Ancillary Services and the Southwest Difference

Travel Weekly's Michael Fabey reports that a new study, sponsored by ezRez Software, found that airlines took in some $10.25 billion in ancillary-services revenue in 2008, a 345 percent increase over 2007.

In that year, 2008, airlines began to get their mojo working in their newly discovered drive for ancillary services.

"As airlines expand beyond their core product, the key is to determine how to best generate more revenue without alienating loyal customers or losing new ones to the competition," EzRez CEO Tina Fitch stated in the study.

Well, it looks like airlines may have to redouble those efforts to avoid alienating passengers.

Case in point: United Airlines just decided to match competitors and charge $50 for a second checked bag on international flights.

Maybe it's just semantics, but I would say that airlines aren't as much concerned with alienating their customers as they are in figuring out how much they can get away with without spurring open rebellion, defections to the competition or legislative action.

Southwest Airlines is bucking the trend in some respects and hoping to take away business from fee-happy airlines.

Splashed all over Southwest's home page today was its pitch that "Bags Fly Free" on Southwest. The airline charges no fees for first- and second-checked bags.

"Fly Southwest and Save $100 in Bag Fees," the home page trumpets. "LUV is saving on fees."

However, Southwest, too, is keen on generating ancillary revenue, but the difference is that the airline at least is giving passengers something extra for the fees instead of merely charging more for existing services.

Southwest recently introduced EarlyBird Check-In. For $10, passengers get to board after Business Select and A-List customers, and can stuff their coats and bags into overhead bins earlier than travelers who don't pay the fee.

Business Select passengers, of course, get early boarding, a free drink and priority access to security checkpoints.

It remains to be seen whether Southwest can successfully differentiate itself on the ancillary services front over the long haul.

While Delta and Continental went deep into the red and United eked out a small profit in the second quarter, Southwest recorded a $54 million profit. Of course, ancillary-services revenue was not a driving force in Southwest's quarterly results.

However, ancillary-services revenue increasingly will become a focus for all airlines when executives and financial analysts convene in quarterly conference calls.

It is clear that we have only just begun to experience what is expected to become crush of ancillary services and fees as airlines and GDSs come up to speed with the trend from a technology standpoint.

I'm beginning to feel a tad alienated.

Monday's Travel InsideOut

American Airlines is becoming so hip. If you are tired of Facebook applications like online Scrabble or Mafia wars, users of the social-networking site can now conduct flight searches using American’s beta fare finder.

Chicago Tribune: Search for airfares on Facebook? Yes, you can: American Airlines has added a fare-finding feature to its Travel Bag application within Facebook. The Travel Bag application lets Facebook fans share travel experiences, photos, reviews and comments with friends and other Travel Bag users. The new feature – American is holding a contest to name it – lets customers search for the lowest fares on American without leaving Facebook, and allows them to share their searches with friends in their network. Read more

-----

Google already may be the most comprehensive “hotel website,” and now Kayak CEO Steve Hafner believes Bing-struck Google may introduce hotel pricing as its entry-point to an enhanced travel offering.

Dennis Schaal Blog: Kayak's Hafner Awaits Google Hotels: Kayak CEO Steve Hafner thinks "it's only a question of time" before Google begins displaying hotel pricing, a move that could change the online-travel ecosystem. Read more

-----

There’s nothing like a few new ancillary services and fees to increase cash levels and cheer airline execs’ summer blues.

Travel Weekly: For airlines, ancillary fees help ease summertime blues: It’s summertime, and airlines are trying, as they always do, to build up their cash reserves to survive the winter. This year, though, they’re also trying to survive a recession.

As the airlines cut capacity, their revenue streams have dwindled, so they are relying more on ancillary fees to make up the balance. Airline executives also said the economic stress and recovery uncertainty were pushing them to consider consolidation or some other type of union to survive over the long term. Read more

-----

Through an acquisition in Europe, Concur is said to have improved its services on the Continent.

Business Travel News: Concur Buys European Expense Competitor Etap-On-Line: Expense management technology supplier Concur today announced it has acquired European competitor Etap-On-Line, doubling its European operations. Read more

-----

If you are looking for the movers and shakers in hotel blogdom, this list would be a great place to start.

