Ancillary revenue per seat jumped by 14% at constant currency. Source: easyJet.

Total *ancillary revenue surged by 24% in the six months ending 31 March to reach £454m ($614m), low-cost carrier easyJet announced today.

In an investors presentation, CEO Johan Lundgren identified the onboard experience as the ‘driving force’ of easyJet’s profitability in the future.

“For example, predicted assortment amounts for certain items of food and drink on each flight so that supplies match customer demand and tailoring offerings onboard so we know what you want to buy from us,” he outlined to analysts during a presentation.

“This is such an exciting area of the business and one I know will drive value across the whole of the airline.”

Total revenue per seat increased by 10.9% to £54.1 ($73.1), partly reflecting easyJet’s January acquisition of part of Air Berlin’s operations at Berlin Tegel, as total revenue (excluding Tegel) rose by 19.5% to clear £2bn (£2,183m/$2,952m).

Revenue per seat (excluding Tegel) grew by 12% to £56.6 ($76.5), with ancillary revenue per seat rising by 16% (14% at constant currency) to £11.39 ($15.4) as easyJet moved to consolidate its position across core UK airports and benefitted from the positive impact of lower market capacity linked to factors including the bankruptcy of Air Berlin and Monarch.

COST PER SEAT RISES

The positive result was strengthened by 700,000 additional passengers from the Tegel operation, pushing numbers to 36.8m for the period. Forward bookings for the second half of this year are up by 57%.

Headline profit before tax (excluding Tegel) was £8m ($10.8m), while losses before tax improved by £194m ($262m) to £18m ($24.3m) reflected in the one-off Tegel integration and the sale and leaseback of ten A319 aircraft.

However, cost per seat (excluding fuel) rose by 2.2% to £43.11 (+1.6% at constant currency/+1.3% excluding Tegel) due to increased loads, inflationary costs and the impact of severe weather. Net cash totalled £665m ($898m), with adjusted net debt at £238m ($382m).

Source: easyJet. Click to enlarge.

“It’s been a good start with capacity and operational performance in line with our plans,” commented easyJet Chief Financial Officer Andrew Findlay during an investors presentation.

The aforementioned performance on ancillary revenue per seat (+14% at constant currency) due to innovation and digital acceleration combined with a stronger Euro against the Sterling has helped trade.

Full-year profit before tax guidance to 30 September is forecast to fall within the range of £530m ($716m) to £580m ($784m).

Source: easyJet. Click to enlarge.

‘EVOLUTION NOT REVOLUTION’

Much of the attention from analysts during this morning’s results presentation was on the low-cost carrier’s greater investment in the holidays market through entity easyJet Holidays, alongside an increased focus on business passengers, loyalty customer retention and leveraging data.

Currently, easyJet’s rewards its customers via its easyJet Plus and Flight Club scheme, with members increasing by 41% in H1 year-on-year and more than 8.4% of seats booked by Flight Club members during the period.

It claims that over 60m of its 90m passengers are returning customers.

The airline’s argument is returning customers book twice as many flights per year as new customers, in turn driving ancillary revenue generation through increased demand, conversion and attachment rates.

Returning customer numbers have grown from 37m in 2010 to over 60m today, but only 46% fly with the airline once per year.

In addition, a mere 500,000 passengers book a hotel out of a potential 20m, says easyJet.

Source: easyJet. Click to enlarge.

Lundgren, who took the reins in November, told analysts easyJet is developing an expanded offer to reach customers in a ‘much more ambitious way’.

“It is clear we have all the necessary ingredients to do more in this area. These include a pan-European network with the best destinations, frequencies many times of the day every day of the week, a well-loved and trusted brand, a cost advantage over the leading competitors, a customer base with high spending power and scale to capture a significant share of this market.

“To me, we have outperformed the market in the half due to the competitive position the company has built up over the years. My approach will be evolution, not revolution. This evolution will build on the foundations we have and capitalise on the opportunities that clearly exist and have not fully explored in our business today.”

“There are also some challenges we want to address that will lead to further operational and performance improvements.”

Garry Wilson has been named CEO of easyJet Holidays.

NEW APPOINTMENTS

To support the new trajectory, easyJet has appointed Garry Wilson as the Head of easyJet Holidays, while Luca Zuccoli joins as Chief Data Officer among a tranche of other internal changes.

A strong emphasis on data utilisation will also play a key role in developing revenue, cost and operations and customer service.

Data, according to Lundgren, is an ‘absolute gamechanger’ for the airline industry, which can draw on inspiration elsewhere.

Referencing Amazon Prime as an example, Lundgren says the paid-for subscription giant has ‘completely re-written the expectations about the power of loyalty scheme membership’.

“Amazon Prime members spend more than non-members – about $1,100 per year compared to $600 for shoppers who don’t join – and retain approximately 95% of them after one year.

“You see similiar trends in the airline industry, with American Airlines driving 3.9% revenue growth in other revenue, while overall revenue fell by 2%. It is estimated that the top four airlines in the US generated $9.5bn in loyalty revenue last year.”

Data will in turn be used to leverage existing demand and personalisation initiatives, such as onboard F&B.

Addressing cost control and mitigating disruption, itself the biggest challenge that the airline industry faces today according to Lundgren, will be a priority addressed via its network to drive further profit per seat improvements.

Lundgren added in a statement: “easyJet has delivered an excellent performance reporting a profit of £8 million, one of our best results ever in the winter trading period (excluding the one-off impact from the start-up of our Tegel operation). Total revenue was above £2bn for the first time, up almost 20 per cent year on year.

“This was driven by a record number of passengers at 37 million and our highest ever ancillary sales due to giving passengers more options and lower prices on hold luggage along with our improved inflight bistro.

“Our performance was helped by the reductions in capacity from other airlines but was also driven by the strength of the easyJet brand which is now the most considered airline brand in the UK, moving ahead of BA for the first time. We also reached the milestone of carrying 13 million business travellers a year – partly supported by the increase in city-to-city routes as we successfully started operations in Berlin Tegel.” 

Click here to view the results in full.

*Ancillary revenue includes fees from checked baggage, allocated seating and non-seat sales from commissions accrued from services sold on behalf of easyJet partners, in addition to inflight sales.