Thursday, September 22, 2016

How Airlines Earn Billions From Booking Fees And Baggage Charges


Spirit Airlines is more reliant on extra charges than any other carrier, with 43.4 per cent of its total revenue in 2015 coming from “ancillary” sources, such as baggage and booking fees and the sale of in-flight food and drink.

That’s up from 38.7 per cent on the previous year and will come as no surprise to anyone who has flown with it. The Florida-based airline is one of just a handful of carriers to charge for carry-on luggage, with fees rising from $35 (£27) if paid at the time of booking to $100 (£77) if paid at the airport gate, while its checked baggage fees range from $30 (£23) to $50 (£39).

The success of airlines like Spirit and Ryanair is encouraging full service airlines to adopt similar methods too, it says: “Global leviathans like American, Delta and United are becoming unlikely practitioners by offering basic economy fares that mimic the a la carte approach.

According to the annual report by Idea Works, an aviation industry analyst, 18 per cent of Spirit’s total revenue comes from baggage charges, 14 per cent from online and call centre fees, and four per cent from charges for assigned seating. It all amounts to $51.80 (£40) in ancillary revenue per passenger.

Ryanair, despite recent efforts to upgrade its reputation for extra charges, comes fifth on the list, with 24 per cent of its revenue coming from sources excluding the airfare – a slight fall on last year, when it accounted for 24.6 per cent. That means the airline collected just shy of $1.74bn (£1.34bn) from extra charges in 2015.

The top 10 is completed by two more US airlines (Allegiant and Alaska Air), two UK carriers (Jet2.com and Flybe), and one each from Hungary (Wizz Air), Mexico (Volaris), Australia (Jetstar) and Singapore (Tigerair).

According to the report, which featured data from 67 airlines, revenue from extra charges has more than tripled since 2008.

“Back in 2008, the top 10 airlines, as rated by total ancillary revenue, generated $8.4bn,” it states. “Fast forward to the financial results from 2015 and the top 10 tally has leapt to nearly $26bn.”

But it does not criticise the rise of what it calls the “a la carte” business model. “A frugal consumer can fly with Spirit at minimal expense and add optional extras such as checked bags, seat assignments, and on-board treats. Consumers embrace these a la carte methods; what else would explain how Spirit has grown from 5.5 million passengers in 2008 to nearly 18 million in 2015?”

The success of airlines like Spirit and Ryanair is encouraging full service airlines to adopt similar methods too, it says: “Global leviathans like American, Delta and United are becoming unlikely practitioners by offering basic economy fares that mimic the a la carte approach.

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