You know who likes all the fees airlines charge? Customers do, one airline industry analyst contends, and he has an idea for a bunch of new ones.
Revenue from all those airline fees and optional services, called ancillary revenue, rose 7.1 percent in 2014, industry analyst Hunter Keay of Wolfe Research said in a report Friday. Such revenue has helped airlines become profitable in recent years, along with a more recent sharp drop in jet-fuel prices. Airline stock prices have soared.
Ancillary revenue comes from fees for checked bags, extra legroom and flight changes, for example. Discount airlines, such as Spirit, Frontier and Allegiant, have far more fees than large network carriers.
Keay, in a report Friday, wrote that it might be an “inconvenient truth” but customers like fees.
“Maybe that sentence would be better received if we had said ‘customers like paying only for what they use.’ Well, guess what … that’s the same thing. Part of the airline evolution is about airlines segmenting their customers and treating good customers better than bad customers,” he wrote.
Of course, survey results in recent years beg to differ — showing customers hate those fees – although a report last year by J.D. Power showed passenger satisfaction with airlines was at a 10-year high and their ire at fees was abating as they now expect them.
Keay said the “mother lode” of fees is still untried among most airlines — charging customers for carry-on bags if they book through an online travel agency, such as Expedia, Priceline or Orbitz, rather than directly with the airline.
“That isn’t just about revenue — it’s also about lowering distribution costs. And it clears up more bin space for good customers (those with status) at the expense of bad customers,” he wrote.
Today, about 40 percent of tickets are booked through airline websites, meaning the majority are booked elsewhere, he wrote. Keay figures American Airlines, the world’s largest carrier, could make $259 million more in fees and cut $74 million in costs with that idea.
A few discount airlines already charge all customers for carry-on bags that need to be stored in the overhead.
Other fee ideas include charging passengers who try to bring oversized bags as carry-ons, and charging for soda, seat assignments and for the first checked bag on international flights, which are usually free.
And, of course, one that’s often joked about: charging to use the bathroom.
“Just kidding … although the idea of giving away free booze and charging customers $20 to use the restroom is fun to think about,” Keay wrote.
Fun, in a stock analyst kind of way.