UpTake Travel Industry Blog: Top 15 Hotel Blogs & Bloggers: Like every other sector, the hotel industry too has its own set of A-list bloggers who lead the conversation. These 15 hotel blogs and their bloggers listed here offer their readers the best hospitality experience, so to speak. Read more

Travel InsideOut is a Dennis Schaal Blog daily feature. Get a thorough-going look at the day's travel industry top and tangentially interesting stories. Feel free to comment on them below.

Travel InsideOut is Copyright (c) 2009 by Dennis Schaal. All rights reserved.

The Future of Metasearch and Flight Shopping

By this time next year, and at some metasearch and online travel agency websites much sooner, consumers will be able to shop for flights with optional services like checked bag fees and charges for aisle or exit-row seats included in the price before booking.

It's coming.

Consumers will be able to make apples-to-apples comparisons of flights among various airlines that offer similar ancillary services with the fees included in fare displays during the research phase.

These fees will appear in fare-grid displays or in tools more comprehensive than TripAdvisor's Ver. 1.0 Fees Estimator.

You could start seeing some of this stuff before the end of the year.

Perhaps a bit later, the OTAs and metasearch sites also will get access to airline's fare families like Air Canada's Latitude or Tango fares or Frontier Airlines' AirFairs.

But, flight shopping will remain complex.

When a slew of airlines -- and this is coming too -- decide to opt out of offering products and services strictly on an a la carte basis and start bundling them into a hodge podge of new fare brands, it's going to be "very messy," one insider told me.

One step forward, two steps back.

The American Dream: AA to Try to Turn Distribution Costs Into Distribution Revenue

In AMR Corp.'s first quarter earnings call yesterday, CEO Gerard Arpey spoke of his "long-term vision" to make travel agencies and global distribution systems (GDSs) pay for the privilege of distributing American Airlines' flights rather than the reverse.

And, even short of that goal, the move could be, well, priceless.

Arpey was quoted as saying: "Tom [CFO Thomas Horton] can jump in here, but I think the same approach that we’ve taken here in the U.S. certainly lends itself to the international distribution of our tickets where we’re still paying much higher levels of commission and booking fees, etc., and I think a lot that hinges on the use of technology and the competitive environment because a lot of those commissions or overrides or booking fees are paid in order to stimulate traffic and if we can, as an industry, do a better job keeping the supply of seats in line with the demand, I think that will help us on those fronts."

Warming to the topic, Arpey spoke of his dream: "So I think there are significant opportunities around the world to make the kind of progress that we’ve made here in the U.S. and not to be too dramatic but I can see a day, and maybe I’m dreaming here, where those folks who are the intermediary between us and our customer, have to pay for access to our product rather than us paying them to distribute our product. So that would be my long-term vision."

Any airline, GDS or travel agency executive in the U.S. recalls the distribution dramatics of 2005 and 2006, when the airlines threatened surcharges and radically cut the distribution fees they paid to GDSs and the incentives that Sabre, Galileo, Worldspan and Amadeus passed on to travel agencies.

Well, Arpey is signalling two things:

1) American Airlines, and others no doubt, are set and already are trying to export to the international arena the slash- and-burn distribution tactics that they successfully employed in the U.S. several years ago.

2) In the U.S., the next round of GDS-airlines booking-fee negotiations in a couple of years may make the prior face-off look like amateur night.

Airlines, of course, have every right to trim their distribution costs to reasonable levels. Before GDS deregulation, the GDSs used their clout and virtual monopoly power to tack on excessive fees to airlines that had little bearing to actual costs.

But now, as Arpey's comments show, the airlines are poised to try to force intermediaries to distribute flights to airline customers for free -- or, taking it to dream-like proportions -- to make online travel agencies, traditional agencies and GDSs pay for access to flights, which, of course, the airlines control.

Between Sabre, with its still-sizable distribution grip, terminating its relationship with Farelogix, and airlines poised to wield their hold over flight inventory to pummel intermediaries, it almost -- but not quite -- makes one wax nostalgiac about the days when these sectors were regulated.

