Airline Ancillary Revenue and Loyalty Guide for 2011 The best single resource in your quest for revenue success.

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2 Airline Ancillary Revenue and Loyalty Guide for 2011 The best single resource in your quest for revenue success. Table of Contents Welcome Aboard An Introduction by Jay Sorensen... 5 Reward Seat Availability Report for General Commentary and Analysis... 8 Carriers Included in the Analysis Components of the Reward Booking Data Reward Query Methodology Airline Data Section Notes Graph: Overall Reward Availability Graph: Long-Haul Flights Reward Availability Graph: Flights Under 2,500 Miles Reward Availability Graph: Overall Reward Availability by Month Graph: Reward Availability June Graph: Reward Availability July Graph: Reward Availability August Graph: Reward Availability September Graph: Reward Availability October 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 Continental OnePass Delta - SkyMiles Emirates - Skywards GOL SMILES Iberia Iberia Plus JetBlue True Blue LAN Airlines - LanPass Airline Ancillary Revenue and Loyalty Guide 2011 IdeaWorksCompany.com LLC Page 1

3 Lufthansa/SWISS/Austrian Miles & More Qantas 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 Hotel and Car Rewards for the World's Top-30 Airlines The Sorcerer s Apprentice has overwhelmed us with miles The richest frequent traveler program in the world The program that wants you to use your miles More airlines offer more reward alternatives Reward values vary among frequent flier programs Airlines learn to manage room nights and rental days Hotels and cars are a natural addition to a program s reward chart Loyalty by the Billions Co-branded credit cards become the biggest client Selling miles and points direct to members Airlines can find rewards oh-so-rewarding Elite-style credit cards boost a la carte revenue Perks open the pocketbooks of top fliers Helping profits become more frequent Worldwide Report of Ancillary Revenue 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 The ABCs of EMDs A la carte services were once a simple business Ancillary revenue is born and embraced by network airlines Ancillary revenue will soon tap a far larger travel market Airline Ancillary Revenue and Loyalty Guide 2011 IdeaWorksCompany.com LLC Page 2

4 EMDs function like ancillary revenue e-tickets EMDs involve travel agencies, vendors, and of course... airlines Travel agencies and corporate travel planners gain new access Consumers and corporate clients benefit from EMDs Billions of Dollars in Baggage Fees Travel the Globe A la carte fees are a product of turbulent times Baggage fees have been a revenue success story United expands baggage fees to more global destinations Baggage fees throughout the world are amazingly consistent Online fee information is almost universally confusing Maximizing bag revenue in a time of trouble Spirit Succeeds with the World s Only Fee for Carry-on Bags Fees change behavior and generate revenue Senators target Spirit Airlines carry-on fee Ancillary revenue is in the DNA of this airline Surprise, surprise, there is no carry-on chaos Baggage revenue has jumped since implementation Spirit offers the freedom to choose Disclosure to Readers of this Report IdeaWorks 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. IdeaWorks cannot guarantee, and assumes no legal liability or responsibility for, the accuracy, currency or completeness of the information. Issued May 2012 by IdeaWorksCompany.com LLC Shorewood, Wisconsin, USA Airline Ancillary Revenue and Loyalty Guide 2011 IdeaWorksCompany.com LLC Page 3

5 About Jay Sorensen, Writer of the Guide 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 keynote speaker at the FFP Spring Event at the Freddie Awards in New York, the IATA Passenger Services Symposium in the Middle East, and the MEGA Ancillary Revenue and FFP 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 Jay, with sons Aleksei and Anton, on the top of Brokeoff Mountain in Lassen Volcanic National Park in northern California. Mr. Sorensen is a veteran management professional with 27 years experience in product, partnership, and marketing development. As president of the IdeaWorks 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 Guide Eric Lucas is an international travel, natural history and business writer and editor whose work appears in MSN/Bing Travel, 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 2011 IdeaWorksCompany.com LLC Page 4

