data protection laws of Europe. Issued January 2013 by IdeaWorksCompany.com LLC Shorewood, Wisconsin, USA Airline Ancillary Revenue and Loyalty Guide 2012 IdeaWorksCompany.com LLC Page 4

6 Welcome Aboard An Introduction by Jay Sorensen James Cash Penney was an American businessman and entrepreneur who founded J.C. Penney stores in His wisdom remains fresh and salient more than a hundred years later, A merchant who approaches business with the idea of serving the public well has nothing to fear from the competition. That axiom applies brilliantly today to both topics within this report, loyalty marketing and ancillary revenue. One carrier s recent advertising campaign reflects Mr. Penney s advice, Loyalty programs should be loyal... After all, it's called a loyalty program. Rewarding you is the whole point." The loyalty section of this year s Guide focuses on rewards as a crucial component of frequent flier programs. The allure of travel rewards remains the single most important benefit for the vast majority of members. Capacity controls, and the problem of too many miles chasing too few reward seats, has tarnished the reputation of frequent flier programs. Airlines have finally acknowledged the problem and are applying a variety of fixes. This includes boosting reward choices through alternative products and services, improving access to upgrades, providing better personalized services, and of course by adding reward seat inventory. In 2012 IdeaWorksCompany made 6,760 online booking queries to measure how often airlines provide capacity controlled reward seats. Kudos to Air Berlin, Southwest, and Virgin Australia for placing in the top 3 for the 2010, 2011 and 2012 editions of the Worldwide Report of Reward Availability. While reward availability remains the bottom line for loyalty program members, there are many other intriguing ideas in this arena. IdeaWorksCompany also reviewed the frequent flier programs associated with more than 150 of the world s airlines to seek examples of unusual and unique rewards. Once largely limited to low fare airlines, ancillary revenue is now a priority for many airlines worldwide, and the results listed in the Worldwide Report of Ancillary Revenue show how far the industry s approach to ancillary revenue has evolved in recent years. The first IdeaWorksCompany report covering ancillary revenue was issued in 2007, when only 23 airlines worldwide disclosed ancillary revenue activity in financial filings, and the result was a modest $2.45 billion. Four years later, 50 airlines today disclose ancillary revenue activity of $22.6 billion. It s clear that airlines recognize the importance of ancillary revenue and are developing ever more inventive ways to generate this. Airline Ancillary Revenue and Loyalty Guide 2012 IdeaWorksCompany.com LLC Page 5