Fees

How 10 airlines reaped $28 billion from the ‘extras’

Buying an airline ticket now has a lot in common with a trip to the grocery store or the purchase of a new car.

After going up and down the aisles, “Shoppers don’t know the total cost of all the things they put in their grocery carts till they check out,” said Jay Sorensen, president of research firm IdeaWorks, “And most people don’t just buy the base model of a car. They start with the base model and then start adding on features. That’s how air travel is now priced.”

And like that quart of ice-cream that wasn’t on your shopping list and those heated seats the salesperson sweet-talked you into, when it comes to airfares, the modern day extras can really add up.

In 2007 the top ten airlines (ranked by total ancillary revenue), was $2.1 billion, according to an IdeaWorks report, but in 2016, the top ten ancillary revenue-earning airlines alone took in more than $28 billion from “beyond tickets” sales of everything from baggage fees and commissions on care rentals and vacation packages to frequent flyer points, advertising and products sold in fare ‘bundles.’

Which airlines earn the most from extras?

Spirit Airlines may be marketed as an “ultra” low cost carrier but, at an average of $49.89 per passenger, the Florida-based airline topped the list of earnings per passenger a la carte extras such as checked bags, assigned seat and extra legroom. In 2016, that represented 46.4 percent of the airline’s overall revenue, according to the report.

Allegiant, Frontier were also 2016 standouts, earning, respectively, an average of $48.93 and $48.60 in ancillary revenue per passenger, representing 42.4 percent of Frontier’s total 2016 revenue and 40 percent of Allegiant’s, according to the report.

When measuring total ancillary revenue, larger airlines United, Delta, American and Southwest topped the list, earning $6.2 billion, $5.1 billion, $4.9 billion and $2.8 billion respectively.

These larger airlines, notes Sorensen, earn their high rankings due mostly to the sale of miles or frequent flyer points to banks that issue co-branded cards. But Ryanair and EasyJet, also among the top ten earners (at $1.9 billion and $1.3 billion respectively) earned the bulk of their ancillary income through a la carte fees and commissions on products sold on their websites, such as car rentals and travel insurance.

“Some of the best in this category have extensive holiday package business with route structures built upon leisure destinations,” Sorensen notes in the report, “Allegiant in the US and Jet2.com in the UK share the common bond of emphasizing leisure travel. These are essentially holiday package companies that own an airline.”

For these airlines, everything for revolves around the ability sell hotels, car rentals and attraction tickets to people traveling to vacation-oriented destinations, Sorensen added.

Looking forward, “Airlines increasingly see themselves as retailers that upsell and cross-sell as their focus shifts from optimizing the revenue per seat to maximizing revenues per passenger,” said Raymond Kollau of trends research agency AirlineTrends “For example, Ryanair now regards itself as a digital platform with an airline attached. It eventually aims to give away the seat ticket for free and earn their income via all kinds of ancillary services.”

Here is list of Top Ten airlines for 2016, ranked by ancillary revenue per passenger. (Courtesy IdeaWorks)

  1. Spirit: $49.89
  2. Allegiant: $48.93
  3. Frontier: $48.60
  4. United: $43.46
  5. Jet2.com: $4246
  6. Qantas Airways: $42.38
  7. Virgin Atlantic: $42.45
  8. AirAsia X: $34.1
  9. Korean Air: $32.59
  10. Alaska Air Group: $31.41

And here are the Top Ten airlines for 2016, ranked by overall ancillary revenue. (Courtesy IdeaWorks)

  1. United: $6.2 billion
  2. Delta: $5.1 billion
  3. American: $4.9 billion
  4. Southwest: $2.8 billion
  5. Air France/KLM: $2.1 billion
  6. Ryanair: $1.9 billion
  7. EasyJet: $1.3 billion
  8. Lufthansa (network): $1.3 billion
  9. Qantas (excluding Jetstar): $1.1 billion
  10. Air Canada: $1.1 billion

(*IdeaWorks gathers financial information for these rankings from annual reports, investor presentations, financial press releases and other sources.)

(A slightly different of my story about ancillary income for airlines first appeared on CNBC)

Airlines earn loads from the extras

LAX Flight Path Museum airplane models

You’re not imagining it. All those little ‘extras’ the airlines charge really do add up.

The proof, of course is in the price of your airline ticket once you add the charge for choosing a seat and bringing along a checked bag. But also in a host of other ancillary items that Jay Sorensen of the IdeaWorks Company totes up for us annually after scouring the financial findings of airlines.

He’s tallied the 2015 revenue breakouts from 67 airlines reporting an overall $40.5 billion in ancillary income for the 2016 edition of the CarTrawler Ancillary Revenue Yearbook.

He looked at disclosed revenue from activities such as frequent flier miles sold to partners, fees for checked bags, commissions from car rentals and at la carte items sold through Amadeus, Sabre, and Travelport for each of the 67 airlines.

Here are the some of the highlights:

*The “winner” in ancillary revenue share is Spirit, at 43.4 percent.

*Allegiant Air sold 452,272 hotel room nights and 1,204,982 car rental days to
passengers which contributed to ancillary revenue from 3rd parties of $40.2 million for
the year.

