Charging for extras has become big business for the airlines. Considering fees for new product and service attributes, and charges on some things that once were included in airfares, travelers face new purchasing decisions throughout the air travel experience. Proactive companies want to negotiate pricing for the various airline a la carte items that their employees encounter, but, in many cases, buyers must wait for new credit card and ticketing standards.
It is important to note that many corporate travelers by virtue of their elite status in airline loyalty programs are exempt from some fees, notably checked bag charges, or pride themselves anyway on packing efficiently. But not all. Some fees are not covered by upper-tier membership levels, like inflight meals, and airline executives promise more unbundling to come.
According to the Bureau of Transportation Statistics, 32 U.S. airlines in the fourth quarter collected $1.9 billion from ancillary fees, up 18 percent from a year earlier. The total includes bag fees ($736 million), reservation change fees ($564 million) and other charges (but not seating assignments, inflight food and drinks, entertainment and several other items that "cannot be identified separately," BTS explained). Big money for airlines, but still a relatively small portion of a corporate traveler's expenses.
Concur in April said charges of $100 or less represented 2.3 percent of client airline spending. TRX in February estimated an even smaller amount, finding that "ancillary airline fees" averaged less than 1 percent of total air spend after examining 8 million tickets.
But "if you're a company that buys lots of those services, it looks like it could approach 5 percent of travel spend," said Delta Air Lines senior vice president for global sales, reservations and distribution Jim Cron, speaking in February at The Masters Program. "As far as the corporate contract, that's a natural element. It would be disingenuous for the airlines to say, 'I want to put that revenue to the side and not count that as money that you spend on the airline. I just want to focus on fares.' " He indicated less "flexibility" on change fees and more for such "premium revenue" items as lounge memberships, upgrades and checked baggage. At $425 million, Delta in the fourth quarter led all U.S. carriers in collecting ancillary revenue, 40 percent more than second-highest American Airlines, according to BTS.
[PULL_1]One emerging area is inflight Internet access. A no-brainer for many business travelers, connections for $5 or $10 per flight, or $35 per month, are for sale on growing numbers of planes operated by several airlines.
Some carriers have chosen the Gogo product by Aircell, which has "had several companies approach us directly asking for a corporate account," said director of strategy and business development Tim Twohig. He explained that "limited testing" underway this spring with a few corporations would expand during the next few months. The tests include such pricing models as volume-based discounts, such payment options as prepurchase plans and after-purchase billing, and registration through channels other than onboard systems.
Aircell also seeks to work with corporate travel management companies (a trial promotion with BCD Travel this spring offered that agency's clients 10 percent discounts on monthly access plans); wireless network operators; mobility service providers; and of course airlines.
"There is an incentive for them to sell connectivity," Twohig explained without getting into numbers. The airlines "look at it as another tool in their sales kit that they can use to attract some of the larger corporate customers and keep their customers happy and engaged."
Because Aircell is the merchant on credit card purchases for inflight Internet, tracking for the purposes of volume negotiations seems easy enough. But for fees imposed directly by airlines, complete and detailed data is harder to come by, at least for now. As airlines, credit card companies and other industry bodies work on tracking solutions, negotiations on many ancillary fees is tricky at best.
Responding to a poll taken during a MasterCard-sponsored webinar in January, 93 percent of 101 buyers indicated they had not succeeded in negotiating ancillary fee waivers. Many likely have not even tried.
Rita Visser, senior manager and global air procurement lead for Oracle Corp., told peers to gather any data they can--including information from card reports, expense systems and general ledgers--to have an "estimate in your back pocket. That's a great place to start the conversation. Does my company have a share in that? Does it go to our [contract] hurdles?"
Such considerations could help to de-emphasize average ticket price as a key business travel metric in favor of average trip cost.
Meanwhile, AA is working on an initiative it says would allow it to better tailor product and service attributes to corporate clients. While the "direct-connect" initiative requires travel agency support and AA hasn't detailed the economics, it also opens the possibility for new approaches to corporate contracting.