Long criticised for their lack of clarity, ancillary costs - the ever-increasing number of à la carte services - have gradually become an integral part of business travel. But they could be losing ground with the return of package deals for businesses.
One of the last islands of resistance to ancillary fees - those paying options that inflate the cost of business travel - fell last April, several thousand kilometres from Paris. Not least in India where, faced with a precarious airline industry, the government has finally authorised local airlines to introduce additional services. The measure, framed by a series of safeguards, should enable carriers on the sub-continent to prepare for the arrival of foreign competition. In the same way, "traditional" airlines have ended up incorporating these additional costs into their strategies to better resist the rise of low-cost carriers, pioneers in this field, and, more generally, to cope with an unfavourable economic environment.
"Low-cost airlines have been generating ancillary revenues since their creation, and traditional carriers have realised the great potential to be gained from such an approach. On the other hand, the economic pressures of rising fuel prices and the recession have convinced them to unbundle their products since 2008, says Alexandre Jorre, Amadeus IT Group Sales and Marketing Manager for airlines.. And today, in the airline industry's toolbox, ancillary revenues are an essential mechanism for generating profits"..
Mission accomplished, if we refer to the 42.6 billion dollars in revenues - or 30 billion euros - expected in 2013 thanks to these optional fees by the 176 companies studied by the specialist consultancy Ideaworks. Driven by "traditional" carriers that have converted to the unbundled fare model, this financial windfall is said to have doubled since 2009. United, Delta and American Airlines were the top three airlines in terms of ancillary revenues last year, ahead of low-cost carrier Southwest. Air France posted a total of $1.205 billion, ahead of easyJet in the Ideaworks rankings. "The inclusion of Air France in this report is one of the most significant developments in 2012".The Ideaworks study also highlights the "revolution" represented by ancillary revenues for global airlines in Europe.
In France, as elsewhere, the business travel industry has long since been forced into this system of paying options. "We were presented with a fait accompli and we had to manage the problem as best we could, as is often the case".says Michel Dieleman, President of the French Association of Travel Managers (AFTM). Priority boarding, extra legroom, access to in-flight Wi-Fi, special menus, home baggage delivery: the list of à la carte services offered to business travellers continues to grow as airlines become more inventive.
But the ancillary costs category also covers much more mundane aspects, previously included in the basic offer. British Airways, like several of its competitors, has developed its "hand baggage only" fares. Checked baggage is the most common paid option - and the most widely reimbursed by the company, in 73% of cases according to an Egencia-GBTA study - along with in-flight meals. For example, according to Amadeus, these two services alone accounted for 65% of additional revenue at Delta in 2011.
Complex drawer sales
From this point of view, travellers and their travel managers do not necessarily seem to be penalised by the phenomenon. Half of all passengers don't check in any baggage on the short-haul network, especially business travellers who make the round trip during the day," points out François Bacchetta, Managing Director of easyJet France. As for meals on board, it works in the same way as on the TGV: all you have to do is make an expense claim at the end of the month". More generally, the "only pay for what you use" argument, used by airlines to legitimise these unbundled offers, echoes the hunt for superfluous costs by businesses. This rhetoric was bound to appeal to buyers who, by definition, are looking to break down costs," points out Carole Poillerat, President of GBTA France. But in practice, ticket prices have not fallen. What's more, as these options are not sold through the distribution channels managed by the buyer, but directly, we have lost a good deal of control over expenditure, without having the necessary data for comparison during negotiations.says Carole Poillerat. Companies are already putting up barriers to what they see as disguised price increases," adds Michel Dieleman. It's a sale with drawers that makes managing business travel even more complex. For many airlines, it represents a major source of revenue, and is undoubtedly indispensable. Except that excessive 'anchoring' is often counter-productive in the eyes of business customers"..