The disruption that the travel industry faced in 2005 and 2006 would be considered a tremor compared with the earthquake that would occur if the airlines succeed in forcing through payless distribution in the next round of contract talks.

These days, the brouhaha may not sell a lot of newspapers, but it would drive a lot of traffic to travel news websites.

Meanwhile, another interesting point about American's first quarter results, is that although AMR's revenue declined 15 percent to $4.8 billion, those checked bag fees and other ancillary services indeed are paying off.

American's revenue from change fees, on-board meals and checked bag fees jumped 6.9 percent to $558 million in the quarter.

In the American (Airlines) Dream, those feels increasingly will be in the picture.

On Fees: easyJet, We Feel Your Pain

The ancillary revenue drama continues with another bit of travel news out of the U.K.'s Luton Airport, which is set to introduce a passenger drop-off fee.

Drivers who decide they don't want to pay the fee would have to park in the boondocks [an Americanism that means a parking lot in the stratosphere] when depositing travelers at Luton.

The airport already charges fees for luggage carts, clear plastic bags to get liquids through security and fast-lane security access.

But, now easyJet and at least one other airline have seen enough of these ancillary-service fees -- at least when it is an airport that's collecting the revenue.

"Whatever next?" e-tid.com quotes easyJet spokesman Andrew McConnell as saying. "We have seen charges for fast track security and plastic bags. Now they want £1 for dropping somebody off at the airport.

"This new scheme is a recipe for traffic chaos, which will see people stopping on double yellow lines or parking in the bus lane. Passengers already pay to use the airport facilities as part of their air fare."

One might ask the airlines, too, what's next? Many airlines believe it's OK for them to charge a bevy of fees for heretofore free services, but now they are balking when an airport gets in on the action.

To use another American idiom: It seems to me "like the pot calling the kettle black."

For more on the ancillary services question see:

Dennis Schaal's Proposal for the Airline Sales Channel and A La Carte Pricing Conference

Will Airline Fees Pinch Business Travelers?

Airline Merchandising: Trouble Getting Into the Spirit (Airlines)

Dennis Schaal's Proposal for the Airline Sales Channel and A La Carte Pricing Conference

The Elliott Blog tipped me off to the upcoming Airline Sales Channel & A La Carte Pricing conference in Miami.

I am not sure whether I can attend.

But, I have some recommendations for the conference planners in how they might extract some ancillary revenue (sound familiar?) out of the event.

I see that if you register for the confab by April 10, the discounted registration fee is $1149.

That is a bargain, of course, considering all the information available about increasing the airline industry's estimated $3.5 billion annual take from such nouveau services that heretofore had been available for free.

Anyway, times are tough, so here's my plan, unsolicited of course, for conference organizers.

Charge participants that $1149 fee, but when they arrive at the event, let them know that seating in the main conference ballroom will be $350 extra. If they don't want to pay the fee, there will be plenty of standing room.

No worries.

And, if they want a front-row seat with extra legroom, or an aisle seat for easy exiting from the main lecture hall, then tack on an additional $200.

Conference delegates, of course, will be happy to pay for this extra value. Even if they only find out about it after they book their conference attendance.

Transparency? What's that?

All of this unbundling of conference pricing will be worth it because the conference promises to "guide attendees towards increasing this huge [$3.5 billion] revenue source, as well as how to sustain this revenue over the long-term."

And, if one of the conference keynote speakers gives an especially illuminating talk about the next horizon in charging for meals on jetplanes, then charge conference attendees an additional $75 for downloading the presentation.

Again, it's a bargain.

And, while they are at it, conference organizers might want to sell anonymous data about conference registrants to third-party advertisers, including credit card companies and stock brokers.

The conference attendees would appreciate being targeted as part of this new, behavioral advertising trend because the advertisers are providing their prey, I mean their customers, with valuable products and services.

After all, airlines are planning to target their passengers with such advertising when they view in-flight entertainment on their seatbacks.

And, if conference organizers feel especially altruistic after bumping up revenue from attendees, they might want to consider throwing in a few freebies, including perhaps some complimentary sodas or napkins.

There's nothing like building customer loyalty after playing the ancillary-services game.