Airline Ancillary Fees: Pioneering Revenue Management or Disaster?

Airline Ancillary Fees: Pioneering revenue management or disaster?

Ever notice all of the taxes and fees associated now days with flying? Fees such as: convenience charges for booking online, segment fee, passenger facility fee, baggage handling fee, and even a security fee, to name just a few. Where did they all come from? Items that were seemingly free or included in the base price of the airfare have now become unbundled in order for the basic ticket price to appear cheaper to the public. Some individuals would consider the taxes and fees silly or characterize them as a nuisance, even a form of price gouging by nickel-and-diming the customer. But in reality, the concept of extracting as much revenue from customers as possible is not a novel idea, and practicing this concept is seen nowhere more than in the capital-driven airline industry.

The answer is quite simple: the majority of people shop and price compare with their eyes. That is a reason gas stations across the U.S. advertise their prices with the small fractional nine-tenths of a cent at the end. Three dollars and forty-nine cents for a gallon of gas, for example, psychologically sounds better than $3.50, not to mention four dollars. How does $99 airfare sound? Competitive low airfare is one of the benefits that resulted from the Airline Deregulation Act of 1978. According to Khan (2002), “Between 1976 and 1990 average yields per passenger mile—the average of the fares that passengers actually paid—declined 30 percent in real, inflation-adjusted terms.” However, since the deregulation these discounted prices have been unevenly distributed across the flying public (Kahn, 2002). Which begs the question, “are these prices really cheaper?”

Now more than ever applications and search engines have been specifically designed to bring the consumer bargain deals at their fingertips. When price comparing airline tickets through search engine moguls such as Expedia, Travelocity, or even...