Major Airlines Following Low Cost set up

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Major Airlines Following Low Cost set up

Post by Ryanairflyer on Tue 26 Jun 2012 - 13:59

Major airlines struggling to maintain profits in the face of stiff competition and rising fuel bills are increasingly looking at sales of non-ticket extras as a way to boost earnings without harming their reputations or alienating customers.

Low-cost pioneers such as US carrier Southwest Airlines and Irish group Ryanair, have been cashing in on such alternative or ancillary revenues since their advent, pushing sales of everything from teddy bears to train tickets, bacon sandwiches to baggage charges.

Now traditional airlines are taking a cue from their no-frills rivals and looking to charge for services that do not need hefty infrastructure investment or that are contracted out.

Telecommunications, for example, is seen as a prime source of additional revenue as technology advances, with aviation consultancy Ascend expecting more traditional carriers to start charging passengers for wireless and internet-related services.

"My prediction would be that three to four years from now practically every commercial airline, with the exception maybe of some very old aircraft, will have (wireless) connectivity installed in their aircraft," said Stephan Egli, chief commercial officer of Geneva-based OnAir.

"The passengers like it, use it and want it."

Carriers such as British Airways already charge extra for services such as hotels, car rental and day trip bookings, currency exchange and travel insurance as well as for front-row seats and seats with more leg room by the emergency exit.

As competition and cost pressures increase, these and other legacy airlines are on the lookout for even more ways to boost earnings - aside from adding fuel surcharges to ticket prices - but they do not always find it as easy to start charging for services as their no-frills rivals.

"Because of the brand positioning, there's a definite advantage for newer carriers who can say 'we've always done it like this' whereas older ones have a problem in terms of brand image - there's a Ryanair lottery - you wouldn't find Singapore Airlines having a scratchcard lottery on board," said Ascend's chief economist Peter Morris.

"But as communications and connectivity improve there are elements that will be chargeable."

In Europe, Air France-KLM and Lufthansa are among airlines that recently reported results battered by higher fuel costs, and the industry is braced for a worsening euro zone debt crisis to wipe out the benefit of now lower oil prices. Locally, Qantas forecast a $450 million loss on its international operations this financial year and an overall 91 per cent plunge in profits.

Ryanair - Europe's biggest budget airline and one of the pioneers of ancillary revenues - now generates around a fifth of its total revenues from optional extras such as food, drink, duty-free products and in-flight lottery scratchcards, while internet-related revenues also help.

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