These Airline Packages Are Tricking You Into Paying Fees

Airline revenue from ancillary purchases jumped over 20 percent last year, and carriers are hoping to widen margins further with increased a la carte and bundle upgrades.

Airline ancillary revenue for fiscal 2014 jumped 20.9 percent year-over-year, thanks to greater choices in for-purchase, a la carte and bundle upgrades, according to recent report by travel consulting firm IdeaWorksCompany.

IdeaWorksCompany surveyed 130 global airlines’ financial filings, 63 of which qualified ancillary revenue. Of the 63 airlines, ancillary revenue rose to $38.1 billion in 2014, up 20.9 percent from $31.5 billion in 2013.

Ancillary revenue — revenue beyond the sale of tickets generated by direct sales to passengers — differs from airline to airline, but consists of fees from sources such as checked baggage fees, rental car commissions, miles sales to partners and passengers, seat assignments, boarding priority and onboard café purchases, among other.

“The big ancillary revenue numbers posted by carriers such as Air France/KLM, American and United include a mixture of a la carte activity from fees charged for baggage and extra leg room seating,” reads a portion of the report. “A big portion of the ancillary revenue total is generated by the sale of miles or points to banks that issue co-branded credit cards.”

Industry analysts see opportunity to expand ancillary revenue further through bundle packages, which allow flyers to purchase popular upgrades such as seats with extra legroom, boarding priorities and free onboard cafe items for a block price.

“Product bundles combine popular features and tempt consumers with savings in the same manner as a meal deal at a McDonald’s restaurant,” IdeaWorksCompany writes. “Global network airlines use fare bundles to preserve their normal service though a classic product and deploy a basic “bare bones” fare to drop pricing to LCC levels.

For example, Europe’s EasyJet already takes the approach and sells L170 annual subscriptions to “EasyJet Plus,” which includes assigned seating, fast-track security, boarding priority and the option for an additional carry-on bag.

“Low cost carriers use product bundles as a method to offer premium experience to lure business travelers to their flights,” said the report. “This creative competition places ancillary revenue and a la carte pricing at the center of the struggle for profits.”

Read IdeaWorksCompany’s full report here.

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