TakeAway: From baggage to blankets, à la carte charges are becoming significant revenue sources for airlines
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Excerpted from Business Week, For Airlines, Fees Become Lifelines, October 12, 2009
Just a few years ago air travel was simple: Buy a ticket, fly. But as airlines hunt for new revenues to help them weather the recession, their goal is to make fares just one piece of the travel experience. Whether it’s a fleece-blanket-and-travel-pillow set or a can of soda, the airline cabin has become a bazaar, and the selling has only just begun.
Ancillary revenues—products and services airlines can sell à la carte—are becoming a vital financial lifeline for airline balance sheets amid weak travel demand. For some airlines, more than 20% of 2008 revenue come from ancillary sources.
Airlines argue that they have little choice: Low fares do not cover their costs, and charging for products and services represents one of their few options for survival. “The airlines have been in negative returns since the days of Orville and Wilbur [Wright].”
Passengers could be forgiven for wondering where the new charges might end. Is air travel destined to be dominated by ultra-spartan flights, such as those pioneered in Europe by Ryanair ? Ryanair has even proposed installing credit-card-operated toilets.
Carriers are learning that some fees are more palatable to travelers than others. Checked luggage is one of the most successful new revenue sources—the top 10 U.S. airlines collected $670 million in bag fees in the second quarter. American led the way in June 2008 with a $15 fee to check a first bag, and nearly every other U.S. carrier has matched that.
While it may take time to adjust to the new reality, consumers could ultimately benefit. With an à la carte approach, fliers will no longer be subsidizing products or services they don’t use.
Full article:
http://www.businessweek.com/magazine/content/09_41/b4150064773617.htm
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