I’m a huge fan of ancillary revenues.  This isn’t just because of the huge money-making opportunities, with ancillaries growing from $2.4 billion in 2008 to $42.6 billion in 2013.  It isn’t just because it is – for many airlines – a life-saving mechanism and a crucial way of helping to increase, or to just achieve, profitability.

It is because one part of it – a la carte pricing – is so controversial and, for many customers, thoroughly disliked.

This automatically makes it exciting – for me, anyway.

A la carte pricing
A la carte pricing is a fantastic development because it enables airlines to lower fares and stimulate demand; to supplement lower fares; to make prices look cheaper (as always, perception is key); and to save money by helping to shape customer behaviour.

But it’s also fantastic for customers as it effectively helps increase customer choice and power by enabling them to choose only what they want or need based on their willingness and ability to pay.

Yes, it means more decisions have to be made and it takes longer overall, so it certainly increases the so-called ‘pain of paying’.  But it should ultimately mean increased value and satisfaction; after all, otherwise why buy?

I, for one, barely ever buy anything, including checked bags.

It surely puts the customer in the driving seat.

In FlightPeople speak
In February, I conducted a survey with 661 frequent flyers  concerning their attitudes towards airline ancillaries.  One simple question I asked was: what do you think of when someone mentions airline fees?   (Rightly or wrongly, almost everyone thinks of them as fees, with its negative connotations, and not a means of tailor-making your own ‘package’ with things you want, need, and thus value, at least to a certain degree.)

The greatest response was “extra things to pay”, which somewhat unfairly or unconsciously doesn’t consider that the base fare could be almost zero and the overall to-pay amount very low.

After all, who cares if the “fees” account for 80% of your to-pay amount when the total payable is a perceived bargain?

The second and third greatest responses epitomise general belief: “exploitation/dishonesty” and “expensive”.

Reflective pricing
We all know that the price of certain components, but especially baggage and sport and musical equipment, varies enormously depending on when it’s booked, such as during the booking process (online or via a call centre), before on-line check-in, during on-line check-in, at the airport, or at the gate.  For example, one checked bag on Spirit varies from $21 to $100; for Ryanair it’s $25 to $50; and for AirAsia it’s $8 to $23.

Such pricing is at once a tempting carrot and a punishing stick, and is clearly rewarding those who conform more to the cost-effective ‘ideal’ customer.  I have no particular issue with such pricing, because – as a customer – I can see the prices and make informed decisions.  I have the power.

An increasingly common development is more ‘reflective’ pricing of certain components, especially for checked baggage and, sometimes, change fees.  This is where airlines charge different prices based on when you travel or the distance you travel.  For example, Ryanair segments prices into season – high or low – with each season having three specific date ranges.  It also charges differing prices depending on the distance flown, with higher charges for international routes to the Canary Islands and Greece.

To me, this approach is sensible: it is just as much about availing of greater willingness-to-pay than offsetting any increased cost, for example from extra fuel on longer flights.  And why wouldn’t you do that?

Allegiant seat pricingThe future
In the future, perhaps we’ll see differing prices for baggage, selecting specific seats, and otherwise not only for broad season and rudimentary distance.

Why not for travelling on certain days of week, with peak days more expensive and off-peak less expensive (so hopefully helping to stimulate demand)?

Or charge a differing price for bags depending on the actual sector length or within bands?

Or – much more extremely – why not change the prices of components depending on the degree of competition in a specific market and what direct competitors are doing?

But this all sounds more complicated.  Still, it’s somewhat like Allegiant charging many different prices – from about $5 to $50 one-way – for its seats based on how far forward they are and their perceived comfort levels.  (They even provide a start rating nowadays to identify perceived seating comfort.)  Each seat and seat location will effectively have a different overall level of value, so charging many different prices makes sense.

But at what point does it become excessive?  At what point do customers not want more power?  At what point do they just want booking to be dead quick and dead easy?

Customer choice driving airline ancillary revenue

About The Author
- James Pearson is a lecturer in air transport at Buckinghamshire New University, the largest provider of aviation-based undergraduate degrees in Europe. He is currently undertaking a PhD in the airline competitive responses of Asian network airlines within short-haul markets at Loughborough University.