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ACCC fixes its eyes on sneaky airline pricing lurks

November 21, 2013 Aviation, Headline News No Comments Email Email

egtmedia59Australian airlines that offer low upfront prices but add fees for all sorts of things, from paying with a credit card to charging for standard seat selection, may have to watch out.

The Australian Competition and Consumer Commission (ACCC) is probing such  practices, the Brisbane Courier-Mail has reported.

The ACCC is investigating whether so-called “drip pricing” can be deemed false representation or misleading or deceptive conduct under the Australian Consumer Law (ACL). If so, the ACCC may clamp down on it. EGT_Artical Banner A 250x250

The article cited as a drip-pricing example a Tiger fare promotion which apparently suggested a passenger could fly interstate return for under AUD 50. But when the fees and charges Tiger preselects are added, the full cost comes to almost AUD 124. Jetstar is accused of using similar pricing strategies.

Several years ago, the ACCC cracked down on airlines advertising net fares without taxes and charges. It put an end to that practice in Australia long before the US got around to doing the same thing.

Since then, however, airlines have taken to charging for all sorts of ancillary services. Ancillary revenue is the money carriers rake in for services other than just flying passengers from one point to another.

In the US, and increasingly in Australia, passengers and consumer advocates are pressing for airline charges to be shown upfront, for honest comparisons on purchase – rather than having airlines display a low initial price which they then bolster with all kinds of charges for carrying baggage, changing tickets or even choosing a seat.

Airlines argue that charging passengers for the specific goods and services they use (user pays) is fairer than spreading the cost to everyone who flies by whacking up fares to cover fuel price increases and other overheads.

Airlines also make money by charging passengers who want to change and cancel flights. The US Department of Transportation recently released data showing the money that American carriers raked in from passengers doing that.

In the second quarter of this year, Delta Airlines collected USD 212 million from changes and cancellations, more than any other US carrier. United Airlines came second with USD 197 million, American was third at USD 134 million, US Airways was fourth at USD 84 million, followed by JetBlue (USD 34 million), Alaska Airlines (USD 22 million), Virgin America  (USD 8 million), Spirit Airlines (USD 7.8 million),  Southwest Airlines (USD 7 million), Hawaiian Airlines (USD 4 million), Frontier Airlines (USD 3 million), Allegiant Airlines (USD 2 million) and Sun Country (USD 435,000).

A recent study of ancillary revenue found that Qantas makes more money per passenger from added extras than any other airline in the world – and the secret lies in its frequent flier program.

Earlier this year, a report released by IdeaWorks found that the top 10 airlines in ancillary income on a per passenger base, in order, were: Qantas Airways, Spirit, AirAsia X, Jet2.com, Allegiant, United, Korean Air, Virgin Atlantic, Jetstar and Alaska Air Group.

The sources of ancillary revenue were listed as “various” for all carriers except Qantas and Virgin Atlantic. Those were listed as FFP, standing for “frequent flyer program”.

“Qantas and Virgin Atlantic accomplish this task largely through the sale of frequent flier points or miles to program partners,” the report confirmed.

IdeaWorks president Jay Sorensen made the following observation:

“Statistics help tell the ancillary revenue story, and every year key numbers are getting larger. The most aggressive airlines easily have more than 20% of their revenue produced by a la carte fees. The best performers realize more than USD 30 per passenger from ancillary revenue.

“This can be almost totally generated through optional extras as with Spirit and AirAsia X, or largely achieved through the co-branded credit cards held by consumers at Qantas and Virgin Atlantic. Whatever the source, it is revenue desperately needed by airlines during troubled economic times.”

Top 10 airlines – total ancillary revenue (US dollars)

1. United USD 5,352,000,000

2. Delta USD 2,576,660,000

3. American USD 1,987,000,000

4. Southwest USD 1,655,000,000

5. Qantas USD 1,574,698,320

6. RyanAir USD 1,388,674,580

7. Air France/KLM USD 1,205,727,600

8. easyJet USD 1,147,743,960

9. US Airways USD 1,073,300,000

10. Korean Air USD 720,900,000

Top Ten Airlines ancillary revenue per passenger

1. Qantas USD 56.21

2. Spirit USD 48.72

3. AirAsia X USD 46.31

4. Jet2.com USD 45.83

5. Allegiant USD 38.86

6. United USD 38.11

7. Korean USD 30.94

8. Virgin Atlantic USD 30.47

9. Jetstar USD 29.60

10. Alaska Air Group USD 26.10

Written by : Peter Needham

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