Don’t miss: New raft of Delta SkyMiles changes coming
When airlines first started charging checked bag fees back in 2008, they did so to counteract a spike in oil prices that was eating into their bottom lines. Expensive oil is no longer a concern, but carriers have discovered that add-on passenger fees are a revenue bonanza, and they have been gorging on them ever since.
The latest annual study from IdeaWorks Company and CarTrawler finds that worldwide airline revenues in 2014 from sources other than ticket sales jumped 21 percent. That includes the sale of “a la carte services,” retail activities, and the sale of frequent flyer miles to credit card companies and others. At U.S. carriers, the increase was 18.7 percent. (IdeaWorks does not include those onerous $200+ change fees in its definition of ancillary revenue.)
Airline revenue streams are flowing in stronger than ever from all over the place these days, the report noted. For example:
- American’s co-branded credit card brought in extra revenue of $624 million largely due to enhancements in its relationship with Citibank.
- Revenue generated by Delta’s Comfort Plus service increased by 18% to $350 million.
- Southwest’s Rapid Rewards program contributed almost $400 million to its coffers thanks to its 2014 strategic initiatives.
According to IdeaWorks, United hauled in the most– more than $5.8 billion in ancillary revenues last year, although that was a gain of less than 3 percent from 2013. By contrast, Delta’s total of $3.2 billion represented an increase of 27 percent, while American/US Airways posted a combined 46 percent gain, to $4.7 billion.
But when you look at ancillary revenues as a percentage of total revenues, it’s the low-cost airlines that shoot to the top of the chart. Number one was Spirit Airlines, where add-on fees accounted for almost 39 percent of its revenues. At leisure-oriented bargain carrier Allegiant, the percentage was 32.4. IdeaWorks said the typical Spirit passenger last year spent more than $52 above and beyond his ticket price.
The report noted that airlines are increasingly offering customers “bundled” and “unbundled” fares to serve different marketing purposes: “Global network airlines use fare bundles to preserve their normal service through a classic product and deploy a basic ‘bare bones’ fare to drop pricing to LCC levels. Low cost carriers use product bundles as a method to offer premium experiences to lure business travelers to their flights,” IdeaWorks said.
What airline fee frustrates you the most? Please leave your comments below…
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