A la carte pricing tempts big carriers
By STEVE HUETTEL, Roadlife
Published March 21, 2007
I don't ask much from an airline.
A cozy coach seat is fine, since my flights rarely take more than a couple hours. Give me somewhere to stash my bags, something to wet my whistle and I'm good to go.
That makes me the perfect sucker for the latest gimmick: charging for stuff that used to be free. They call it "unbundling." You probably use the verb that refers to coins with faces of Thomas Jefferson and FDR.
But even some of the most popular airlines may not be able to resist the temptation. Spirit Airlines made headlines this month with plans on June 20 to start charging $10 each for one or two checked bags or $5 per bag if you pay online. Soft drinks, coffee and tea will cost $1.
Allegiant Air customers already know the drill. The airline that flies into St. Petersburg-Clearwater International Airport charges for a reserved seat $11, a soda ($2) or booking a ticket online (a $7.50 convenience fee).
Both carriers say a la carte pricing lets them keep fares low, a tactic pioneered by Ryanair, the original European no-frills airline. Big American airlines are looking hard at unbundling fares to raise revenue without hiking ticket prices.
Even Southwest Airlines is exploring ways to boost revenue. It's a move that could backfire.
The original discount carrier pokes fun at rivals in a TV ad in which passengers get charged to lower the window shade or buckle their seat belts. Southwest told reporters after the Spirit announcement that "it's not in our DNA to nickel-and-dime customers."
But a top airline analyst, James D. Parker of Raymond James & Associates, predicted last week that Southwest will make the jump and soon. Weak bookings will make it tough for it to meet a goal of 15 percent annual earnings growth through ticket sales alone, he said.
"Ancillary sales ... are on the verge of becoming pervasive in the airline industry," he wrote. "The unlocking of Southwest's ancillary potential, in our opinion, will begin this year and be rolled out over the next several years."
Among the best opportunities, Parker said, will be charging customers for assigned seats or priority boarding. That would mean replacing Southwest's traditional first-come, first-served seating.
If one in five Southwest customers in 2008 pay $10 for an assigned seat, it would generate $184-million in new revenue, he estimated.
Southwest tested assigned seating last summer in San Diego and got mixed reviews from customers. The company hasn't made a decision and won't have a computer system capable of assigning seats before 2009, spokeswoman Edna Ruano said.
Southwest is looking at various projects to boost ancillary revenue, she said, but declined to elaborate. Charges for snacks, drinks, pillows, blankets and unaccompanied minors are not on the table.
"Any changes will have to reflect our style of doing things," Ruano said. "We won't stray from what our customers love."
That's not an easy call. Passengers won't gripe about paying for something of value that makes their trip better.
A reserved seat in the front of the plane for $10 would be a bargain to some. But what about Southwest veterans who stay up to nab an early boarding pass online so they can get the same seat now for free?
They won't be feeling the love.
Steve Huettel can be reached at email@example.com or (813) 226-3384.