Sunday, November 13, 2016

Govt measures slow down ancillary revenue of airlines

New Delhi: The government’s passenger-centric initiatives such as limiting cancellation charges and reducing passenger baggage fees have hit airlines’ revenue earned from ancillary sources.

IndiGo, which announced its September quarter results last week, saw its ancillary revenue record a sequential decline of 3.8% compared with the double-digit growth in previous quarters. For the September quarter, revenue from ancillary sources stood at Rs 558.41 crore compared to Rs 580.57 crore in the April-June period. The same had grown by 9.2% and 3.1%, sequentially, in the previous two quarters.

“The ancillary revenue figures were impacted due to the Director General of Civil Aviation (DGCA)’s new rules limiting charges on excess baggage and booking of tickets closer to the date of departure due to low-ticket prices,” the management said during a conference call with analysts. The decline is likely to be similar for other airlines as well.
Ancillary revenues are important for the airline sector, especially for low-cost carriers.
“In an industry with paper-thin margin and tough competitive environment, particularly among legacy and full-service carriers, ancillary revenue can provide a helpful boost to profitability. The regulator’s eagerness to limit that will severely impact the airline industry when oil price starts inching upwards,” said an executive of a low-cost carrier.
13/11/16 Arindam Majumdar/Business Standard