Ancillary revenue to the rescue of airlines
WOLE SHADARE writes that desperate for revenue, the industry looks at a la carte pricing for a variety of services. New research shows airlines are having a field day with "ancillary revenue" or income derived from extra charges such as meals, baggage fees, in-flight entertainment and seat reservations.
THE global economic downturn which has affected businesses globally is bringing out human ingenuity and creativity. Not only has companies devised new methods of survival, they are equally struggling to remain afloat.
Almost two thirds of the world's airlines plan to increase the number of charges levied on passengers, according to new research as they have introduced several ancillary charges to cushion the harsh operating environment that has led to the death of many carriers, both in Nigeria and elsewhere.
These charges range from the choice of air passengers to pay for choice seats on board an aircraft, payment of meals on board, charging for extra luggage and in some cases, payment to use the aircraft lavatory and the use of Internet facilities on board.
In the past, these extra charges were only confined to low cost carriers, but bigger carriers have joined the fray to help them reduce their costs.
Airline passengers who are fed up with all those extra fees now charged by carriers are in for some bad news: More of the same is yet to come. Airlines' extra fees may soon be taking off.
Low-cost carriers are becoming more cautious about slapping passengers with higher or new add-on charges, fearing a backlash from customers and regulators alike.
That was the message from the Ancillary Revenue Airline Conference in Huntington Beach recently, a gathering of airline executives and businesses that serve the industry.
The terms "ancillary fees" and "a la carte pricing" are business-speak for charges for products and services that passengers used to be given free, such as checking a second bag, or that airlines have recently added, such as wireless Internet.
Globally, revenue from extra charges jumped from $2.29 billion ($2.47 billion) for the 2006 calendar year to $10.25 billion last year, putting it as high as 20 per cent of revenue for some carriers.
While it would be easy to assume this revenue increase is due to the rapid growth of no-frills airlines, the figures show airlines of all types are getting in on the act.
According to a travel expert Olumide Ohunayo, the best way out for Nigerian carriers to survive was for them to introduce ancillary charges.
He said that the extra charges were not taxable, just as it was the extra mean of making little money from passengers, stressing that it could be avoided if the passenger did not want to incur extra cost.
Again, virtually all the country's airlines are low budget airlines as they cannot charge beyond N17, 000 they currently charge for an hour trip, as increase in air fares could drive passengers to the roads.
Again, most Nigerians are impoverished and cannot afford N17, 000 for an hour trip, the reason why domestic passenger traffic is less than eight million passengers per annum, inspite the huge population of 15O million people.
Survey shows that the same category of Nigerians made up business travellers, government officials make up for this insignificant number, representing less than four per cent of the entire population. Nigerian carriers would all be prosperous if only 30 per cent of the populace embrace air travel.
Since the Federal Government is delaying in coming up with a blue print that would assist the airlines out of their present predicament, they are strategising to remain in business.
In Nigeria, one of the country's leading airlines, Aero Contractors has launched on board sales of snacks and drinks in all its domestic destinations. This service is only available in the economy class cabin.
The new in-flight catering service gives passengers the option of purchasing quality breakfast, lunch or dinner on board the carrier's flights from a selected menu.
Aero's latest product called Sky Snax will offer passengers mouth watering choices ranging from sandwiches, toasted sandwiches, variety of snacks, beverages (coffee, tea) and soft drinks. The airline plans to make available menus online on its website, www.flyaero.com where customers can also purchase vouchers at a discount.
However passengers in the business class cabin will be offered complimentary food and drinks under an improved menu.
Aero will be the first airline to introduce this product in the domestic market, leading the way in innovativeness as it has done in the past.
The airline was the first to start online booking, payment, online check in before others followed. Aero is also the first carrier to launch low fares in the market, where one way tickets have sold as low as N4,500.
Shaf Syed, chief executive of Aero said: "We are delighted to launch Sky Snax product into the market for our customers, who now have choices to make from our range of menus. Our cabin crew would heartily attend to customers' needs, ensuring that they get quality service on board.
"This clearly indicates our innovation in this market and shows us leading the way again for others to follow. We have led the way in many innovative products like online booking, payment, travel insurance and check in. With this product our customers can take charge of their on board entertainment through a wide range of choices."
The top-five collectors of ancillary revenue last year were American Airlines, United Airlines, Delta Air Lines, Ryanair and Qantas. British Airways is also joining in by adopting seat-reservation fees - charging passengers who choose their seat at time of booking.
The inclusion of Qantas comes as no surprise to one Sydney traveller, who, at two metres tall, now finds himself having to pay a hefty fee to secure an exit-row seat, which was free in the past.
The big trend in ancillary fees is called "unbundling," the practice of offering coach passengers separate products and services typically offered as part of a package to business- and first-class passengers.
For example, United Airlines lets passengers pay as little as $19 to get priority seating and to cut to the front of the line at check-in and at the security checkpoint. For as little as $39, United's passengers can also get one-time access to the airline's cushy airport lounge. Both of these perks are typically reserved for passengers who pay an annual fee or buy a business or first-class ticket.
But industry experts warned that passengers would revolt if airlines took the fee trend too far. One expert cited the $14 fee that Allegiant charges passengers to book a flight, either online or by phone. The only way to avoid the fee is to buy a ticket at the airport.
In the future, airline passengers can expect to see ancillary fees repackaged to appeal to a variety of customers, according to experts.
For example, airlines may offer a package for young, hip, health-conscious passengers that includes Wi-Fi service and a vegetarian meal. A package for business travellers may include priority seating, Wi-Fi service and access to an airport lounge.
