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When travelers make their way to the airports this holiday season, they may begin to notice a major change in the infrastructure of the airline industry. The continual addition of ancillary fees, or fees incurred outside of ticket costs, is becoming a larger component revenue for major airlines. Due to the highly concentrated industry, George Hobica, founder of airfarewatchdog.com stated that airlines “have to differentiate themselves to compete.”
Since competition between these central airlines is not expected to diminish soon, both airports and airplanes are being further developed to increase revenue. Even at ground level, airlines are developing their lounge areas with the construction of aesthetic terraces intended to ease flier’s tensions while waiting for flights. Services within airports are appearing such as spas and luxury drivers which ferry first-class passengers to and from the airport after a lengthy flight, similar to a system currently being utilized by Qantas airlines in Australia.
Consumers are gradually becoming more responsive when it comes to paying more for comfort. Some features, such as in-flight showers with changing rooms, may seem impractical to the average traveler. However, to those who fly long distances on a regular basis, the comfort added by paying these fees is worth it. Consequently, these airlines are increasingly catering to first-class passengers as they pay about ten times as much as those in coach. While the fees of economy fliers may not be increasing, the space they have while flying is being consolidated as space for additional features is being added for first class fliers.
As a result, airline experts are projecting a major escalation in ancillary revenue for 2013. In 2010, these associated fees racked up revenue of $22.6 billion and this year the figure is expected to jump to $42.6 billion, says a study conducted by IdeaWorks. Aside from in-flight fees, a prominent source of ancillary revenue is accumulated by the use of Frequent Flier programs by credit card companies. Accounting for 60% of this revenue, airlines are selling miles to credit card companies because they receive money each time a credit card is used. Additionally, as consumers use these credit cards regularly, they will in response build loyalty with the associated airline. Though many North American airlines tend to accumulate the greatest amounts of ancillary revenue, airlines such as United Kingdom based Ryanair & easyJet, AirFrance, and Korean Air located in South Korea are ranked among the top ten airlines generating the largest amounts of ancillary revenue.
So what does this mean for the global airline industry? Experts predict a surge in rebundling, or the packaging of optional services and charging for a specific tier of flying. Airports may even start charging for services currently being provided for free. Charging for seats based upon location even in economy class flights is a growing trend for airlines, along with charging fees for bag checks prior to flying. Airline analysts use the term upselling to refer to the sales technique sellers use which induces customers to pay more for upgrades, thus creating a more profitable sale. As an industry, airlines are willing to amass charges in order to increase comfort for consumers as long as they continue to pay these increased prices. As a consequence, we can expect ancillary revenue to continually grow, and overall travel costs to inflate. To learn more background information about airlines and how they function, visit the Hospitality and Travel Industry page on globalEDGE.
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