In the last week of August, full service airline, Jet Airways launched Priority Advantage for its passengers. For a flat fee of ₹400, it allows them to check into an earlier flight, up to 24 hours prior to their originally scheduled flight’s departure time. The service is free for Platinum and Gold JetPrivilege members at all domestic airports, and at select six domestic airports for Silver tier members.
Another facility extended to Jet Airways’ passengers in the same month is the option to select a seat at the time of web check-in. Again, it is free for Platinum JetPrivilege members, and free under certain fare categories for Gold JetPrivilege members. Others need to pay between ₹300 and ₹600 on domestic routes and from ₹500 to ₹3,500 on international routes for window, aisle and bulkhead (front row) seats.
As is usually followed by full service airlines, Jet Airways has been providing in-flight meal service and reasonable check-in luggage allowance. Recently, in step with the airline business, it has begun offering and charging for new services, nothing out of the ordinary through which other airlines too generate additional revenue for themselves.
These ancillary revenue sources include in-flight shopping, sale of on-board meals (for budget airlines), ticket cancellation/rescheduling cost, excess baggage fees, and seat selection charge, in addition to non-passenger services such as leasing of aircraft, cargo, merchandise, advertising, tours, and so forth. Basically, they are any revenue generating stream for an airline that doesn’t include ticket sales.
“Ancillary revenue, including cargo, accounts for ten per cent to 15 per cent of our operating revenue and it is growing fast,” says Prasad Kholkute, Jet Airways’ vice-president for revenue management. He adds that of all its ancillary products/services, seat selection has been the highest earner.
India’s other full service airline, Vistara that launched only in January 2015 doesn’t charge for seat selection. It is free for all passengers. However, from its recently launched chargeable services, FlyEarly is the newest. It allows customers the flexibility to board a flight that leaves up to four hours earlier than their originally scheduled departure — much like Jet Airways’ Priority Advantage. The ₹1,500 FlyEarly fee is applicable across all cabin classes, but free to Club Vistara members. Vistara’s chief strategy and commercial officer Sanjiv Kapoor said that passengers can look forward to many more of such service-enhancing facilities to be launched in the near future.
ROOM FOR IMPROVEMENT
While India is warming up to the idea of paying for à la carte products and services by domestic airlines, they are still behind the world in terms of generating sizeable ancillary earnings. CarTrawler Ancillary Revenue Yearbook by IdeaWorksCompany, a US-based consultancy (and research) firm listed ten airlines that have generated, of total revenue, from 19.5 per cent to 43.4 per cent, from non-ticketing sources, in 2015. The report goes on to say that airlines globally have generated US$26 billion in ancillary revenue – with United, American and Delta topping the list.
Explaining the scope of how add-on services, if positioned under the right light, can spur an airline’s growth, Michael Cunningham, chief commercial officer at CarTrawler says, “Airlines can now choose from an ever more sophisticated range of ancillary products and technology. The challenge is to ensure that the ancillary benefits do not overshadow the core principles of customer experience that airlines have built their brands on. The opportunity is to deliver a personalised offering that complements their brand promise. Airlines that do this will see ancillary revenue gains, increased brand loyalty and a boost in customer lifetime value.”
Up until Jet Airways and Vistara began offering services for a fee, such sales to passengers was once typical of just low cost carriers (LCCs) in India. Now, it is a strong supporting business for the airline industry, one that needs to be tapped to its full potential. It not only benefits the airlines, but is advantageous to flyers too.
For starters, it has taken the pressure off earning from just one stream — ticketing — thus allowing budget and full service carriers to compete in a healthy fare war. In turn, travellers have more choices for feasible ticket prices and flight timings, without needing to filter out the full service carriers for lower fares. Ultimately it boils down to the choice of paying for comfort-enhancing services or not.
The chart below juxtaposes lowest available one- way economy ticket prices (inclusive of taxes) of Indian airlines for travel on December 14, 2016.
Prices were checked on each airline’s website in the first week of November.
In addition to these, SpiceJet and IndiGo have a Hand Baggage Only fare too for certain flights, wherein passengers pay less for not checking in luggage. They introduced this fare category only in the last 18 months; but worldwide, budget airlines such as easyJet and Ryanair have already been charging passengers extra for any check-in baggage as per the flown sector.
