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ancillary charges

Nov 6, 2016

How ancillary charges might destroy full service carriers

What seems good to airline stock jockeys could have unintended consequences when the customers revolt

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Just add happy people to this Delta graphic of A350 Premium
Just add happy happy people to this Delta graphic of an A350 Premium cabin

There is an obvious problem for air travellers in stories that promote the merits of the embrace of ancillary fees by airlines.

Do they represent a groupthink that could mortally wound full service brands?

Those reports, including this classic from a year ago, are written for investors and airline managers, not for the ever increasing hordes of regular flyers (when taking global trends into consideration.)

Those behind such reports seem to overlook one critical matter. One of the major attractions of full service airline services is that they are promoted as ‘all inclusive’.

You get for your fare, whether in economy, premium economy, business class or that increasingly rare offering, first class, everything you could want.

Space, sustenance, liquor, courtesy, and a distinct lack of ‘gotchas’ where some unfortunate contractor, probably being paid less than a 7-11 indentured illegal visa-over-stayer, springs a check-in trap that costs you $$$ because you are a minute late, failed to print your own boarding pass, or exceeded your carry-on weight allowance by 100 grams.

What seems to be missing in all of this is recognition by full service airlines that when they go down the ancillary revenue path they severely erode the difference between their product and those of low cost carriers (even their own LCCs) in which the fare is simply the base on which customers are then supposed to cheerfully add all the extras they desire.

Like a pie on a plate, a checked bag, a place in a queue, a stiff drink, a blanket and pillow comfort pack on a longer flight, and so forth.

The result can sometimes be a fare not much different to the less hassled full service experience in which all of the ancillaries are there for the asking for no additional charge.

Of course full service carriers have been eroding the all inclusiveness of their products for a long time through excess baggage charges, by the simple process of lowering the excess threshholds that have existed on scheduled flights going way back to piston engine airliners where open slather for checked luggage could prevent a safe takeoff by exceeding the load and balance sensitivities of what were much smaller and slower aircraft.

Qantas whacked its customers with an up to 75 percent increase in excess baggage charges recently, but probably without much if any brand damage because most people avoid travelling with a pile of luggage that would have normally, up to the start of the jet age, accompanied someone catching an ocean liner for a four week passage to Europe.

Some full service carriers, such as Emirates and Qantas, have also recognised that once they can provide genuinely useful inflight wi-fi that connects to the internet rather than an intranet at decent speeds, it will not come with a system charge. Other full service carriers are going to have to reconsider wi-fi fees very carefully as a result if their route structure has them competing against free (and workable) wi-fi services.

But there is an underlying tension in the airline product game between offering largely all inclusive services, and bolt-on extra fee options.

This tension has the potential for unintended consequences in destroying the attractiveness of full service products. And full service products are already under siege by the corporate travel account managers in some enterprises who actually buy a very large part in aggregate of the flights used by frequent flyers.

The other route airlines are taking to leverage better returns from economy class flyers is to make the full service experience in the largest cabins on their flights so miserable passengers will start buying premium economy class offerings, or persuade their travel managers to do so, because of the physical pain inflicted on people stuffed into narrower seats. (And toilets where people can’t actually wipe their bottoms.)

This strategy may not be well thought out. If everyone who vows never to fly a nine across economy cabin in a Dreamliner ever again were to decide to pay an often substantial additional fee to get a Premium Economy fare you’d have 140 seat 787-9s leaving behind maybe 100 potential customers in some instances, or more likely, you would see demand for air traveller mortally wounded and the whole industry would implode, even if it did try to migrate to low cost airline brands and to hell with the agony.

The arithmetic of premium seating products (that in theory do not compete with business class offers) is really about marginally lifting yields across a flight with a modestly sized cabin. The practical difficulty for the airlines seems to be that when they compete against low fare carriers or sharp but short term discounts in standard economy, they move the economy fare down, but try to leave the premium economy fare where it was.

But that results in the gap between economy and premium economy looking far less attractive than before. If on the other hand an airline decides to also shift the premium economy product offer downwards, it can end up being indistinguishable from normal economy, confusing consumer expectations as to which standard of economy seating is worth what for longer than a price war might last.

Delta gave an example of what a really attractive premium economy product should look like last week when it released details of its ‘Premium’ cabins for its forthcoming Airbus A350s and 777s. Delta also has a business class which is a lot more ‘premium’ than Premium, but they can work on that branding dilemma in their own sweet time.

Cathay Pacific’s determined push to make its economy class seating as bad as some of its PRC tormentors risks hurting perceptions of the Hong Kong carrier as offering true value for its outstanding but generally more costly cabins. That risk could translate into the market just shrugging its aching shoulders and opting to go for cheaper yet equally uncomfortable competitors.

It’s practices like this which add downward pressure to the overall quality of air travel, and threaten in the longer term the survival of full service all inclusive airline brands.

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6 comments

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6 thoughts on “How ancillary charges might destroy full service carriers

  1. Creeper

    My parents recently returned from Europe they were going with Qantas but switched to Etihad because they didn’t want to pay the $30 seat selection fee per leg when Etihad had the whole cabin open, free for all….

  2. OkinawaD

    Emirates is now charging seat selection fees of $180 for a return trip to Europe. $55 to and from Dubai and $35 to and from Europe… this applies to the lowest economy class fares in X, V, T, L, Q and N class… certainly makes Qantas’ fee of $30 look good.. Naturally, Qantas will align their fees with partner Emirates in due course..

  3. comet

    Travelling domestically I would fly Tiger or Jetstar, except that I can’t figure out what their fares are.

    LCC fares are like a mobile phone contract. They’re too complex. I can’t figure them out.

    So to avoid unknown surprise gotchas, and simply to know what I’m paying, I go full-service.

  4. Ben Sandilands

    On behalf of a reader in the UK the following illustrates the attack on passenger amenity by British Airways, carried out in the apparent belief that its customers will put up with anything.
    QUOTE: Sad to see that BA is following the herd and planning on cramming more people into its aircraft. There is a presentation on the IAG website:

    http://www.iairgroup.com/phoenix.zhtml?c=240949&p=irol-presentations

    called “Capital Markets Day”.

    There is a slide in the BA section called “Increasing capital efficiency” where they talk of the A320s and A321s being “densified”, and the B777-200 fleet also.

    From the B777-200 seat plan shown it seems they are going to increase the number of passengers from 280 to 332, but they have decided to remove 2 of the current 9 toilets. So instead of 1 toilet per 25.4 passengers there will be 1 toilet per 47.4 passengers.

    The A320s will increase from 168 to 180 seats, and the A321 from 205 to 218.

    1. Mayan

      One wonders what seat cleanup will cost them if they continue to remove toilets.

      The concept of Anaesthesia Airlines, where passengers are put under at check-in, then place in racks for the flight, before being brought round after landing, is looking like the dignified option for the future.

      1. Dan Dair

        Providing I don’t wet my pants (or worse) during the flight,
        that’s not actually the worst way to fly that I can imagine.?

        I’d suspect it’d be a similar arrangement to one of those Japanese capsule/bed-hotels, though obviously even smaller & more cramped,
        but if I’m fast asleep
        & actually wake refreshed
        (as opposed to hung-over from the sleeping-draught),
        I won’t care about the size of the cubicle
        & there’d be no jet-lag to spoil the first couple of days of my trip.?

        (I’m reminded of the space-flight in the film 5th Element.!)

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