The impact of cargo and ancillary revenues on net profit for full-service carrier airlines

Air transport has become an increasingly common tool used by most people today and has been a constantly growing industry. On the other hand, it is a sector with low profitability despite high investment costs and risks, which are quickly affected by increasing competition, economic, political, and natural events. That's why airline companies have had to manage their capacities better and generate new revenues due to low profitability rates, high risk, and increasing competition conditions. Ancillary Revenue is defined as the income earned as part of the travel experience through sales made to passengers directly or indirectly before, during, or after the trip. Ancillary revenues are what airline companies offer to their passengers other than the tickets they have sold, services such as inflight catering, baggage fees, loyalty programs, seat fees, advertising and commission revenues, and in-flight entertainment systems. In this study, the relationships between cargo revenues, ancillary revenues, and net profitability of airline companies for the period 2014Q1-2019Q4 were examined in the examples of three full-service airline companies (Turkish Airlines, American Airlines, and Delta Air Lines). The study revealed that there is cointegration between cargo revenues, ancillary revenues, and net profit, and there are one-way causality relationships from both cargo revenues to net profit and from ancillary revenues to net profit. The study also indicated a positive correlation between cargo and ancillary revenues, and net profit. In other words, cargo revenues and ancillary revenues have a positive effect on the net profit of airline companies. In addition, the study found that aviation ancillary revenues provide an essential resource for airline companies; furthermore, two American companies are among the top three companies with the highest incomes in the world in terms of Cargo and Ancillary Revenues; also showed that Turkish Airlines' ancillary revenues are lower than those of these two American companies. On the other hand, the study showed that the contribution of Turkish Airlines' cargo revenues to net profit is much higher than the other two companies.