Over the years, they have expanded their revenue options. Today, easyJet has partnered with a car rental company, airport lounges, taxi service, and several hotels for discounts, and even has an easyJet Plus membership. In 2014, as speculated by IdeaWorksCompany, all of these have earned the airline US$1,457 million. In its financial overview for FY16 (year ending March 31, 2016), Ryanair reported ancillary revenue of €1,568.6 million (approx US$1,714.38 million). Amongst discounts on services offered by its partners, it too has a membership plan — Leisure Plus and Business Plus.
KEEPING IT SIMPLE
During a conversation with a GoAir employee earlier this year, when asked if a loyalty programme would be beneficial to them, he retorted quite simply: “We’re a budget airline.” Fair enough, as the whole concept of an LCC is to get you from Point A to Point B, and to charge you for anything offered over and above that.
GoAir takes its “no-frills” airline status seriously, and its “frills” for money include seat selection, inflight meals, excess baggage, and priority check-in that ensures you’re the first to check-in and to receive your baggage. GoHolidays and other such packages give discounts on bookings. GoBusiness (window and aisle seats on select rows) charges more than
the regular fare to guarantee an empty middle seat, reserves extra legroom rows such as bulkhead and exit, and includes refreshments, baggage allowance up to 35kg, chauffeur-driven transfer, and lounge access at select airports, in the cost.
Though India’s budget carriers don’t have loyalty programmes, giving away otherwise paid services for a flat membership fee isn’t very different. You don’t earn miles, but you do gain from discounts and points. In this case, only SpiceJet amongst the budget Indian airlines has such an option.
Members of SpiceJet’s SpiceClub can buy Spice Cash points on the airline’s website. On doing so, they’re rewarded with two Spice Cash points for every ₹100 topped-up. As for redeeming them, one Spice Cash point = ₹1.
On enrolling, SpiceClub gives away: n Redeemable vouchers: two worth₹599 and two worth ₹100 for domestic flight bookings n Anniversary special: 50 per cent discount on domestic air tickets for a couple n Free priority check-in n Vouchers worth ₹100
Independent of SpiceClub, the SpiceMAX bundle, “for a modest add-on fee starting at ₹500 to ₹1,000 per sector”, includes extra legroom seats, priority check-in, inflight meals, priority baggage handling (bag out first) and boarding (first in line at aerobridge gates).
Other SpiceJet add-ons apart from those listed above include: n International SIM cards n Travel insurance
n Additional 5kg over the regular free 7kg cabin baggage allowance —₹300 per additional kilogram n Fly For Sure at ₹299 guarantees a flight within 24 hours of the originally scheduled departure, in case of a no-show or other flight disruptions n Access to SpiceLounge at Bengaluru, Delhi, Guwahati, Hyderabad, Jaipur, Kochi, and Varanasi — ₹700 for domestic and ₹1,300 for international passengers n By paying ₹1,125 for domestic and ₹1,250 for international travel, My Flexi Plan allows passengers to “either change the date of travel once or cancel the booking without paying the applicable change/ cancellation fees”
Through all these services and products sold to passengers, SpiceJet’s investor presentation displayed an ancillary revenue of ₹5,617 million for FY16 – an impressive 30 per cent growth from the previous year.
GoAir declined to share figures of its ancillary revenue.
IndiGo reported earnings of ₹1,61,399.09 million from operations in FY16. Of this,₹20,019.97 million was generated from ancillary products and services, half of which come from 6E Xtras, IndiGo’s passenger related add-ons. These include discounts on group bookings, prepaid excess baggage, pre-booked meals, FastForward service to ensure you get your baggage first, Dubai visa service, travel insurance and 6E Upgrade for unlimited rescheduling benefit, extra legroom seats and meal choices.
While it may seem that airlines’ add-ons are directly productive for the sellers, it indirectly works tremendously in favour of passengers too. For one, competition for the lowest ticket price is a boon, and being able to break up the services on offer and pay for what best suits your needs is a welcome choice for many. Of course, a full service carrier matching its airfare with an LCC would mean getting more
value for money if one is booked with the former. But that’s a discussion for another time.
Until then, skip the buffet for a “customised” journey.