6 Welcome Aboard An Introduction by Jay Sorensen The quote Things may come to those who wait... but only the things left behind by those who hustle is widely attributed to Abraham Lincoln. Evidence suggests he may have never uttered those words. Regardless of the actual origin, I think the words nicely describe what has happened to ancillary revenue and frequent flier programs during the past few years. Savvy airline executives now understand the importance of balancing the competing needs of investors and customers. It has become a world in which waiting has become an unhealthy attribute. Among the world s airlines, low fare carriers seem to have mastered this balancing act better than all but a few classic network carriers. Value airlines know how to hustle for passengers and profits. A la carte oriented airlines are enjoying unmatched financial success. Even though consumers complain about paying fees, these airlines are not waiting to win a popularity contest. Low cost carriers dominated the top-5 slots in a review of operating margins for If consumers truly had a disdain for these methods, these airlines wouldn t generate the highest levels of profit. Top 5 Airlines Operating Margins for 2011 Airline Airline Type Operating Margin Copa Network 21% Skymark Value 19% AirAsia Value 17% Ryanair Value 15% Spirit Airlines Value 14% Source: Airline Weekly 30 April 2012 based upon company reports and Airline Weekly estimates. Readers can learn more about the ancillary revenue achievements of value-oriented, network, and all types of airlines from all over the world in the Worldwide Report of Ancillary Revenue offered in this Guide. You can also read about major revenue initiatives involving checked baggage and agency distribution in three articles that follow the ancillary revenue compilation. The world s largest airlines have not been sleeping. They too are working to keep pace with the twin bugaboos of runaway fuel prices and economic recession. Global airlines do business in a big way and their ancillary revenue results often dwarf all others by billions of dollars. The top five carriers by this measure are giants in every definition: Top-5 Airlines Overall Ancillary Revenue for 2010 Airline Airline Type Ancillary Revenue United Continental Global Network 3,530,000,000 Delta Global Network 2,612,200,000 American Global Network 1,379,524,000 Qantas Global Network 1,087,268,000 US Airways Global Network 834,492,000 Source: IdeaWorks Worldwide Report of Ancillary Revenue. Airline Ancillary Revenue and Loyalty Guide 2011 IdeaWorksCompany.com LLC Page 5

7 The other component of this Guide is the topic of frequent flier programs. Here too, valueoriented carriers dominate the top positions in an annual survey of reward seat availability conducted by the IdeaWorks Company. These carriers filled the top four slots in the Reward Seat Availability Report which analyzed the generosity of 24 frequent flier programs. Top 5 Airlines Reward Seat Availability Airline Type Reward Seat Score GOL Value 100.0% Southwest Value 99.3% Air Berlin Value 96.4% Virgin Australia Value 91.4% Singapore Global Network 90.7% Source: IdeaWorks Company Reward Seat Availability Report Frequent flier programs are also generous in other ways beyond the offer of reward seats. You can read articles about the addition of hotel stays, car rentals and more to the reward charts of airlines all over the world. In addition, you can learn how frequent flier programs have become the largest source of ancillary revenue, from credit cards to the sale of points direct to members. The airline industry has never been for the faint of heart. It s a challenging arena where most carriers languish with profit margins near zero or below. The best airlines serve all constituents to the best of their ability. Investors realize good returns and employees experience growth and stability. Most important, consumers are so pleased by the value received... they come back for more. This is the bottom line for any successful business. The IdeaWorks Company believes ancillary revenue and loyalty marketing have become crucial components of the airline income statement and the quest for profit. I hope you enjoy reading this copy of the Airline Ancillary Revenue and Loyalty Guide. With 180 pages it is our largest publication to date and the first time the topics of ancillary revenue and loyalty marketing have been combined into a single resource. The Guide is designed to be a helpful tool in your quest for revenue success. President IdeaWorksCompany.com LLC Airline Ancillary Revenue and Loyalty Guide 2011 IdeaWorksCompany.com LLC Page 6