Airlines' extras rake in $44 billion

Charges such as for bags and meals tipped to increase as carriers fight high fuel costs.

Charges such as for bags and meals tipped to increase as carriers fight high fuel costsFares might be cut-price but airlines will still make money. Photo / AP
Charges such as for bags and meals tipped to increase as carriers fight high fuel costsFares might be cut-price but airlines will still make money. Photo / AP

Airlines globally are going to rake in close to $44 billion in extra charges on top of ticket prices this year.

The level and range of new charges is tipped to increase strongly as airlines fight high fuel prices and each other to remain competitive.

Global airline transaction processing firm Amadeus estimates ancillary charges make up about 2.9 per cent of revenue (of around $3.6 billion) at Air New Zealand which has during the past week introduced a range of new seating options - for a price.

A Jetstar spokesman said ancillary revenue made up a "significant percentage" of the airline's total income and was important to the low fare model.

Across the Jetstar Group, including all domestic and short and long-haul international routes, the airline receives around $38 per passenger in ancillary revenue, which has recently been driven by products such as iPad rental and increased sales of fare bundles and pre-paid baggage.

Amadeus defines ancillary revenue as that generated by additional activities that yield revenue for airlines beyond the core movement of customers from A to B. This includes bag charges, commissions, the sale of frequent flyer miles to partners and the provision of meals on flights.

The Madrid-based firm said in 2010 airlines made about US$22.6 billion ($27.4 billion) from ancillary charges - or 4.8 per cent of revenue but this was estimated to grow to US$36.1 billion, or 5.4 per cent of global airline revenue. Last year extra charges brought in US$32.5 billion.

"It's encouraging to see ancillary revenue growing at over 11 per cent this year which demonstrates the significant commercial potential for airlines," said Holger Taubmann, the senior vice-president distribution at Amadeus.

Some low-cost carriers are making around 20 per cent of revenue from the extra charges.

Flight Centre's executive general manager Mike Friend agreed more charges were coming.

"The American airlines started this around the GFC [global financial crisis] when they realised they weren't going to exist unless they started charging for bags as a way of getting more money," Friend said. "If fuel wasn't $110 a barrel this wouldn't be happening."

Friend said frequent fliers were generally unaffected by the charges and most premium carriers operating from New Zealand didn't charge added extras.

"But in America pretty much on every flight you've got to pay for a bag," he said.

He advised travellers thinking about travelling around the world to be care-ful of what may appear to be a good deal.

"If you're travelling from here and you buy a ticket on Qantas or the Star Alliance then it's all included but as soon as you start buying individual tickets with low-cost carriers you can end up spending a lot of money. It can cost more than the fare."

European budget airlines are famous for finding new ways to make money while offering cut-rate fares.

EasyJet has this month introduced a system where passengers are able to pay to choose where they sit, ending the first-come-first-served policy which led to unseemly scrums boarding aircraft.

Ryanair - whose boss once apparently jokingly floated the idea of charging to use the toilet - is now considering charging for carry-on luggage like some other airlines. Airlines' other sources included onboard Wi-Fi and commissions from hotel bookings.

Airlines were offering an ever-increasing selection of services such as priority security screening, early boarding, exit-row seat assignments, and single-visit access to airport lounges.

- NZ Herald

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