*Delta earned $125 million from its Comfort+ seating product.

*Qatar Airways took in $528 million from the sale of duty free goods.

*United disclosed mileage sales of $2.999 billion for 2015 with the majority of miles sold
to Chase Bank for the MileagePlus co-branded credit card.

There’s lots more in the report, which I plan to review over lunch, but in the meantime, here’s a link in case you want to dive in now.

Airlines earning more – and more – from fees

Spirit Airlines A319Side

Passengers complain mightily about the extra fees airlines now charge for everything from checking bags to choosing seats, yet are paying up – and up.

In 2014, airlines earned $38.1 billion from fees charged for retail activities, a la carte services, frequent flier miles sold to partners and other so-called ancillary fees, according to a report from IdeaWorksCompany and CarTrawler.

IdeaWorks ancillary revenue chart

Courtesy IdeaWorks

That’s $6.6 billion more than the $31.5 billion that IdeaWorks tallied in 2013 and $35.6 billion more than the $2.45 billion in fees earned by airlines in 2007, the first year the study was conducted.

The numbers are going up in part because more airlines are doing it,” said Jay Sorensen, president of IdeaWorks, “But also because more airlines are talking in their financial filings about what they’re doing to earn ancillary income. In fact, some are quite proud of their accomplishments.”

In its newly released 2015 Yearbook of Ancillary Revenue, IdeaWorksCompany scoured the financial filings of 130 airlines for 2014 and found 63 that disclosed revenue for extras such as a frequent flier miles sold to credit card companies, bag fees and onboard meals.

Among the findings:

*Spirit Airlines, which trumpets “Bare Fares” and charges for everything from water to printing boarding passes at the airport, earned almost 39 percent of its total revenue from ancillary fees in 2014 – more than any other airline in the study. The carrier took in $76.2 million from assigned seating fees alone and earned an average $56 in ancillary revenue from each passenger;

*Ancillary revenue brought in $5.86 billion for United, $4.65 billion for American/US Airways and $3.2 billion for Delta Air Lines;

*Alaska Airlines, which this year introduced a seating option called Preferred Plus (offering extra legroom, priority boarding and a free drink), is expected to begin earning at least $15 million a year from the program;

*And JetBlue, which this year added bag fees and a booking bundle that combines fares with a checked bag and reduces or waives change fees, could net more than $200 million from its new program.

The list of extra charges faced by airline passengers can seem endless, and new fees for everything from flying on child-free flights to being first to exit the plane on arrival have been bandied about.

But Sorensen doesn’t see much new coming in terms of new fees.

“Airlines all over the world are already selling whatever they can. They’ll just get better at pricing these products – and better at selling them,” he said.

(My story about airline fees escalating first appeared on NBC News)

App helps bumped, delayed fliers collect cash

Boston line at airport

Courtesy of the Boston Public Library, Leslie Jones Collection.

 

Getting compensation from an airline for a delayed, canceled or overbooked flight can range from difficult to impossible.

Several online companies, including AirHelp, EUclaim and refund.me charge a fee ranging from 15 to 27 percent (plus, in some cases, handling charges), for helping European travelers file claims under regulations that apply to flights to or from a European Union member state.

Now, one of those companies is offering its services to U.S. fliers online, and through a free app.
“Passengers are often left in limbo about what compensation they are entitled to,” AirHelp CEO and co-founder Henrik Zillmer told CNBC. And, especially when it comes to overbooked flights in the United States, they are eligible for a lot more compensation than they are receiving, he added.

AirHelp estimates that, under U.S. Department of Transportation’s rules, each year a total of $450 million in potential compensation is owed to passengers involuntarily bumped on overbooked U.S. flights and that, under European Union regulations, there are $2.1 billion in potential claims for U.S. air passengers flying to, from or within Europe on EU carriers.

Yet, because travelers don’t fully understand the rules— and because airlines don’t go out of their way to inform fliers of their rights—only a very small percentage of the compensation owed to passengers ends up being claimed or paid.

Under U.S. rules, bumped passengers are eligible for compensation equal to double the price of their tickets up to $650 if delayed one or two hours from their originally scheduled arrival time for domestic flights, or one to four hours for international flights. Those subject to longer delays—more than two hours after their originally scheduled arrival time for domestic flights and more than four hours for international flights—are eligible to receive payments of four times the value of their tickets, up to $1,300.

In overbooked situations, the rules require airlines to first ask people to give up their seats voluntarily in exchange for compensation, and allow airlines to decide what to offer volunteers in terms of cash, travel vouchers, meals and lodging.

And currently, far more people volunteer to give up their seats than get bumped.

According to DOT statistics for 2013, 56,968 passengers (0.92 percent of all fliers) were bumped from domestic flights while 466,677 passengers volunteered to take another flight in exchange for compensation.

Most of those volunteers accept travel vouchers valued far below the amounts DOT requires airlines to pay involuntarily bumped passengers, said Zillmer, “and only about 15 percent of those vouchers are redeemed. So it’s a super deal for airlines.”

But, he said, if passengers understood the rules better, they might not be as quick to give up their seats for airline vouchers.