Capitulation in the face of opacity
The opacity associated with ancillary costs is therefore proving problematic for business travel managers, whatever their market. According to the GBTA-Egencia study, the lack of information provided by GDSs is the main concern for 41 % of travel managers in Europe, 49 % in Asia, and up to 57 % in North America. In the United States, almost a third of travel managers have even given up. According to AirPlus, 30 % of travel buyers simply do not follow this data or no longer do. In 15 % of cases, companies have tried to negotiate the disappearance or reduction of these charges with the airlines: to no avail! "It's a bit of an "allergy" subject these days".confesses Carole Poillerat. Ancillary costs are an additional constraint for buyers, who must therefore increase their communication efforts with travellers. To be effective, a travel policy has to be simple. But it's impossible to foresee all the ancillary costs: hoteliers and airlines are so creative in this area that we can't list everything.
However, the players involved are working towards better integration of ancillary services, such as AirPlus, which launched its AirPlus Ancillary Fee Reports reporting tool in 2011. As for the GDSs, they are regularly expanding their offering to accommodate these à la carte services. "We'll have to keep doing this as long as airline marketing departments keep inventing new fees." says Bernard Molle, Sabre's Sales Director in France. The American leader, like its European counterpart Amadeus, is in fact multiplying its agreements to integrate this range of options, thereby facilitating their distribution and monitoring via their reservation solutions.
But another burning issue could well change the situation in the months to come. The three letters "NDC", the initials of the New Distribution Capability project, have been stirring the business travel industry for several months. IATA, the International Air Transport Association, sees it as the future of ancillary fee distribution. Through this project, unveiled in 2012, IATA aims to establish a new standard common to the entire air travel market, with the stated objectives of increasing sales of optional services, a more personalised offer and, above all, greater transparency. These are laudable objectives on the face of it, but they have not entirely convinced business travel specialists. "At the moment, it's all a blur. We can't see how this project will benefit the buyer at all".says Carole Poillerat. "Anything that helps standardise data exchange formats is a step in the right direction, as it aims to ensure that tools understand each other and deliver usable data.says Michel Dieleman.
Wi-fi included
While the airline industry is often the focus of attention, it is far from the only sector concerned. Hotels, car hire companies and railway companies are not short of à la carte services. In a sign of the times, Sabre recently presented its Car Extras tool, designed to simplify the distribution of ancillary services in the car rental sector, in particular GPS, which accounts for 80% of requests. As for hotels, many travel managers are understandably calling for Wi-Fi access to be included in the basic package. "Some ancillary charges may become obsolete as they are included in the basic package. Fewer and fewer travellers are now willing to pay a surcharge to access a wireless connection in hotels or lounges".stresses Michel Dieleman.
Conversely, travel managers can opt to eliminate certain services that are often included in the room rate, such as breakfast, which some business travellers, in a hurry to get to their appointments, might prefer to make optional.
As you can see, the issue of ancillary fees is far from over. "The imagination of airlines must lead to value-added services for travellers, and we naturally want to be the first to integrate these options into distribution to travel agencies".says Stéphane Aïta, Sabre's Vice-President for Western Europe. "I'm sure that passengers would be interested in services such as a SIM card already loaded in their country of arrival to avoid roaming charges, taxi bookings or a phone charger".says Stéphane Aïta.
Services of this kind could indeed attract the interest of business travellers. But logic has its limits, and package deals are making a comeback. Ironically, at the beginning of September, easyJet presented its new "Inclusive" fare, distributed by GDSs and self-booking tools (SBTs) and including hold baggage, choice of seat and free card payment. A pioneer in the field of à la carte services, the airline is sending out a new signal to business customers, whom it has been targeting with particular success for several months.
This new tariff is part of a more general trend, as the report anticipates The Wire... from AirPlus published in the United States by payment solutions specialist : "A new phenomenon could simplify the monitoring of charges. This is the introduction of bundled tariffs, after years of constant unbundling".. The prospect of retaining or even extending the range of value-added options, while reverting to packaged offers to win the loyalty of companies, has everything to appeal to the vast majority of travel managers.
