The trouble with ancillaries

The unbundling of airline services may be here to stay, but it is still a headache for much of the industry, says Stanley Slaughter

A new survey out this week by Travelport said that there is “strong support” among agencies for help from GDSs in dealing with ancillary charges imposed by airlines. As Travelport owns two of the world’s largest GDSs, Galileo and Worldspan, not too much should be read into this. GDSs spend much of their time explaining to all and sundry just how useful they are.

But the survey of 610 TMCs in 12 countries around the world, once again raises the old question as to just who does benefit from these often complicated, often dubious charges. The simple and accurate answer is airlines – at least those who levy these charges. There are a few honourable exceptions.

For TMCS the charges, as the Travelport survey revealed, add extra work for which many do not charge while for buyers they can be a compete headache. Just where should the line of legitimate spend be drawn? Luggage for a trip clearly should be paid by the company. But a pillow on a flight? A drink and a meal on a short haul trip? And once the money is spent on the company credit card, is it worth the trouble trying to get it back. It also makes budgeting the cost of a trip - when the buyers are unclear about how much will be spent - far more difficult.

Ancillary charges have been around for about ten years. It was mainly low cost carriers which made use of this wheeze as a way of increasing revenue without putting up its fares. This enabled it to claim that the fare from London to some secondary airport in the middle of nowhere was £1 while when the extras were added in, the final cost was considerably more.

But it was not long before the legacy carriers saw the advantage of unbundling: i.e: requiring payment for something which was previously part of the fare. The money from charging for checking in baggage, lounge passes, meals and many other incidental services is now a vital part of the revenue of many carriers. HRG estimated last year that ancillary charges now brought in 12% of global airline earnings, about $37-60bn. That is some chunk of airline revenue.

It is easy to see why carriers hold ancillary charges so dear. But let us never forget the famous remark of an executive of the then Continental Airlines who rather candidly announced at a New York conference organised by the then NBTANational Business Travel Association: NBTA was renamed in February 2011 to the GBTA (Global Business Travel Association). It provides its members (business travel management professionals) with education and information in 2009 that unbundling was a “work in progress.” In other words, it suited the airlines to pull in extra money but they had not given much thought to the effect this disparate charging would have on other sections of the industry. It was a joy to hear the angry reaction of buyers at the conference to this bland display of arrogance. They knew exactly how much trouble unbundling was causing them.

Thanks to the arrival of IATAThe International Air Transport Association: IATA represents and serves the airline industry, with a membership made up of around 230 airlines. The association seeks to raise awareness of how aviation benefits the economy, fight for airline's interests and ensure industry regulations are sensible. IATA helps its members directly by offering advice on reducing costs while improving efficiency and on improving safety standards. It also provides professional support in the form of publications, training and consulting. ’s Electronic Miscellaneous document (EMD), buyers can now keep better track of what is spent on unbundled services. EMD enable airlines to integrate these various charges automatically into invoices and accounting systems while many companies now try and lay down what is and is not a valid expense on a flight.

But what stands out about ancillary charges is that they are a classic example of how to make something simple, buying a ticket for a trip on an aeroplane, horrendously complicated. ABTN will not be the first to remark that business travel has a wonderful knack of doing just that, seemingly whenever it can. 

There was a telling finding in the Travelport survey which suggested agencies would be “more interested in selling optional services if the process was more efficient”. Respondents said booking these optional services currently required approximately 29% more time as some were available through the GDSs while others had to be bought via airline websites or by phone.  This rather suggests that it is not so much a “work on progress” but one that has got bogged down in its own complicated mire.

“The findings indicated a strong demand for a single aggregated source of information and sales capability and the GDS was listed as the most preferred channel to book and sell optional services by 70% of respondents,” Travelport said. This seems straightforward commonsense.

So we have a situation where services which were once part of a ticket fare are now charged for separately. Some have to be bought through one channel, others through a different once. It adds nearly a third extra work for the agent dealing with these charges. It adds certainly to administrative costs whether these are passed on to clients or not. It adds to and complicates the workload of buyers and their staff in calculating who has bought what. And it adds to the cost of travel. 

The argument put forward by airlines as to why should someone who just has hand luggage pay for a traveller who wants to check in a large suitcase only holds so much water. It sounds more like a justification than a sound reason. Trains do not charge different fares for passengers with or without luggage. Such a service should be part of the airline ticket price.

Unbundling is simply a newish way to raise revenue. It is not done for the convenience of the passenger or the industry.