Note: This is a cross-post from Steven Frischling’s Flying with Fish blog. Steven Frischling, aka: Fish, is a self employed photographer, and founder of The Travel Strategist, who has flown approximately 1,000,000 miles since he began to track his mileage 2005.
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Throughout the past year airlines have suffered massive financial losses due to record high fuel prices, a weakening global economy and declining demand for airline seats.

In an attempt to increase their financial stability many airlines in the United States, and around the world, turned to the ancillary revenue generated by charging passengers for their baggage.   As angered as passenger have been regarding the checked baggage fees they have helped major airlines in the United States collect more than US$1,145,385,850 in revenue during 2008…and baggage fees weren’t even initiated by most airlines in the United States until the middle of the second fiscal quarter of 2008.

The fourth fiscal quarter of 2008 saw airlines pull in US$498,600,000 alone!

Checked baggage fees have always provided a significant revenue source for airlines, however prior to the past year this revenue was for excess baggage and overweight baggage. Airlines that do not allow any free-checked baggage, such as American Airlines, now consider all …

63% of airline executives think that ancillary revenues will be a major source of profits in the future. But are they getting it right with the short-term moves like charging for water and then reversing the charge? Probably not. And this was the issue I addressed in my webinar entitled “Airlines 2.0: 5 ways to unleash the potential of ancillary revenues in a downturn.” The webinar was very well received with some very interesting questions asked by the participants.
And I’m sharing the slides from that webinar here. The slides include a bonus video (see slide 14) which I couldn’t show during the webinar since it wasn’t possible to do it remotely. But I’ve integrated them here exclusively for my blog readers.
Here’s what you’ll learn from these slides:

Make un-bundling work to suit your customers’ lifestyles

Entice customers through “reverse-bundling” in the recession
Maximize existing revenue channels, without compromising the brand
Cultivate new revenue channels using Web 2.0 tools, like Facebook, Twitter and blogs
Increase conversion rates for ancillary channels
Keep the brand intact while …

I was recently interviewed once again by Addisson Schonland, of the IAG Podcast fame. This time, it was about a topic I’ve

recently writting about, ancillary revenues, and what I will be covering in my upcoming webinar on April 16, 2009.

Here’s the interview, for your listening pleasure (click the title to listen).

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Making ancillary revenue work with brand strategy
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April 08, 2009 01:11 PM PDT
This subject is attracting ever more interest as airlines try to find news ways to separate customers from their money. In truth customers understand that airlines need to make money to stay afloat – but do they have to nickel and dime to such an extent? Is there no way to make the pocket pilfering feel less like an consumer funded industry bailout?

Shashank Nigam, CEO of Simpliflying.com takes …

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I discovered this outrageously funny video about airline fees. The point to note is that this video is predicting airline fees in “the year 2007″! And true enough, by the end of 2007, and throughout 2008, we started seeing the rise in airline fees for everything from checking-in a second bag, to a cup of water (which I think qualifies for a human right violation). When ancillary revenues are pursued independently of brand strategy, here’s what happens. Enjoy!

If you aren’t following SimpliFlying on Twitter yet, you may do so here: http://twitter.com/simpliflying . Do subscribe to SimpliFlying by email or RSS, if you haven’t already done so as well!

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Recently, the Centre for Asia-Pacific Aviation (CAPA) published a report which concluded that the “full-service airline model break down in the new-world order“.

“Worldwide, the number of passengers travelling on First or Business class tickets fell by 16.7% in Jan-2009, a further substantial fall from Dec-2008 levels, which were 13.3% down on the year.”

