You didn't need Nostradamus' skills to predict that there would be followers to United's fees to check a second bag. Sure enough, US Airways will begin charging passengers if they check a second bag.
What is interesting about the news, is that US states that 8% of their passengers check a second bag. As we noted in our post about United's policy, we estimated that it would take well over 16% of passengers checking a second bag to generate United's targeted benefit. We consider this proof that a big portion (maybe half) of the benefit of the fee is cost savings, not ancillary revenue. Carriers claim the savings deals with fuel, we suspect it's as much about the labor associated with handling the bags.
The ultimate source of the savings is fairly irrelevant. The multi-million dollar question is in fact, will a $25 fee really persuade the general travelling public to pack lighter? It probably depends. Imelda Marcos type shoe fiends? Probably no. Family of four going to Disney World? Probably yes. We'll just have to stay tuned, and see if they dial the fee up to $50 to know for sure.
Tuesday, February 26, 2008
Friday, February 15, 2008
Ryanair: Ouch.
There are a lot of things to find pretty entertaining and arguably admirable about Ryanair. For example, when they issued a press release calling travel agents "deadwood" and "rip-off middlemen". We think it's pretty awesome that they've been so aggressive with their direct distribution strategy. But - It's not without risk.
The downside of their position becomes startingly clear with the news today that Ryanair will have to go without selling tickets for 73 hours later this month, while they migrate their booking platform in order to comply with new UK requirements regarding the proper presentation of fares, taxes, fees, etc. to consumers. We're pretty sure that 73 hours is more than 3 days, even across the Atlantic. That's almost 1% of their selling opportunity for a typical year. Fortunately, the migration falls during leap year!
We've heard some pretty astounding anecdotes of consumer deception in their marketing, so no real sympathy that they need to take this hit. However, there had to be some pretty dour planning meetings as the reality of the migration details became clear. No worries, they'll make it up with a 73 hour 1 Euro fare sale (some restrictions apply, fare not valid on most days ending in "y", seating additional, passengers subject to cabin door use fee).
The downside of their position becomes startingly clear with the news today that Ryanair will have to go without selling tickets for 73 hours later this month, while they migrate their booking platform in order to comply with new UK requirements regarding the proper presentation of fares, taxes, fees, etc. to consumers. We're pretty sure that 73 hours is more than 3 days, even across the Atlantic. That's almost 1% of their selling opportunity for a typical year. Fortunately, the migration falls during leap year!
We've heard some pretty astounding anecdotes of consumer deception in their marketing, so no real sympathy that they need to take this hit. However, there had to be some pretty dour planning meetings as the reality of the migration details became clear. No worries, they'll make it up with a 73 hour 1 Euro fare sale (some restrictions apply, fare not valid on most days ending in "y", seating additional, passengers subject to cabin door use fee).
Wednesday, February 13, 2008
Ancillary Revenue: Not Just for Pillow Sales
All too often, when pundits talk about airline ancillary revenue, it's all about selling snacks on board or charging passengers to use the bathroom. Today, a special thanks to a yawner article about JetBlue for reminding us that ancillary revenue can come from the most basic form of nickel and diming: change fees.
Today's ATW Daily News reports that JetBlue expects a 50% year-on-year increase in ancillary revenue in 2008, bringing annual nonfare income to over $250M. For comparison, 2006 "other revenue" was $139M, and we estimate the 2007 number will be around $190M (based on JBLU 3Q07 Form 10-Q). That got us wondering exactly how they make that money.
It turns out, that for the third quarter of 2007, their filing footnotes explain that most of the other revenue increase was "primarily due to higher change fees and excess baggage fees...resulting from more passengers and increased change fee rates". Sweet! That is so old school! Hundreds of millions of dollars from simply selling nonrefundable fares, and then charging people to reclaim the purchase after their plans change.
Sports cliche: Sick to the fundamentals, Take it game by game, Give it 110%, don't get fancy.
If you actually read that article, it also turns out that JetBlue will try to boost passenger revenue by, we paraphrase, copying United's EconomyPlus seating model. But they WILL NOT, we repeat WILL NOT, emulate United's 2nd bag policy. Hip, nimble, JetBlue can't go for that legacy carrier stuff.
Today's ATW Daily News reports that JetBlue expects a 50% year-on-year increase in ancillary revenue in 2008, bringing annual nonfare income to over $250M. For comparison, 2006 "other revenue" was $139M, and we estimate the 2007 number will be around $190M (based on JBLU 3Q07 Form 10-Q). That got us wondering exactly how they make that money.
It turns out, that for the third quarter of 2007, their filing footnotes explain that most of the other revenue increase was "primarily due to higher change fees and excess baggage fees...resulting from more passengers and increased change fee rates". Sweet! That is so old school! Hundreds of millions of dollars from simply selling nonrefundable fares, and then charging people to reclaim the purchase after their plans change.
Sports cliche: Sick to the fundamentals, Take it game by game, Give it 110%, don't get fancy.
If you actually read that article, it also turns out that JetBlue will try to boost passenger revenue by, we paraphrase, copying United's EconomyPlus seating model. But they WILL NOT, we repeat WILL NOT, emulate United's 2nd bag policy. Hip, nimble, JetBlue can't go for that legacy carrier stuff.
Friday, February 8, 2008
But Look On The Bright Side...
