Airlines see space to grow share of non-passenger revenues

BANGALORE: As airlines fight a bitter fare war, they are trying to increase ancillary revenues to be able to afford lower fares to passengers. Especially, the low cost carriers.

In the latest move in this direction, budget carrier Air Deccan has tied up with online travel portal Travelguru to offer hotel booking and holiday packages on its website, which gets 12 million hits per month.

The travel portal, which went live on Air Deccan’s website 20 days back, has already done business worth Rs 5 lakh, and this includes rooms booked in five star hotels like Taj and Oberoi. Through this exclusive tie-up, Air Deccan intends to earn commission on every room sold on its website.

In a similar move, rival SpiceJet Ltd had tied up with Yatra.com some time back. Both the no-frill carriers are looking at raising their non-passenger revenues to remain competitive in the market.

Air Deccan, whose ancillary revenue stands at 9% of its topline, aims to push it up to 25-30% of the total revenue in the next three years, while SpiceJet Ltd is looking at increasing it from the current 6% to 10-11% in two years.

IndiGo, which has non-passenger revenue of 5%, plans to up it to 8-10% next year. “In the subsequent year, we want to take it to 15-18%,” said IndiGo chief financial officer, Sanjay Kumar.

Today, airlines earn alternative revenues from inflight catering and magazine, marketing credit card, excess baggage, aircraft branding and online hotel booking. They are now considering generating earnings from hawking life and travel insurance, offering the service of pre-paid taxi vouchers onboard and other such services.

Deccan Aviation managing director Capt G R Gopinath believes this revenue will keep his airline’s fare stable even if operational costs shoot up.

“It is a hedge against inflation. By increasing this income, we are diluting the impact of the rising inflation, which is expected to push up our operational cost. If we take today’s 6.5% inflation rate, then we will have to take our ancillary income from the current 9% to 20% in the next two years to keep our prices at the level that it is today,” said Deccan Aviation managing director Capt Gopinath.

In pursuing higher non-passenger income, low cost carriers’ are following the business model of successful overseas budget carriers, which use ancillary income to subsidise passenger fares.

Take the case of UK’s Ryanair, which in a good year, earns a non-passenger income that is 26% of its turnover. Last year, it was 19.5%.

Given Air Deccan’s target of reaching a total revenues of Rs 4,000 crore in the next two years, a 20% ancillary revenue would work out to Rs 800 crore, said Samyukth Sridharan, principal sales and marketing officer, Deccan Aviation.