Alaska Airlines and United Airlines are looking at opportunities to grow their ancillary revenue streams as they both push to increase their respective return on invested capital.
Seattle-based Alaska could expand its hotel and car rental booking business and raise its checked luggage fees to grow these revenue streams, said chief financial officer Brandon Pedersen at the Bank of America Merrill Lynch transportation conference in Boston today. It is also looking at premium seating and carry-on bag fees.
However, any increase in baggage fees will be carefully evaluated considering Alaska's direct competition with Southwest Airlines, which does not charge the fees, on many of its routes, Pedersen added.
Chicago-based United is looking at how to increasingly up sell its customers, said CFO John Rainey at the same conference. He cited the capability to dynamically price seats in the airline's economy plus, business and first class cabins based on the day of the week, time of the day and location of the seat - for example aisle, middle or window - of the company's Shares reservations system.
Another possible new revenue stream would be to market bundled vacation packages to passengers based on their past travel histories, he added.
Rainey would not comment on whether the airline was evaluating baggage fees on international flights.
Alaska generated $258.4 million in other operating revenues, which includes ancillary fees, or 5.98% of total operating revenues in 2011.
United generated $3.3 billion in other operating revenue, which includes baggage fees and premium seating fees, or 8.96% of total operating revenues during the same period.
Both airlines see the fees as ways to help boost revenue and by extension return on invested capital. Pedersen said Alaska wants to continue to report at least a 10% annual ROIC, which it achieved in 2010 and 2011, in the coming years and is focused on doing this through simultaneous revenue growth and cost reductions.
Rainey said improving ROIC was "embedded" in all of the decisions that United's management makes.
"We're actually into the third year now of having created economic value in this industry," said Rainey. "That has not occurred since the 1990s, and I might argue that in the 1990s it was not a result of the business management decisions but more a product of the environment at the time."