"From HBO to Chips, Airlines Go à la Carte"

Saturday, May 19, 2007

>From HBO to Chips, Airlines Go à la Carte 
By MICHELLE HIGGINS
The New York (NY) Times


THIS summer, be sure to pack some extra cash in your carry-on. More airlines
are starting to charge for services that used to be free on many carriers. 

Skybus Airlines, a new carrier based in Columbus, Ohio, that plans to take
to the skies this Tuesday, promises low fares but will charge extra for
everything from soft drinks ($2) to bag checking ($5 apiece for the first
two bags) to early boarding privileges ($10 a person, except for those with
disabilities). 

Next month, Spirit Airlines, based in Fort Lauderdale, will begin charging
for bag checking and onboard beverages, which had been free. It’s also
moving to a single-class cabin but renaming its business class Big Front
Seat and charging a premium for the larger seats. 

Meanwhile, nearly every major carrier has done away with free onboard meals
in coach on domestic flights, and has instead begun to charge for individual
food and drink items, often at hotel minibar prices. Earlier this year,
American Airlines, for example, replaced its $4 snack boxes offered on
domestic flights of three hours or longer with offerings like Lay’s Stax
Potato Crisps ($3), M&Ms ($3) and bottled water ($2) and now sells them on
domestic flights of two hours or longer. On longer flights within the United
States, American offers $5 light meals like breakfast bagel sandwiches,
Italian wraps or Asian chicken salads.

“What the airlines are doing is basically the same thing as if you go to a
typical hotel or movie theater,” said Henry H. Harteveldt, a travel analyst
at Forrester Research. “Your room rate includes the room you want. If you
want an in-room movie you’re going to pay for that. If you want breakfast
you’re going to pay for that. A movie ticket includes the seat. The popcorn
is extra.” The airlines, he added, “are finally realizing that not everybody
sitting in the economy cabin wants or needs to have the same experience.”

Airlines say it’s a way to keep fares low while giving customers exactly
what they pay for. “Why should your ticket price include your neighbor’s
dinner?” Skybus said on its Rules of Flying fact sheet. But charging
separately for seats and services is also a way to increase ancillary
revenue, and it’s a tactic that has been gaining popularity among airlines
looking for ways to dig out of bankruptcy or stay profitable. 

Delta added a dedicated HBO channel to its in-flight entertainment system
just this month and is charging domestic coach passengers $5 per feature
film and $2 for television programs. A new cocktail service costs $5 a glass
for domestic coach-class passengers. Some airlines are even charging
passengers to reserve the most coveted seats for them. Northwest Airlines
began charging passengers $15 to reserve some of the better coach-class
seats, like exit row seats, on domestic flights last year. United Airlines
charges a premium to sit in the Economy Plus section, which gives passengers
five extra inches of leg room. 

Air Canada has perhaps taken the à la carte pricing concept the furthest.
For example, the airline’s cheapest tickets, called Tango, come with minimal
flexibility and earn just 50 percent nonelite frequent flier miles. The most
expensive, Executive Class, come with all the perks including meals, lounge
access, unlimited itinerary changes, and 150 percent Air Canada Status
Miles. Customers can also pick and choose from a list of add-ons like seat
assignments and bag checking or forgo those options for savings. 

Amadeus, which provides software and a booking engine for such creative
pricing, says that more than 20 airlines, mostly international, are using
its Flex Pricer technology to help maximize revenue and distinguish
themselves from other carriers. 

“Airlines are looking at ways of differentiating themselves and bringing
value back to what has largely been a commoditized product over the last
several years,” said Robert Buckman, director of airline distribution
strategy at Amadeus North America. 

À la carte pricing also tends to boost the bottom line. “Given the choice,”
said Mr. Buckman, “consumers will pick the best choice for them, and it’s
not always the lowest price.” He added that an analysis of 10 Amadeus
clients who used à la carte pricing saw ticket revenues increase more than
32 percent across the board in the first three months, representing more
than $200 million in additional sales for the carriers. 

Las Vegas-based Allegiant Air, which charges for extras like snacks, checked
bags and reservations by telephone, has experienced growth of ancillary
revenues to $31.3 million last year from $11.2 million in 2005 and $3.1
million in 2004. The airline, which caters to leisure travelers flying to
destinations like Las Vegas; Orlando, Fla.; and Tampa, Fla., also sells
tchotchkes like $5 Elvis sunglasses and other products like $15 beach towels
on board. On its Web site, it also sells hotel rooms, car rentals and show
tickets, offering up options tailored to passenger itineraries.

As airlines move to this approach of selling services separately, customers
should be wary of unexpected wrinkles. Spirit Airlines sells travel
insurance from AIG Travel Guard at the time of the airline ticket purchase.
But instead of letting the traveler decide to buy, the insurance is already
included in the final price, forcing the traveler to opt out or uncheck the
selection to avoid paying the $12 insurance fee. (AIG Travel Guard says
customers who realize later that they failed to drop the insurance have up
to 15 days to cancel and receive a full refund, as long as it is prior to
their departure and no claim has been filed.) And Skybus, while touting its
food offerings, is telling customers not to bring their own food “unless you
brought enough for the whole plane.” 

AIRLINES say that à la carte pricing allows passengers to customize their
flight experiences by picking and choosing what they want to pay for. But
unless customers get something in return that wasn’t free before, or a
reduction in price that compensates for the charges, the separate fees
amount to price hikes. 

“They’re not doing you a favor,” said Joe Brancatelli, the publisher of the
subscription travel Web site www.joesentme.com. “They’re trying to get more
revenue.” And although it may appear that the airlines are lowering fares,
he added, simply charging more for services that were once included in the
base fare is “effectively, raising the cost you’re paying to fly.” 

Not all airlines are going à la carte. Continental is one of the few that
still offers hot meals on domestic flights and continues to have blankets
and pillows available for passengers. And JetBlue, which offers
complimentary Dunkin’ Donuts coffee and satellite television on all its
flights, has no plans to begin charging for these extras. 

“In fact,” said Bryan Baldwin, a JetBlue spokesman, “we continue to look at
ways to enhance customer experience without charging customers to do it.”

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