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In the “good old days”, as some seasoned frequent flyers will assert, everything was included in your ticket. Your airfare included everything most passengers needed, including a checked bag, an in-flight meal, and a seat assignment. Once your fare was booked, your mind was at ease. It was one-stop-shopping. Airlines made money selling tickets, plain and simple.
Things are now quite different. The model has changed to one that charges consumers for all the “extras” of flying. Checked bag? That’ll be $25. You want lunch while in the air? Fork over $7.99. Booking a ticket is now a lot like eating at a buffet. You pick the elements you want, and leave the rest.
Airlines earn $28 billion from “extras”
And the airlines are raking in the dollars from this model. A new report details how the top ten airlines that earn ancillary revenue have pocketed more than $28 billion selling these “extras” in 2016. The source of this revenue includes the airlines’ frequent flyer programs, “a la carte” items like bags and seat assignments, and commission from other sales.
The most interesting tidbit was how *much* the airlines are making from ancillary revenue. United, Delta, and American top the list, each making roughly $5 billion from sales of “extras”. Southwest, shockingly, is in fourth with $2.8 billion, most of which is from their frequent flyer program. This was a bit of a surprise to me since Southwest doesn’t charge for up to 2 checked bags per passenger. Then again…they are the biggest domestic carrier in America.
The percent of ancillary revenue was highest for ultra low cost carriers like Spirit, Frontier, and Allegiant. Each earned 46%, 42%, and 40% of their revenue from “extras”, respectively. This makes sense, given their charge-you-for-everything-under-the-sun model.
Yet…having choices is good
While some people lament the rise of low cost carriers, I believe they provide welcome competition to the market. We’ve seen some incredible fare sales, and the fact remains that air travel now is more affordable than ever.
I think we are better off than before because of it, although I still see a place for the “full service” model. The legacy airlines can’t seem to figure this “basic economy” thing out. They really should give it up. They’re still making enough from ancillary sales as it is. I had hoped that Basic Economy would bring legacy carrier fares in line with the low cost competition (SEE: Will there be an upside to United’s basic economy fares?), but it really hasn’t worked out that way.
Even though the airlines are raking in huge dollars from ancillary sales, I’m glad the market has shifted more in this direction. We really *do* need two models. One where people can book a ticket that includes everything they need (bags, seat assignment, food, etc.), and one for those who just want a seat from point A to point B. Both have their place.
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