50+ Airline Fees Changes Noticed In 2012; Detailed Study On Ancillary Revenue
Airline fees are on a rise and there is no question to that. In recent years, a price increase has always been followed by another price increase and so on. The main cause of this chain reaction is ancillary fee that is added to the base price of the airline. Irrespective of whether a carrier is LCC or full-service, ancillary fee is levied by them. Nowadays, its not a question of “Who doesn’t charge ancillary fee?”, rather its a question of “Who charges lesser ancillary fee?”.
These ancillary fees comes in various forms – extra baggage charge, early boarding charge, seat preference charges, Wi-fi usage, inflight entertainment, booking modification penalty, water bottles purchase, in-flight purchases.
These ancillary charges have been evolving over years. In recent times, Airlines have put the innovation cap to come up with various ancillary fee channels.
- Last year American Airlines introduced baggage-delivery service within four hours of arrival to the traveler’s destination. This service is charged at $29.95 to $49.95 depending on the number of baggages. Airline industry is well known for ‘replication’. Four months from this announcement from American, United Airlines launched similar service with similar price point.
- US Airways introduced a premium meal option in Economy class passengers on international flights. This service is charged at $19.99.
- India based carrier Jet Airways announced a charge of Rs 50 (~1 USD) for printing flight tickets in their airport counter.
- Not to mention Europe’s famous Ryanair who charges for using restroom in flight
- Switzerland based LCC Wizz Air now charges 9 GBP for hand baggages that are too big to fit in the cabin. This charge can go upto 27 GBP depending on the size of baggage
According to Economist, bag fees earned America’s airlines more money than the ten biggest carriers’ collective profits.
According to the report by Amadeus and IdeaWorksCompany, global airline fees for 2012 was $36 Billion, this is 11% higher than the 2011 fee of $32 Billion. 2011′s airline fee is 5.3% higher than the fee collected in 2010. Simply put, airline fee revenue has been increasing every year.
When the industry expected the ‘heavy-fee-charging-airlines’ to report loss and go bankrupt, the exact opposite happened and surprised the market.
The most profitable carriers in the US and Europe are the ones who charged series of ancillary fees. For instance, Ryanair noticed a 11% increase in revenue from fees collected before and during flights. Their 2011 profit was £405 Million.
According to Wall Street Journal, passengers of US based Spirit Airlines (fondly known as “Ryanair of the US”) pay an extra $103 in fees for every round trip with the airline. This estimate was announced in mid-2012 before Spirit increased few of its fees.
According to Time, for every $3 collected by Spirit, only $2 comes as a result of payment for flights; the other one-third of total revenues comes from Spirit customers paying for fees including carry-on luggage, seat assignments, bottled water, and more.
Even the most distinguished player is caught in this ancillary-revenue channel. Southwest Airlines, one of the favorite airlines in the US still maintains the “Bags Fly Free” concept when their competitors are on a charge-fee-spree. But, Southwest recently announced a $40 fee for passengers who want to be guaranteed that they will be in the first boarding group.
Earlier this month, we reported Top 10 US carriers who collect baggage fees, reservation modification and cancellation charges.
TravelNerd, a startup company that’s part of the NerdWallet group analyzed the airline fee data and found that U.S. airlines changed more than 50 different fees since January 2012.
Key summary findings from TravelNerd:
- 36 out of the 52 fee changes are direct fee increases, with the remaining changes predominantly a result of:
- Bundling / unbundling of fees (e.g. instituting 1 fee for priority boarding and seating or instituting 2 separate fees for priority boarding and seating that were previously bundled into 1 fee)
- Increasing fee price ranges (e.g. Spirit changed its premium seat fees from $25-$75 to $12-$199)
- Redefining fee policies (e.g. Allegiant kept the same fee price of $50 for overweight bags 51-70 pounds but changed the fee policy to apply for bags 41-70 pounds)
- 28 out of the 52 fee changes are related to baggage fees, 19 changes are related to service fees, and 5 changes are related to in-flight fees
- Despite Spirit’s infamous $100 per carry-on bag fee, the majority of fee increases were within $5-$10
- 18 out the 52 fee changes are attributed to Spirit Airlines and Allegiant Air, ultra low cost carriers (ULCCs) notorious for charging fees
- Lastly, a small ray of hope comes from United Airlines, who reduced its overweight bag fees from $200 to $100 for bags 51-70 pounds and from $400 to $200 for bags 71-100 pounds
TravelNerd compared the fees (including announced upcoming fee changes) of 14 major U.S. airlines in January 2013 to those reported by the airlines throughout 2012, tracking each change. Airline fees were categorized as baggage fees, service fees, or in-flight fees.
- Carry-on bag
- First checked bag
- Second checked bag
- Additional checked bags
- Overweight checked bag
- Oversized checked bag
- Pet in cabin
- Pet checked with baggage
- Ticket change online
- Ticket change in person / over the phone
- Seat selection
- Preferred / premium seats
- Priority boarding
- Unaccompanied minors
- Food and beverages
- Other (blankets, pillows, headphones, etc.)
TravelNerd included the following announced and upcoming fees in its study:
- Airtran’s checked bag fee increases (February 13)
- Allegiant’s checked bag fee increases (April 30)
- Southwest’s checked bag fee increases (February 13)
Overall summary: Airline fees doesn’t seem to decrease in 2013. It’s definitely going to be on a constant rise. Services that were taken for granted in the past might cost us going forward. There are umpteen options that we can think for charging new ancillary fee. Ancillary fee will hit a saturation point, but that will be years later from now. By that time, something new might come up. Who knows, Apple might release ‘Apple Glass‘ and there might an ancillary fee possibility in that.