It’s no secret that many airlines have recently started to add luggage fees for checked bags in an effort to raise revenue. Some airlines do it modestly, some do it very blatantly. Spirit Airlines, a pioneer in baggage fees, has now increased their fee – charging $10 per bag if you pre-reserve your luggage online, or $20 per bag if you check your bag in at the airport.
However, you have to really admire the ability of Spirit’s PR department to spin a simple luggage fee. In their recent press release of the luggage fee – Spirit claims that adding the fee is really a GREAT thing for their customers!
“Instead of raising every fare across our entire network in response to ever increasing fuel prices, we are proud to introduce our new luggage policy, which gives our passengers the opportunity to control their cost of travel by packing lighter,” said Barry Biffle, Spirit’s Senior Vice President and Chief Marketing Officer.
Biffle PR Translation: Yes - we’re adding a luggage fee… but hey, we’re not raising fares. So there’s some good news out of all of this!!
Biffle FMV Translation: Hate the Game, Not the Player.
And seriously – this is a great statement that is mentioned TWICE in the PR: “Our luggage policy… gives our passengers the opportunity to control their cost of travel by packing lighter”
Huh?? This basically says “Passengers will get charged for a bag – but you have the option of not checking in a bag… Man we’re great!!”
After all this, FMV management has decided to fire its PR firm and find a new agency that can spin like Spirit’s new luggage claim carousel. However, rest assured, we will also give the firm the option of packing lighter….
However, you have to really admire the ability of Spirit’s PR department to spin a simple luggage fee. In their recent press release of the luggage fee – Spirit claims that adding the fee is really a GREAT thing for their customers!
“Instead of raising every fare across our entire network in response to ever increasing fuel prices, we are proud to introduce our new luggage policy, which gives our passengers the opportunity to control their cost of travel by packing lighter,” said Barry Biffle, Spirit’s Senior Vice President and Chief Marketing Officer.
Biffle PR Translation: Yes - we’re adding a luggage fee… but hey, we’re not raising fares. So there’s some good news out of all of this!!
Biffle FMV Translation: Hate the Game, Not the Player.
And seriously – this is a great statement that is mentioned TWICE in the PR: “Our luggage policy… gives our passengers the opportunity to control their cost of travel by packing lighter”
Huh?? This basically says “Passengers will get charged for a bag – but you have the option of not checking in a bag… Man we’re great!!”
After all this, FMV management has decided to fire its PR firm and find a new agency that can spin like Spirit’s new luggage claim carousel. However, rest assured, we will also give the firm the option of packing lighter….
Wednesday, February 6, 2008
UA Baggage: The People Have Spoken
Lest you miss it, America's Finest News Source, The Onion, has some fairly comedic public feedback on the new United Baggage Fees. Yes, it's a parody - but we suspect if you asked enough real people in ORD Terminal 1, eventually you'd get these exact responses. OK, maybe you'd need to hit the United Express gates in T2 to get the fireworks response.
Tuesday, February 5, 2008
Overhead Bins: Prepare to be Very Full
This move has been a long time coming, so it shouldn't come as any surprise to FMV readers that approximately every media outlet in the nation is reporting that United Airlines will begin charging $25 to check a second bag on May 5.
The Chicago Tribune reports that UA expects a $100 million annual benefit from the move (combined cost savings and revenue boost). We would kill to know exactly how McKinsie computed that benefit. Consider that UA lifts about 25 million tickets per year. That would mean at least 16% of passengers would have to pay the fee, assuming no cost savings. However, it's actually got to be much higher than that, considering elites, premium cabins, gov't/military pax, international itineraries, etc. are exempt. Are there really that many hayseeds dragging two bags to the counter? We say no; hence, we conclude there has to be a big cost savings benefit anticipated.
There is also a gaping loophole in the policy, for those that enjoy gamesmanship. There is no charge to gate-check a second bag! Hence, you can go to the counter and check one bag then check the second at the gate. Certainly a nice strategy, and one that also diversifies your lost baggage risk portfolio.
We think the UA spokesperson says it best, "We will keep [the baggage fee] as long as customers want low fares". Oh, SNAP! Take a suck at that, Mr. Consumer. You brought this on yourself, with your demand for low fares without recognition for premium services.
That quote is airline-speak for "don't hate the player, hate the game".
In related news, United traffic fell 5.3% in January on a 3.4% decrease in capacity.
The Chicago Tribune reports that UA expects a $100 million annual benefit from the move (combined cost savings and revenue boost). We would kill to know exactly how McKinsie computed that benefit. Consider that UA lifts about 25 million tickets per year. That would mean at least 16% of passengers would have to pay the fee, assuming no cost savings. However, it's actually got to be much higher than that, considering elites, premium cabins, gov't/military pax, international itineraries, etc. are exempt. Are there really that many hayseeds dragging two bags to the counter? We say no; hence, we conclude there has to be a big cost savings benefit anticipated.
There is also a gaping loophole in the policy, for those that enjoy gamesmanship. There is no charge to gate-check a second bag! Hence, you can go to the counter and check one bag then check the second at the gate. Certainly a nice strategy, and one that also diversifies your lost baggage risk portfolio.
We think the UA spokesperson says it best, "We will keep [the baggage fee] as long as customers want low fares". Oh, SNAP! Take a suck at that, Mr. Consumer. You brought this on yourself, with your demand for low fares without recognition for premium services.
That quote is airline-speak for "don't hate the player, hate the game".
In related news, United traffic fell 5.3% in January on a 3.4% decrease in capacity.
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