Achi news desk-
Jay Sorensen flies business and economy class.
While the differences between the two have always been stark – priority accommodation and free alcohol are decades-old hallmarks of first-class travel – recently the gulf appears to have widened, says the president of a consulting firm the United States.
Economy class travel is defined by shrinking legroom, narrower cushion space, reduced rewards for frequent flyers and, in particular, the myriad fees that can skyrocket as airlines offer ever-increasing add-on options on their tickets.
“Traditional airlines seem to want to penalize passengers who buy these fares,” Sorensen said of bottom-run tickets.
The extra money passengers pay for checked bags, pre-selected seats and on-board snacks is a growing share of airline revenue, even as debate rages over whether the charges amount to “junk fees” or does the lower base price offer passengers more choice. .
Air Canada took in nearly US$2 billion in so-called ancillary revenue in 2022, up nearly 50 percent compared to five years earlier, according to Sorensen’s IdeaWorksCompany. The category’s share of total revenue grew to more than 15 percent from less than 11 percent in the same period.
This month WestJet introduced a new service tier, “Extended Comfort,” where economy class passengers can pay for extra legroom, early access to overhead bins — stylish real estate due to checked bag fees — and a free alcoholic beverage .
Popularized by budget carriers more than 15 years ago and adopted by mainline players since then, ancillary revenue plays an increasingly vital role in the industry, helping to diversify income and insulate companies from fare fluctuations , fuel costs and competition.
“Ancillary revenue is more sticky than passenger revenue, which can be subject to price changes related to competitors’ prices on the same route,” said TD Cowen analyst Helane Becker, adding that airlines aim to “create moats of around their business.”
COVID-19 also spawned habits that have been difficult for some passengers to kick, including selecting seats in advance.
“Where you sat became important to many customers, because if you sat at the front of the plane, you got off the plane first. People paid a premium for that, and I think that behavior has remained,” Sorensen said.
Ancillary income derives mainly from three streams: à la carte serving such meals, on-board Wi-Fi and extra baggage – or any baggage; frequent flyer programs; and commission-based offerings such as hotel reservations, car rentals and travel insurance.
Globally, ancillary revenue was forecast to reach a new high of US$117.9 billion in 2023, up from the previous record of US$109 billion in 2019, according to an October report by travel technology platform CarTrawler.
Not everyone is on board.
Endless “nickel-and-diming” risks alienating travelers, who grumble online about a dizzying array of extra fees and service tiers, says John Gradek, who teaches in McGill University’s aviation management program.
On social media, WestJet’s new Extended Comfort option caused confusion – “are we getting an extra bill?” — to exasperate — “only adds more … costs to the ever-increasing cost of air travel.”
But the fees aren’t going anywhere.
“They love these things,” Gradek said of airline executives.
“The revenue is very big dollars, and in some cases it’s the lifeline for the survival of very low-cost carriers.”
In fact, they account for about 40 percent of Flair Airlines’ revenue—50 percent is the goal—according to its vice president of ancillary revenue and digital experience.
“Everyone wants a bigger share of the passenger wallet,” says Juliana Ramirez.
Part of the strategy is to attract users to the website with rock-bottom prices, and then offer a number of add-ons, he said.
The $67 fare for a one-way Toronto-Vancouver flight next month quickly increases to $323 after opting for the $90 “Big Bundle” — one carry-on, one large checked bag, priority boarding, a flight adjustment — plus a front row seat, bundled travel insurance, $15 online check-in ($25 if you wait until the airport) plus taxes and third party fees.
Ramirez acknowledged the frustration of paying well over double the price of your ticket just to secure what would have been standard parts of the flight package a few decades ago.
“We get it. Nobody likes to pay for something to carry on,” he said.
In its budget last week, the federal government promised to “crack down on garbage fees” charged by haulers. That prompted the National Airlines Council of Canada to demand more clarity from Ottawa, arguing that fees give customers more flexibility.
Air Canada said the benefit of unbundling is that customers know exactly what they’re paying for.
“It’s very transparent,” said spokesman Peter Fitzpatrick, pointing to the different tiers of service.
“Our branded fares are part of our ancillary strategy, as each branded fare is a combination of add-ons (such as baggage, seat choice and flexibility) sold as a package.
“Our experience is that customers appreciate having the option to tailor their trips to suit their needs, including not paying for services they don’t want,” he said.
(He also said that earnings derived from sources other than fares and cargo were well below 10 per cent of total revenue – lower than the consultation report estimated.)
WestJet’s Madison Kruger offered a similar explanation: “By offering our guests an unbundled product, it ensures that they only choose the travel options that matter most to them.”
Larger airlines see no choice but to cut their purchasing options to thinner service levels to beat back the threat of discount carriers, said Ricky Zhang, founder of Vancouver-based travel rewards website Prince of Travel.
“Most leisure travelers choose based on price,” he says. “So Air Canada and WestJet have had to lower their base fares… and that leads to unbundling the experience.”
Whether it solves Canadian tastes for travel is another question.
“If you’re positioning yourself as a better-service airline than (low-cost carriers), that branding statement doesn’t match your behavior to basic economy passengers,” Sorensen said of carriers with service spartan for lower tier customers.
“Why do you treat me so differently when I happen to be in my value mode?”
This report was first published by The Canadian Press on April 22, 2024.
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