Focus on ancillary revenue
LCCs are leading the way in squeezing revenue from their passengers but traditional airlines are not far behind. Richard Williams discusses the results of Ideaworks' detailed AR review
Passing the buck for baggage
As fuel prices increase, airlines are plugging the gap with baggage charges. How high can they go and what happens next?
EASYJET’S statistics for passenger numbers, released in May 2011, showed a year-on-year increase of 11.8%, with the load factor an impressive 87.2%. But this means that the average bums-on-seats on every flight is only up 0.7%. The low-cost model is approaching peak efficiency, so these airlines have to squeeze extra revenue from their passengers. Ryanair, one of the most successful, has
recently achieved an impressive 22.1% of their total from ancillary charges. Passengers have noticed a greater emphasis on baggage charging as the rules on the size and weight of cabin baggage are rigorously enforced, with checks and weigh-ins at the departure gate. Top of the list of AR earners, however, is
US-based low-cost airline Allegiant, with 29.2% of its total revenue. Is this the maximum possible? How much squeezing of their travel wallets will passengers put up with? One of the least contentious and best AR
earner is frequent flier programmes, says Jay Sorenson in a detailed review undertaken for Ideaworks. Airlines large and small can benefit by rewarding customer loyalty and reinforcing the brand. For most airlines, however, the largest revenue
opportunity is provided by something nearly all passengers have: baggage. In this latest report, Sorenson describes how these fees are becoming the industry’s largest source of ancillary revenue. He also comes up with an eight-point plan entitled ‘Bring on Baggage Bliss’, enabling airlines to streamline their bag policy without alienating passengers. Traditionally, two free checked bags were
included in the ticket price on domestic US flights. In 2008 most US-based airlines introduced fees for the second piece of checked luggage. This was quickly followed by a fee for the first bag, and, by the end of 2009, only Southwest Airlines was offering free checked
40
www.onboardhospitality.com
bags. This was in direct response to the rise in fuel price to an unprecedented $4 per gallon. These charges have saved some airlines’
bacon. United Continental, for example, would have posted a loss last year without its baggage fee revenue of more than $654 million. Hardly surprising, then, that it recently announced a new baggage fee initiative: charging fees on second bags to practically every United Continental destination. The new revenue will help to offset the increase in the company’s fuel bill of $1.1 billion in Q2 2011, compared to the previous year. American and Delta, also suffering the effect of fuel price increases, will be inclined to match United Continental’s move. United Continental is a key member of the Star Alliance and other members, such as Air China, Air New Zealand, Singapore Airlines, and Thai Airways, will have to consider the bag fees on flights to Asia and Australasia. Partners on
"consumers and airline executives worldwide should prepare for the introduction of first bag fees on all travel"
transatlantic routes, such as Lufthansa, SWISS, and South African Airways, will likewise be forced to look at fees for Africa and the Middle East. Sorenson believes that consumers and airline executives worldwide should prepare for the introduction of first bag fees for international travel. As Ann Miller, manager retail sales, American Airlines said at a recent ARC2011 event in London: “This business is about fuel-burn, not retail.” Focusing on AR, whether onboard retail, seat upgrades, bag charges, or frequent-flier programmes, helps to ease the pain, but the patient is still in danger.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68