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The airline industry continues shifting its revenue stream toward ancillary income

Airlines churn out billions in gravy as fliers are asked to pay for things like seat assignments and baggage

Photo (c) Berkut_34 - Getty Images
What’s included in the fares consumers pay for airline tickets has become a can of worms over the last few years. What presents itself to the consumer as a $100 fare can easily wind up as $140 by the time "additional fees and taxes" are tagged on.

Then, if you want a certain seat, to carry on a bag, or board the plane in the first group, you could easily run that $140 charge up to $200 or more.

There’s no doubt that the ecosystem of running an airline is complex. There’s fuel, regulations, maintenance, ticketing, and layers upon layers of people trying to make customers happy and the planes get from point A to point B.

There’s also picking out the routes that will create the most return on investment (ROI) and making sure the airline has the deal everyone wants.

What airline has the most add-on fees?

In its annual ancillary revenue rankings, the IdeaWorksCompany found the top 10 most expensive carriers based on average fees charged per passenger were as follows:

  1. Spirit: $51 per passenger

  2. WOW Air: $49 per passenger

  3. Allegiant: $49 per passenger

  4. Frontier: $48 per passenger

  5. $43 per passenger

  6. Qantas Airways: $43 per passenger

  7. United: $39 per passenger

  8. AirAsia X: $33 per passenger

  9. HK Express: $33 per passenger

  10. Wizz Air: $31 per passenger

Scanning that list, you probably noticed that most of those airlines are small, regional, no-frills types.

"Consumers in the US enjoy far lower fares courtesy of the presence of Spirit, Frontier, and Sun Country,” Jay Sorensen, President of Product, Partnership and Marketing Practice for IdeaWorksCompany told ConsumerAffairs.

"These low fare airlines rely upon two revenue streams - fares and ancillary revenue. Now to be certain, the latter must be provided using transparent and fair methods. There have certainly been abuses in terms of transparency and fairness by LCCs. But I confess, if you complete the booking process at the Spirit Airlines website and are surprised by bag fees being charged at the airport for large carry-ons… well, you are intellectually challenged."

So, ancillary revenue is a good thing?

IdeaWorksCompany further defines ancillary revenue using these categories: 1) a la carte features, 2) commission-based products, 3) frequent flyer activities, 4) miscellaneous sources such as advertising, and 5) the a la carte components associated with a fare or product bundle.

If you take a close look at IdeaWorks report, your eyes might widen when you see that United, Delta, and American all took in more than $5 billion in ancillary revenue last year in the way of a la carte features, commission-based products, and frequent flyer activities.

But, in the long run, that extra revenue stream can be a good thing for the customer.

If an airline can keep its fares competitive and pick up enough money from its side hustles -- baggage fees, seat assignments, and the like -- then it’s on the consumer to decide how much the perks are worth and if they really need that extra four inches of legroom.

Do the homework

When looking for a fare, think about what you want versus what you need. Is it a free checked bag? If so, then Southwest may be your answer. Need a seat toward the front of the plane? United has a new plan you may want to try out.

"If you can survive with a smaller bag as a carry-on -- you can save that expense," said Sorensen. "Ditto for seat assignments. Consumers are usually best served by applying for the carrier's co-branded credit card and relying on the customary offer of a free checked bag."

Is the government on the consumer’s side?

Senators Edward J. Markey (D-Mass.) and Richard Blumenthal (D-Conn.) called on Congress in 2017 to pass legislation to ground exorbitant airline fees in light of a newly-released Government Accountability Office (GAO) report confirming that many airlines do not consider the costs of the services provided when pricing their airline fees.

"This report confirms what countless passengers across the country already know to be true – that airlines are nickel and diming captive passengers to line their pockets, not to cover the costs of the services provided," said Senator Markey.

"GAO’s findings show that many airlines are actually emboldened to increase their fees to match their competitors and actively seek to deceive passengers by offering artificially low fares and then charging exorbitant fees on the back end. It’s time to put a stop to this fee gouging and restore sanity to the skies. It’s time to pass the FAIR Fees Act."

Unless Markey and Blumenthal can get their bill all the way through and signed, there’s not much hope. While the Department of Transportation and Federal Aviation Administration take their jobs seriously in protecting the safety of fliers, those agencies have decided to stay out of the ring when it comes to things like ticket prices and baggage fees.

Before the Obama administration left office, it proposed a requirement that airlines list their baggage fees at the start of the booking process, a measure intended to make shopping for tickets easier and more transparent for consumers. However, when Donald Trump moved into the Oval Office, he scrapped that proposal.

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