I believe the original idea behind additional fees and their associated ancillary revenues was based on charging for extra services above the base prices required to match the low-fare no-frill carriers.
Full-service airlines had to find a way to match the price and level of service provided by the low-cost carriers. Stripping off the benefits of a discounted full-service ticket involved removing features such as food and beverages, seat selection, frequent flier points, refundable tickets, and in some cases increasing change fees.
Competing with low-fare carriers and the pressure on profits brought a closer look at the costs of flying a passenger. The ability to use the internet to reduce customer interaction was one way to reduce the cost of servicing a passenger. Kiosks for check-in was another. Passenger baggage involved not only additional weight, but also processing and transfer costs at the airport.
In today's environment, we are looking at further ways to improve profitability in the face of economic hardships around the world, and the resulting drop in traffic and business travel. The focus seems to be on cost areas that can be reduced through charging premium fees. For example, charging for baggage might cause a price sensitive passenger to reduce the amount of baggage that they travel with. This then takes pressure off and reduces the cost of the airline operation. Those passengers who are willing to pay can carry all the baggage they need. In the end, operations run smoother, costs are lower, and everyone benefits.
Many airlines have introduced value-based pricing or fare families on their websites. This is a way to communicate a value proposition to the customer and offer a bundled product or service that is basic or includes a level of service according to a value that the customer relates to. Airlines have also been successful at up-selling those customers who enter the website based on price and then buy-up with the offer of increased comfort or convenience.
There is a lot of talk about excessive fees today, but what is ideal business model? Do we bundle packages, or do we allow the passenger to choose only the options they want to pay for? What services are related to high costs, and where can we improve?
The idea for legacy airlines to offer the stripped down fare and then charge more for add-ons is a decent proposition. It levels the any price advantage that the so-called LCC's might have on price.
ReplyDeleteThe problem became that the legacy carriers became the "price leaders" when it came to charging for extras. They started charging for call cantre calls, extra bags, then any baggage and more. The LCC's then became a value statement because they did not charge for these items.
The legacy carriers got carried away with themselves and started to charge for too many things that their LCC competitors did not. The legacy carriers should have stuck to meating each charge head-on.