In the news:
What’s next? Paying to use airline toilet?
Airlines keep increasing, and profiting, from fees.
The New York Times
Northwest travel guides
It used to be you’d run into the sales technique called the upsell mostly when you bought a car and the salesman dragged you into that little cubicle where you get the hard pitch on extras.
Now upselling is everywhere. So it shouldn’t surprise me that airlines are heavily into the game, as they slice and dice every aspect of air travel to find creative ways to charge fees for just about everything except the use of the restrooms. Actually, charging for the toilets was an idea proposed a few years ago by Michael O’Leary, the chief of the bargain-basement European airline Ryanair, until aviation authorities suggested that he should stand down.
The most blatant airline upselling is in the area of seats. That is, flying coach at the basic fare doesn’t necessarily get you an assigned seat when you book. Those “complimentary seats” are unavailable, you’ll often be informed. But not to worry! You can, from $20 to $100 or more extra, get an assigned seat that isn’t in the middle of a row back by those (free so far) bathrooms. Even better, you can pay more for a seat in those “premium economy” cabins that airlines are busily roping off for what I call the steerage elite.
Airlines are very pleased with themselves about this. United Airlines is among the best of the major airlines in the United States at the upsell, though the scrappy little bargain airline Spirit, which makes passengers pay extra even to use overhead bins, is the true domestic champ.
Last week, as United reported a 13 percent rise in third-quarter profit, the chief revenue officer, James E. Compton, told stock market analysts that “ancillary revenue per passenger grew 16 percent year over year.” He added that the “Economy Plus upsell was, once again, a primary driver of this growth.”
Alaska profits on fees
Alaska Airlines reported its best quarterly profit ever last week. The chief financial officer, Brandon S. Pederson, spoke glowingly of the “new ancillary structure” that helped bolster profits and brace against increased competition in Seattle from the aggressive Delta Air Lines. But wait, there’s more! This week, Alaska is raising the fees for checking a bag to $25, in line with other major carriers, and for changing a ticket to $125. Most of the others charge $200 for that, excluding Southwest, which doesn’t charge for checking bags or making changes.
Speaking of Southwest, its loyal fans were frowning last week after the chief executive, Gary C. Kelly, failed to definitively holler “No way!” in a conference call in response to questions about whether Southwest, as one analyst put it, might be considering “more substantial revenue initiatives,” like checked bag fees.
“Right now, it’s our belief that we get more customers and more revenue by not charging for bags,” Kelly said to another questioner. He added, though, “if, over time, if customers prefer the unbundling approach, sort of an à la carte approach, and they understand it and they favor that, we’d be crazy not to provide our customers with what they want.”
Delta Air Lines last week announced a 56 percent increase in profit for the third quarter. In a conference call, the chief executive, Richard H. Anderson, echoed the joy about the virtues of upselling. “Our ancillary revenues are top-tier, and we believe significant upside exists going forward,” he told stock market analysts.
What sort of money?
How much money are we talking here? The Transportation Department’s Bureau of Transportation Statistics used to struggle to compile comprehensive figures for overall airline ancillary revenue, but except for quarterly figures it supplies in just two big categories — checked bag fees and itinerary change fees — the agency has basically given up on the big picture. Airlines simply resist supplying full details, as the upsell era rolls on.
“Baggage fees and reservation change fees are the only ancillary fees paid by passengers that are reported to the Bureau of Transportation Statistics as separate items,” the agency said in its most recent quarterly revenue report. “Other fees, such as revenue from seating assignments and onboard sales of food, beverages, pillows, blankets and entertainment, are combined in different categories and cannot be identified separately,” it said.
The best overall figure is a well-educated guess. Last month, Jay Sorensen, the president of IdeaWorks, reported that ancillary revenue for major global airlines was $27.1 billion last year, more than doubling from 2009.
A new growth area in upselling is meals in economy, IdeaWorks reported this month, noting that among world airlines, “KLM pioneered upgraded economy-class dining” in 2011 with new meal options on long-haul international flights. Air France, Austrian, Condor, Hawaiian and US Airways are among airlines that have followed, offering higher-quality meals that long-haul international passengers can buy to avoid the usual free meal in steerage of mystery meat and roll.
I’ve sampled the new, fancy DineFresh optional meals that US Airways sells in coach on international flights to and from Europe, the Middle East and South America. They’re very good. They cost $21.99.