At Least These Extra Airline Fees Come With Little Luxuries

Airlines' Extra Fees Will Soon Come With Little Luxuries
Airlines' Extra Fees Will Soon Come With Little Luxuries

Think of it as a kinder, gentler way of nickel-and-diming air travelers.

Many fliers accuse airlines of price-gauging through the introduction of fees for checked baggage, carry-on bags, on-board meals, exit row seats and other amenities previously included in the price of a ticket. But the global industry will continue to boost revenue through so-called "ancillary fees" over the next few years. However, the airlines will be doing so with value-added services that should sit better with passengers, according to a report released this week.

Among the airline services likely to be offered by 2015 that are rarely seen today are mobile-phone rental, airport shopping and dining offers, virtual airport tours and sales of events tickets, according to a survey released this week by Madrid-based global distribution system operator Amadeus and consultant Forrester Research. Other services likely to see a jump in availability include intercity rail tickets, personal concierge services and airport parking. Many of these services are likely to be offered by third-party vendors, either on airlines' websites or via mobile-phone portals.

Airline ancillary revenue will more than double over the next four years and in 2015 will more than double, accounting for 15% of annual airline sales -- or about $97 billion -- up from 7% of airline revenue last year, according to the Amadeus-Forrester study. By comparison, ancillary revenue for hotels, which traditionally derive a larger percentage of their sales from à la carte fees, will rise about 50% over the same time period.

In all, third-party ancillary fees alone may total $16.5 billion in 2015, according to the study, which polled 36 companies, two-thirds of which had 2010 revenue of at least $1 billion, and almost 80% of which were based in either North America or Western Europe.

Baggage Fees Earn Resentment (and Billions)

"Travelers may look at à la carte ancillary services and see fees that obscure the true cost of their trip and complicate the planning and purchasing process," the report says, referring to additional charges for items such as checked baggage. "This is not the case with third-party ancillary services."

Ancillary fees have surged over the past few years as airlines sought ways to cope with the combination of higher fuel prices and flattening demand due to the global economic downturn. For instance, United Airlines (UAUA) started charging economy passengers a $25 fee each way for a second bag checked in May 2008. Two months later, US Airways (LCC) and American Airlines (AMR) followed suit, with American charging $15 for an economy passenger's first bag and $25 for the second.

United, American, Delta (DAL) and other domestic and overseas carriers have since started charging for items such as on-board meals and so-called premium seating in certain parts of the coach cabin. These moves have caused a few other carriers to take a contrarian approach -- witness Southwest Airlines (LUV) and its "Bags Fly Free" advertising campaign.

U.S. carriers last year nearly tripled the number of aircraft equipped with on-board WiFi to about 2,000 from 700, according to research firm In-Stat, with most carriers using the Gogo service offered by closely held Aircell, whose prices range from $4.95 for a short flight to $34.95 for an unlimited monthly pass.

As a result, global airline ancillary fees totaled 18.4 billion euros ($25 billion) last year, up 67% from a year earlier and more than double the 7.68 billion euros ($10.4 billion) spent in 2008, according to surveys conducted by Amadeus and IdeaWorks.

Coming This Decade: On-Board Spa Services

Whether or not the additional bump in ancillary fees over the next few years will change customer perception from feeling gauged to feeling pampered, travelers appear to be loosening their purse-strings slightly as the global economy slowly recovers from the Great Recession.

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Domestic air travel, which fell about 15% in 2008 and 2009 combined, rose 7% last year, airline ticket-settlement firm ARC said in a statement last week. Additionally, the U.S. Bureau of Transportation Statistics said in a separate report last week that U.S. revenue passenger miles for the first 10 months of 2010 were up 3.4% from a year earlier.

A further rebound in travel spending may set the stage for ancillary services to go from utilitarian to luxurious. For instance, out of the 12 airlines polled in the Amadeus-Forrester survey, seven said they expect to offer on-board spa services within the next 10 years. Other possible offerings: organically sourced food and portable entertainment device rentals.

"More airlines intend to sell a wider selection of niche travel services like cruises, commuter rail tickets, and airport parking concierge services -- a mix of both mundane, expected products and more adventurous, inspiring products," Amadeus and Forrester wrote in their report. "By offering these services, airlines and other travel suppliers could fulfill many of the product areas in which they don't currently participate while also offering a more comprehensive travel experience to their customers."

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