North American carriers are looking for more ancillary sale opportunities to offset record fuel costs
North American carriers of all stripes are looking to ancillary sales and services as they search for ways and means to boost revenues in a hyper-competitive environment. From tiny low-cost Spirit to United Airlines, across the full spectrum of size and business models, it is a focus.
At United, a high profile move to charge its lowest-paying flyers for extra bags has caught the industry's attention as the airline moves to adopt a trait that had long marked the low-cost carriers. The fee of $25 for a third bag for flyers on non-refundable tickets, with elite level frequent flyers exempted, could yield as much as $100 million in revenues this year alone. US majors have always had a generous three bag allowance.
United revenue officers think this sort of selling is the wave of the future, but senior vice-president Kevin Knight admits "we don't really know what to sell to our customers" next when it comes to ancillaries. On-board sales of food, which United introduced in 2001, was just a start.
"We're going to push ancillaries very, very hard [this year]"
Chief executive, AirTran
United's move to charge for extra bags has caught the industry's attention
As United announced its move, Spirit unveiled plans to raise its fee for checked bags. At Air Canada
, the pioneer of the sale of "extras" along with selling up, ancillary revenues for 2007 grew 17%, says airline president Montie Brewer. The additional $210 million reflects the carrier's success in persuading 45% of its passengers to "buy up" to a higher fare category or to buy extras.
At JetBlue, the drive for these add-ons has led the eight-year-old discounter to tweak its low-cost approach even further. Chief executive Dave Barger says the airline is "very focused on increasing ancillary revenues during 2008. During 2007, we increased our change fees and implemented a telephonic reservation fee. As a result, our 2007 other revenues increased about 50% over 2006."
For this year, JetBlue is starting to offer refundable fares and will introduce a new "front cabin". Barger tells Airline Business the "front cabin" will not be a traditional business class but will give passengers who pay higher fares more legroom and the best seats in the aircraft. Currently passengers that pay the highest fares typically book last and end up with the least desired seats, which isn't right, Barger says.
JetBlue is also looking at new ancillary revenue opportunities including selling videos. "You've got to keep it going," Barger says.
Other carriers such as AirTran have begun charging extra for those reserving an exit-row seat and other "up-sells". But chief executive Bob Fornaro warns that if the carrier adds too many fees "we can end up being higher fare" than arch rival Delta. Still, Fornaro says: "We're going to push [ancillaries] very, very hard. Again, at the end of the day, we've got to get our revenues up to adapt to $90 oil."