Most airlines, including American and Delta, post information about the overbooking regulations and individual “oversales” policies online in their Conditions of Carriage.

“We’ve invested in some technology in recent months to install electronic pads that capture IDB [involuntary denied boarding] acknowledgement from customers,” said Delta Air Lines’ spokesman Morgan Durrant. “Think: credit card signature pad at your grocery store. Compensation is then issued.”

A United representative noted that only one passenger for every 10,000 was involuntarily denied boarding in 2013. The airline carried 76 million customers last year. “When necessary, we solicit volunteers with alternate transportation and compensation. In the rare instances that there aren’t enough volunteers, we give compensation that meets all regulatory requirements to any customer who is involuntarily denied boarding,” United spokesman Rahsaan Johnson said.

According to AirHelp, compensation for a delayed, canceled or overbooked flight could be up to about $825 per passenger—plus meals, phone calls and hotel stays—for passengers traveling to or from Europe on an EU carrier, or on a carrier from non-EU members Iceland, Norway or Switzerland. (Exemptions are made if an airline can prove the delay was caused by circumstances outside the airline’s control, such as bad weather.)

AirHelp’s new service for U.S. travelers helps them figure out if they are eligible for compensation and, for those who don’t want to pursue a claim on their own, offers to process the claim “including going to court if necessary” for a 25 percent contingency fee payable only if a claim is successful.

“In terms of empowering consumers, the online platform lowers the barrier for passengers, in terms of costs and procedures, to submit a claim” said Raymond Kollau of Airlinetrends.com.

“Call it the democratization of airline service failure compensation, if you will,” he said.

Helping passengers get the monetary compensation they are owed from airlines “will be a good thing,” said George Hobica of AirfareWatchdog. But he considers the 25 percent fee for successfully filing a claim to be a bit hefty.

“Consumers should be able to get compensation by themselves if they work at it,” said Hobica.

“It is a shame that we need lawyers to collect basic, regulated compensation,” in the first place, said Charlie Leocha of Travelers United. But “airlines prey on passengers’ ignorance,” he said.

(My story about apps that help fliers recover fees owed by airlines first appeared on CNBC Road Warrior)

 

United offers baggage/upgraded seating subscriptions

United Airlines white chocolate

On Monday United Airlines announced subscription programs offering customers either a year-long access to seats with extra legroom in the Economy Plus section of the cabin, or a year’s worth of pre-paid checked baggage fees.

United says it is the first domestic carrier offering these services in subscription form.

Prices start at $499 for the Economy Plus subscription and $349 for the checked-bag program and go up depending on which region of the world you choose (Continental US or beyond) and how many companions you bring along.

Are the plans a good deal?

Baggage subscription fee

United Airlines passengers flying on an economy ticket within the continental US – and to Hawaii or Alaska – currently pay $25 to check their first standard bag and $35 for the second bag.

With a baggage subscription, a traveler pays a yearly fee of $349 (plus a $50 initiation fee; currently waived). Travelers may add a second checked bag to the package for a $50 yearly fee, the bags of one companion for $100 and the bags of up to eight companions on the same reservation for $300.

The subscription only covers bag fees in the continental United States, so someone flying to Hawaii or Alaska would need to add on the North America/Central America option for an addition $100. Adding additional regions will rack up additional fees.

“With this program, a traveler would need to check a standard bag on 14 one-way, continental US flights before they broke even on their investment,” said Tim Winship, publisher of FrequentFlier.com. “That’s 7 round-trips. And if you are traveling that often it’s going to be true for most people that they’ll earn elite status in United’s frequent flier program, which already includes bag fee waivers as one of the perks.”

Economy Plus Subscription

Travelers purchasing an economy class seat on United can upgrade to Economy Plus at the time of purchase, if those seats are available. “The prices of those seats vary,” said May, “It can start at $9 and go up to $215.”

The Economy Plus subscription package starts at $499 (the $50 initiation fee is currently waived) and includes automatic upgrades to Economy Plus seats – when available – in the continental United States only. To add Alaska and Hawaii, a traveler would need the North America/Central America upgrade, for $100. Adding a companion to the package costs $200 and adding up to eight companions on the same reservation is $400.

Finding the value tipping point on this option “is a bit of a quandary,” said Winship. “I used a figure of $40 for a domestic flight upgrade. And using that figure it turns out that it would take 13 flights before that subscription price gets covered.”

“If you’re flying that much you may want to consider elite status on another airline that gives you these seats for free,” said Brian Kelly, founder of thepointsguy.com.

He can see some of United’s Premier Silver elite members buying this package because, due to a recent change in United’s frequent flier program, that group must now wait until check-in to claim their complimentary Economy Plus seat.

“Otherwise, casual travelers should probably just buy the one time passes,” said Kelly.

Overall, “I find the subscription plans puzzling,” said Winship. “Presumably the market for this is the traveler between the infrequent leisure traveler and the elite traveler. But the cynical way of looking at it would be that the targets for these subscriptions are gullible travelers who don’t really understand the value proposition here.”

(My story: United offers baggage/upgraded seating subscriptions first appeared on NBC News.com Travel in a slightly different version.)