AirAsia seeks to lift ancillary income

PETALING JAYA: AirAsia group is working towards stretching its ancillary income to RM60-RM65 per passenger over the medium term from RM50 currently.

For that to happen, it has lined up more products, such as the recently unveiled counter check-ins, flight transfers and also the soon-to-be-launched VIP services that the airline hopes will lift its group revenue further. OSK Research analyst Ahmad Maghfur Usman, who attended AirAsia's ancillary day on Thursday, said in a report that baggage was the biggest contributor, followed by cargo and convenience fees, which accounted for 36%, 16% and 11% respectively.

Food and beverage (F&B), cancellation and documentation, excess baggage and fees for assigned seats made up 4%-7% of ancillary revenue (airline revenue from non-ticket sources). For the first quarter, AirAsia's ancillary revenue was RM439.5mil.

“Our model assumes that ancillary per pax will grow to RM54, RM56, RM58 for this year, next and 2013 respectively,'' the OSK report said. But the new services such as the planned loyalty programme come at a cost.

On Monday, AirAsia will launch its BIG loyalty programme which would double up as a prepaid payment card. With the card, one can reload and spend at all Visa accepted merchants worldwide and BIG partners/merchants in exchange for BIGGIE points to redeem flights and other AirAsia-related ancillary services. AirAsia is targeting five million members globally with 30 million points issued by 2012. This would translate to RM15mil in total BIG card transaction at per pax spending of RM3 per card holder. “In the next five years, AirAsia is targeting for the BIG programme to lift group revenue by RM500mil,'' OSK said.

A Maybank Investment Bank analyst said that while the first round of charges was pretty simple such as for baggage, seats and etc., the cost was also marginal but the profits high. However, the same cannot be said of the loyalty programme because there is a need for interaction with vendors and customers and there is a value to miles. So the cost element could be higher than for baggage and seats. “There are also checks and balances and this means the cost base could be higher, so there is no guarantee the new businesses will be profitable (as soon as they are launched),'' said the Maybank IB analyst.

Still, a report said that Amadeus, a travel technology provider, in a recent study predicted that ancillary revenue for airlines around the world will total more than US$32.5bil this year, up from just over US$22.6bil last year, and less than US$15bil in 2009. The study singled out Ryanair, easyJet, Aer Lingus, AirAsia and US-based Spirit Airlines as the “ancillary revenue champs”, as they generate the highest percentage of their income around 20% through such sources.

Non-ticket revenue is also no longer the domain of low-cost carriers; even full-service carriers have moved to charge passengers and the report said traditional airlines around the world expected to increase their income in this area by nearly a third by the end of the year. US carriers, including Continental, Delta and American Airlines, charge passengers to check in luggage on domestic flights.

AirAsia plans to leverage further on the social media networks to further grow its ancillary revenue. “With an 85% Internet penetration for ticket sales, at more than 25 million and 62 million visitors and page visits respectively per month, 1.5 million Facebook fans and 195,000 Twitter followers, as well as a network of 12 hubs in three countries and flying to more than 75 destinations worldwide (mostly Asia routes), AirAsia literally owns a gold mine from which it can fully optimise its strong branding to propel its ancillary business to new heights,'' the OSK report said. To spur the baggage take-up rate, the airline will introduce innovative baggage super-size packages in the future.

-thestar online.