Airline Execs: We Love Ancillaries (So Expect More)
by Michèle McDonald

If you thought U.S. airlines had milked the ancillary revenue cow to the maximum, think again. Airline chiefs believe there’s a lot more where that came from.

“We think there’s still some nice upside” to ancillaries, said David Barger, chief executive officer of JetBlue Airways. “We’re looking at a 10% to 15% increase in ancillary revenues on a year-over-year basis.”

United Airlines, which got an early start on inflight extras with its Economy Plus product, has set a goal of increasing ancillary revenues by 9% this year, according to chief executive officer Jeff Smisek.

Southwest Airlines has avoided some of the controversy over ancillary fees by not charging for checked bags. Now Southwest plans to “start moving to tighten some of the restrictions on our lowest-price fares, sometime in 2013,” said Tammy Romo, chief financial officer and senior vice president of finance.

The executives made their comments at the J.P. Morgan Aviation, Transportation & Defense Conference in New York this week, addressing an audience of institutional and credit investors who look kindly on airlines’ efforts to boost revenues.

JetBlue’s approach
JetBlue is focused on its Even More product line, which offers additional legroom and/or speed through airport lines, for a price.

“As you hopefully know, we’re really not about nickel and diming,” Barger said. “We’re really about the core product and how you purchase up. I think people really appreciate the fact that the living space on the aircraft is something that people will pay a premium for.”

Barger said that JetBlue also is weighing whether to continue to offer Wi-Fi for free, something no other U.S. carrier does. It earlier announced that Wi-Fi would be free on the first 30 aircraft on which it was installed.
 
United’s strategy
Smisek said United plans to boost ancillary revenues in two ways.

“We’re going to improve how we offer the existing products and services we have today,” he said. “And the second piece is to offer new products and services to our customers.”

Economy Plus has been “a terrific opportunity” for United, he said. Since the airline migrated last year to the SHARES reservations and inventory platform, it can price Economy Plus “by seat, by route, by time of day and by distance,” Smisek said.

“The revenue growth on Economy Plus has been spectacular for us.”

He said United would continue to invest in technology that permits it to interact with customers and “upsell” them to Economy Plus or Premium Access or get them to purchase inflight Wi-Fi.

Lowering stress
United is installing global satellite Wi-Fi, which Smisek said will help in times of irregular operations.

“The irregular operations tend to stress our customers a lot, and they stress our coworkers a lot,” he said. “To the extent we can get more information to the customer, direct contact with the customer, win the customers in the air to let them know what’s going on, we can de-stress that.”

Southwest: ‘details to come’
Romo said Southwest, which has never charged change fees, has not said what changes it is contemplating for later this year as it tightens restrictions on its Wanna Get Away fares.

“We’re not saying it’s necessarily going to be a change fee,” she said. “More details to come on all of that.”

Delta’s premium growth
Delta Air Lines president Ed Bastian touted the airline’s improvements in its overall product and travel experience. This has enabled it to drive “an increasing revenue premium, relative to the competition, now for 22 straight months,” he said.

Bastian said the premium growth is sustainable. “One of the key drivers of our premiums that we expect to continue is the momentum that we’ve generated with our corporate customers,” he said.

WestJet: new fare bundles
Perhaps the most jarring term of the day came from Vito Culmone, chief financial officer and executive vice president of finance at WestJet, who said the carrier is “densing up” most of the seats in its cabins, standardizing seat pitch at 31 to 32 inches, to add more legroom for the first four rows.

The move comes as WestJet introduces three “fare bundles.” They are:

•    Econo, which includes one checked bag. Fees of $5 to $17.25 will be charged for advance seat selection and itinerary or name changes.

•    Flex, which offers advance seat selection with access to exit rows, advance boarding for $5 to $34.50 and change fees of $50 to $57.50. Flex “most closely resembles our current offering,” Culmone said.

•    Plus, which is targeted to the business traveler. It provides access to extra-legroom seats with 36-inch pitch. It also includes two checked bags and free name or itinerary changes.

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The U.S. presidential election is always an interesting time, but I am watching the stock market as a better indicator of the impact on travel. Strength in the U.S. stock market is always great for premium and luxury companies.

 

Phil Cappelli
President, Insight Vacations, USA
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