Airline Case

Ten years ago air travel was really easy. You just needed to buy your ticket and fly. However, with the struggles that the airlines companies are facing now because of the economy, competition and customer's expectations, it is really hard for them to find new ways to increase their revenue. Ancillary revenues, which are products and services airlines can unbundle from the fare and sell a la carte, are helping their profits. Dublin-based Ryanair Holdings is the leader of this kind of revenue. Almost 20% of their revenues in 2008 were made with ancillary revenues. Also, one of the most successful fees implemented by the airlines was to start charging for checking luggage. American (AMR) begun with a $15 fee for the first bag. Suddenly, this fee was adopted for more carriers. United announced a $50 fee for the second bag on tickets to Europe to India bought after September 30.

Bag fees aren't the only extra source of income. Revenue also came from fees imposed for canceling or rebooking flights, from miscellaneous fees -- for assigning seats, flying pets and fees paid to the airlines for collecting airports' passenger facility charge.

The other big trend for airlines is to sell third-party services, such as hotel and rental car reservations, on their websites. This puts them in competition with Expedia, Orbitz and other travel websites.

Almost all airlines companies affirm that low fares do not cover their cost and ancillary revenues are one of the few options they have to survive on the market. However, in the constant pressure of finding a different way of obtaining more income they end up hurting themselves. US Airways (LLC) had a big failure trying to charge for soft drinks and water. They had to abandon this strategy in April, after experiencing a lost in their market share. Low cost carriers made their marketing on their web sites, because it is easier to offer their customers additional services. Malaysia-based AirAsia X gained $2.75 million last year from sales of pre-order meals to passengers on long-haul flights such as London to Kuala Lumpur.

Pre and in flights are not the only way airlines companies can increase their ancillary income. A revenue development called Privilege Outlet, which invites their customers to consume online luxury products at reduced prices. Raphael Bejar, CEO of Airsavings a Paris consulting firm says that there isn't much left on the plane to collect revenue on. "Charging for blankets, toilets? These are jokes," he says. "The passenger doesn't see any value to this. If you need to charge for a blanket, passengers will just bring another sweater.

For travelers, all the fees make it tougher to figure out the real cost of a trip, and even raise the prospect, under the right (or wrong) circumstances, of paying more in fees than the base fare. For airline industry, the fees are an easy way to raise