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In 2008, American Airlines introduced a $15 fee for a first-checked bag, new territory for a legacy carrier although Ryanair, which might be considered “the Godfather of ancillary revenue,” had already been at it tacking on fees for years.
The introduction of fees for everything from checked bags to early boarding and preferred seats has transformed the global aviation industry in the interim.
In November 2015, IdeaWorks Co. projected that global airlines would generate $59.2 billion in fees in 2015, an 18.8 percent increase over 2014, and $36.7 billion of that would be for a la carte services such as checked bags, preferred seats, Wi-Fi and meals.
American Airlines Group president Scott Kirby thinks the next game-changing phase of the fee evolution — at least for his airline — will kick off in the second half of 2016 with American’s introduction of basic economy and premium economy fares, the details of which have not been publicly disclosed.
Kirby said American is “really excited” about the new fares although “transformative” might be over-selling the initiative.
Speaking during American’s fourth quarter earnings call last week, Kirby argued that the impact of the new fares would be “at least as significant” as the changes to American’s ancillary revenue strategy “back in the 2008 timeframe.”
“And so we’re really quite excited to move forward on those initiatives,” Kirby said. “But it will be later this year before they’re rolled out and it will really be 2017 before you see a meaningful impact on revenues.”
On the premium economy seats and fares, American’s websites says they will debut on international routes in Fall 2016 when the airline receives its first Boeing 787-9 aircraft, and will be rolled out on all of its 777, 787, A330 and A350 feet “in the future.”
“Enjoy spacious seating with extra leg room, wider seats, enhanced dining, personal on-demand entertainment, amenities such as eye shades and more,” is how American describes the premium economy perks.
In the main cabin, American currently offers Main Cabin Extra, which is seats at the front of the cabin that feature up to six inches of extra legroom, starting at $20 above the base fare.
Preferred Seats in the main cabin have standard legroom at optimal locations, such as an aisle seat.
Like Delta has done, American plans to also introduce a basic economy fare to appeal to very-price-conscious travelers. Details about it haven’t been disclosed.
IdeaWorks Co. president Jay Sorensen says branded fares at the upper end are geared to tap into travelers’ discretionary spending while basic economy fares are designed to compete with low cost carriers such as Spirit and Frontier.
But Sorensen thinks American is making a mistake on the basic economy front.
“In the case of American, I think they are giving up too much margin to compete for a segment that simply can’t generate profits for the carrier,” Sorensen says. “Simply said, it would be similar to Kohl’s feeling threatened by Dollar Tree. You wouldn’t see Kohl’s convert retail space to $1 offers . . . and neither should American.”
Obviously, American feels differently about its prospects and has the ability to revenue-manage the new fares to its liking — or at least to try.