Thursday, November 19, 2015

And fees likely will be even higher next year.
Hold on to your wallet.
North America's airlines will
charge almost $11 billion in so-called a la carte fees for everything from
seat reservations to luggage this year — a 24% increase over what was
collected in 2014.
That's according to a new survey by IdeaWorksCompany, an ancillary fee
consulting company.
The results suggest that despite an outcry from airline
passengers the sky remains the limit for new fees.
How did airlines, which are expected to achieve record profits this year, do
it? According to the research, domestic airlines placed emphasis on
"comfort-related services such as premium economy seating, buy-onboard food,
and priority screening and boarding." Alaska Airlines, American Airlines,
Delta Air Lines, Hawaiian Airlines and United Airlines offer "premium economy"
zones for extra fees.
Economy-class airline seats have been shrinking in size.
They also offer other creature comforts.
"Delta Comfort+" includes early
boarding, front-of-cabin seating, extra leg room, snacks, beer, wine and
cocktails, and premium Wi-Fi entertainment.
Again, most of these amenities
(except the Wi-Fi) used to be included in a ticket.
They were removed — and
then resold to passengers.
Baggage fees continue to be big revenue drivers, too.
Two no-frills
airlines, Allegiant and Spirit, even raised some of their fees for the
holidays to take advantage of high demand.
The baggage earnings are so
successful that they are spreading in other regions of the world such as Asia
and South America, according the survey.
Other sources suggest ancillary revenues are headed into record territory,
though not as dramatically.
For example, airlines are required to report their
baggage fee revenue to the federal government.
For the first six months of
2015, U.S.
carriers collected $1.8 billion in baggage fees.
For the same
period a year ago, they'd reported $1.7 billion in baggage fees.
Loyalty programs drive profits Factor in loyalty programs, and the
overall ancillary revenue picture becomes even brighter for airlines.
In 2015,
North American carriers are expected to collect $11.2 billion from their
frequent flier programs, up from $10.5 billion a year before.
Indeed, research suggests that airlines rely on the sale of frequent flier
miles to generate more than half of their total ancillary revenues.
As a
standout, IdeaWorks cites Delta, which generates more than 62% of its
ancillary revenue from its SkyMiles frequent flier program.
Delta's latest annual report reveals its most important contract to sell
mileage credits relates to its co-branded credit card with American
Express.
All told, Skymiles accounted for an eye-popping $4.2 billion in
deferred revenue, leading some to observe that Delta is more of a loyalty
program that happens to run an airline, as opposed to an airline with a
loyalty program.
The recent loyalty program reforms, which link elite status to the amount of
money paid, as opposed to the number of miles collected, will only make these
programs more profitable — and keep the ancillary revenue rising.
American Airlines, which this week became the last of the legacy airlines to
reform its loyalty program to make it revenue-based, will only accelerate the
trend.
Customers don't like These changes are likely to be unwelcome to
consumers, who are used to receiving most of these benefits as part of their
ticket.
And there's more ahead: European carriers are now pioneering the idea
of "branded" fares which allow airlines to present distinct product options to
consumers.
"In effect, they can choose a fare that meets their needs, such as seat-only
without a checked bag, or a fare packed with all kinds of extras," says Jay
Sorensen, president of IdeaWorksCompany.
"Look for this retail style to be
adopted by airlines all over the world, which should boost ancillary revenue
even higher for 2016." Airlines all over the world "rely now upon ancillary
revenue," the report concludes.
In other words, like it or not, this trend
appears to be irreversible.
This story originally appeared on Fortune.
More good reads from Fortune:
• Here's Why TV Networks Are Cancelling Way Fewer Shows This Fall
• A Major Sign You're Working In a Toxic Office
• Uber Could be Hit With its Biggest Fine Yet Hold on to
your wallet.
North America's airlines will charge almost $11 billion in
so-called a la carte fees for everything from seat reservations to luggage
this year — a 24% increase over what was collected in 2014.

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