That means that legacy airlines, which made a majority of their money from premium passengers, are struggling, even as low-cost carriers see greater traffic from people downgrading and new people taking to the skies.
What does the future full service airline model look like?
Here’s my prediction.
It will consist of airlines charging for providing value added services, rather than those un-bundling their products. Moreover, customer service will become a key brand distinction for the full-service airline, as prices would generally be competitive and so would most of the in-flight products too. The savvy traveler of the future will not only hunt the lowest prices, but be loyal to the airline that treats him well. Lastly and most importantly, employees of the full service airline will be part of the family, and share the love with customers at every touch point too (up to 16 …

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I was reading through a popular airline forum this morning and was shocked the read the story of a United Airlines frequent flier, who was extremely frustrated by “hidden fees” the airline had imposed on him, and was desperately seeking advice on how to resolve the matter without further aggravation. Here’s Phil’s story (reproduced with permission):
“I purchased a ticket to Amsterdam last weekend with my miles. I booked over the internet and paid a $100.00 booking fee, along with the taxes on the flight.

I had to change my plans because of my mother’s surgery this week. So I called United and they said that I can do one of two things, hold my ticket without returning my miles -OR- pay an additional $150 to have my miles returned to my account.

Oh yeah, just to get the miles put back into my account and forget the hell about all of this, it’s an addition $150.00. I don’t get it, those are mine! And all they have to do is …

Continuing with the ancillary revenues special this March, I’d like to explore the issue whether ancillary revenues are good for the airline brand, or detrimental. We all know they’re good for the balance sheet, but what about the brand? To answer this question, let me segment ancillary revenues in two bands – charging for value addition, and un-bundling current product and services.
Charging the passenger for value-addition
A comment on the hotly debated article I wrote on RyanAir’s competition for charging passengers got me thinking. Here’s what Shyrose had to say:
“RyanAir should link up with the local taxi companies of the detination airports and agree a deal with them, whereby flyers can book their taxi on the plane so it’s ready and waiting for them the other side. Taxi companies give Ryannair a referral fee, and Ryanair will be positioned as offering greater value service for customers.”
And I think Shyrose is bang-on-target. Customers don’t mind paying for additional services they value. And this is especially true when the offer is in-sync with the brand expectation. There are ample examples of such value addition. Travel insurance and car rental are popular ones. The intelligent …

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[caption id="" align="alignright" width="320" caption="Source: RyanAir"][/caption]

It seems like RyanAir folks read SimpliFlying! Just when we’re having an ancillary revenues special this month, they’re giving us all the fodder to write about!

The airline has launched a competition where anyone in Europe can suggest ideas by email to competition@ryanair.com on how RyanAir can make more money off their customers! The best idea wins €1,000.

Some of the wackiest ideas are already stated on RyanAir’s website:

Charging for toilet paper – with O’Leary’s face on it,
Charging €2.50 to read the safety cards,
Charging €1 to use oxygen masks,
Charging €25 to use the emergency exit,
Charging €50 for bikini clad Cabin Crew.

An airline which laughs at itself
These days, companies, especially large, international ones that dare to laugh at themselves are a rarity. And an airline that can do that earns my respect. Others in those ranks? I’d say Southwest, JetBlue, Virgin America, Kulula.com, Indigo and AirAsia. Ironically, no legacy carriers made to this list. Do you know of any more?
A “cheap”, but authentic brand
Alright, many of you woul classify this RyanAir move as “cheap”. But isn’t RyanAir a cheap airline for the …

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Ancillary revenues – money an airline makes from things other than the asirfare – have always proven to be attractive profit centers for airlines. But very often, they tend to be random, with airline executives making their decisions based on how much money the source brings to the airline, rather than anything else. Moreover, ancillary revenue streams are often garnered from outside the cabin, like having special offers on the website or charging a fee for baggage check in.

But as I mentioned in my white paper on airline branding, Brand eXperience is one of the most important factors affecting the brand perception and the time spent in the plane forms the most important part of the eXperience. According to recent research, the most important factor determining the in-flight experience is not service or in-flight entertainment, but the person you’re sitting beside! 80% of passengers feel their seat neighbor’s bahaviour influences their overall flight satisfaction. And there lies the opportunity.
Bring in Satisfly – to optimize your seating in the plane
A friend of mine, Sergio Mello, has started up a company called SATISFLY, which solves …