Ancillary Fees Boost Airline Revenue By $21.46 Billion in 2010

New airline fees, including those for changing reservations and checking luggage, generated an extra $21.46 billion in revenue for the world’s 47 largest airlines in 2010. Revenue collected in 2010 from these new ancillary fees increased 775% over 2007 when 23 airlines collected $2.45 billion in fees.

United Continental Holdings (NYSE:UAL) reported the highest revenue from ancillary fees of any airline company, collecting $5 billion in 2010. For Allegiant Travel Co. (NASDAQ:ALGT), ancillary fees accounted for 29.2% of the airline’s total revenue last year, the highest percentage of any airline.

The airline industry began adding extra fees in 2008 in response to the economic crisis, and have since been enjoying strong revenue growth. However, that trend recently took a turn, with the airline industry reporting a year-over-year decline in its last quarter for the first time in two years. Extra fees have been unable to offset the rising cost of fuel.

Operating profits shrank by one-third in the quarter ending June 31, and net income fell two-thirds. Air France (EPA:AF), Europe’s largest carrier, reported an operating loss of 145 million euros in its second quarter, disappointing analysts’ expectations the airline would turn a profit. Deutsche Lufthansa (ETR:LHA) and Singapore Airlines (SIN:C6L) also fell short of expectations.

Passenger traffic continues to increase at an annual rate of 4% or 5%, but airline capacity increases have been outpacing demand, and occupancy levels fell 1% below 2010’s high. Meanwhile, the cost of jet fuel continued to increase in the last quarter, ultimately topping $130 a barrel in July. Fuel makes up roughly 30% of an airline’s total input costs.

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