From select coach seat assignments to a second checked piece of luggage, inflight meals and the upcoming introduction of onboard Wi-Fi, fuel-battered airlines continue to find new sources of ancillary revenue—including some once included in the base fare.
Travel buyers said the increase of unbundling and upselling only adds complexity to managing travel and tracking expenses, although they expect more carriers to continue to expand a la carte pricing models.
According to results of a poll of 156 corporate travel buyers conducted by Topaz International on behalf of Business Travel News, nearly 94 percent agreed carriers would further increase ancillary fees through unbundling service options, and 56 percent said fare unbundling would make it more difficult to monitor airline expenses.
Among the most recent examples, most major domestic carriers in the past few months adopted a $25 fee for coach passengers to check a second bag. Though consultants and buyers said the charge, from which most carriers shield elite-status frequent flyers, would affect leisure travelers more than light-packing and luggage-averse business travelers, the fees, and others like them, are posing policy quandaries for travel buyers.
Though addressing newly unbundled options through policy "is in its infancy" at many companies, some buyers have begun to do so, said Mitch Cwanger, American Express Advisory Services senior practice leader for air. "By the end of this year, you'll see an uptick in companies addressing it," he said. "We are seeing companies at least put some type of verbiage in their travel policy to account for menu-driven pricing or unbundling."
The new checked baggage fees have prompted nearly 37 percent of the Topaz survey respondents to reevaluate travel policies that govern the use of such fee-based services, and 59 percent said their companies would reimburse employees who check a second bag, though many offered caveats that the luggage would have to be work-related, or the trip must exceed a certain time threshold.
Lockheed Martin, for example, will reimburse the second-bag fee if travelers are checking presentation or testing materials critical to their job while on the road, said director of corporate travel services Richard Wooten.
Lockheed is beginning to evaluate the impact of such charges and is eyeing policies to regulate the use of unbundled services. "We're still in the midst of sorting through all of that on the airline side," Wooten said, pointing to inflight meals—among the first services to leave the cost of the ticket to be sold back to passengers—as easier to justify.
"If you eat on the plane, and want to buy that junk, you can expense it as lunch," Wooten said. Now, with the approach of inflight Wi-Fi for a fee and attempts to upsell travelers to more desirable coach seats, Lockheed is looking to find where the reimbursement line begins.
Topaz International president and CEO Brad Seitz said buyers "almost have to go down the list of all those fees and say, how do you put this in your policy?"
In addition to prompting policy reevaluations, some said detaching fees from the base fare leaves a growing portion of airline expenses non-negotiable to corporate clients. Though Seitz estimated that 90 percent to 95 percent of most companies' air expenses remain included in the base fare, the growth in unbundling could bring that number down. "Adding these as fees eliminates them from corporate discounting," one buyer said in response to the survey.
Though the major global distribution systems all are working on systems to enable such pricing initiatives through agency and corporate channels, most carriers assess the fees at the time of checkin, on the airplane or exclusively through their own Web sites, making their use more difficult to track.
"Unbundling is going to make it more difficult to determine the actual cost of the flight, unless corporate travel programs adjust and find ways to capture this information," said another respondent to the Topaz survey. "Unbundled pricing has to be available through both airline sites and corporate online booking tools or else the pricing on the airline sites will appear lower than fares offered through corporate travel programs."
Though growing, the issues aren't new. Air Canada in 2006 became the poster child for a la carte pricing, when it began assessing fees for such services that once were included in the ticket price as seat selection, checked luggage, frequent flyer credits, inflight meals or airport lounge access (BTNonline, Nov. 6, 2006).
Northwest Airlines initiated a fee for some coach seat assignments in 2006, and nearly two years later other major U.S. carriers are following, attributing such initiatives to the growing cost of fuel. "This practice will continue as long as fuel costs remain at the same levels. Unfortunately, it seems airlines are convinced that a la carte pricing is the way they should go," said one travel buyer in response to the Topaz survey.
US Airways president Scott Kirby, in an April memo announcing a fee of at least $5 for window and aisle seats in the first several rows of the coach cabin, said he expected to see competitors match the move. US Airways will initiate the charge on May 7 on about 8 percent of its coach inventory. JetBlue Airways recently reconfigured its Airbus A320 fleet to expand legroom to 38 inches of pitch in select rows, and in April began charging a premium for those seats of $10 per way on short-haul flights, $15 on medium-haul and $20 on long-haul.
"I've got to believe they're scraping the bottom of the barrel already," said Bob Brindley, vice president of the Americas for Advito, BCD Travel's consulting division. "I've seen comedy sketches where they charge for extra oxygen on the plane, so you can take this to the absurd. They'll keep looking and pushing the envelope."