Whatâ€™s Happening with Airline Ancillary Fees?

WHAT TRAVEL PAYMENT IS ALL ABOUT.

What’s Happening with Airline Ancillary Fees?Ancillary Fees?

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November 25th 2010

Aaron Kelling, EVP Strategic Partnerships for AirPlus International

Ancillary Fees - 2010

Agenda

1. Ancillary Fees - Status Quo

2. Solutions Discussed

AIRPLUS. WHAT TRAVEL PAYMENT IS ALL ABOUT.AIRPLUS. WHAT TRAVEL PAYMENT IS ALL ABOUT. P. 2

3. Your Role

4. Q & A

Agenda




3. Your Role

4. Q & A

Ancillary Fees include:

� Checked bags

� Onboard internet access

� In-flight meals & beverages

� Preferred seating

� Airline club access

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� Airline club access

� Upgrades

� Standby fees

� Overhead bin space

� Pillows & blankets

� Seat assignment fees

� Onboard entertainment


The Cost - €18.4B* ($22.6B USD) collected in 2010 an d rising

� Prices change frequently

� New ancillary products to emerge

� Airlines have different products: (examples)

� British Airways charges for advance seat assignments

� Ryan Air has been charging for checked bags for over 10 years

It is difficult to quantify the cost of ancillary f ees:


� Ryan Air has been charging for checked bags for over 10 years

� SAS charges for all onboard services including water or coffee

� Most European airlines have started charging for a second checked bag

� Spirit recently introduced fees to use onboard overhead bin space

� All major US airlines charge for pillows & blankets onboard

*Source Amadeus White Paper Study

The Cost - €18.4B ($22.6B USD) collected in 2010 and rising

� Corporations are trying to understand the impact of these fees

� Some studies show that ancillary fees represents only 1% of air costs*, some up to 30%**

� Latest Concur study shows the cost at 2.3% of air cost

� IATA predicts $58B in ancillary revenue for 2010

It is difficult to quantify the cost of ancillary f ees:


� Many fees are waived for elite flyers

� What is considered an ancillary fee?

� Are ticket related fees, e.g., change fees, even considered ancillary?

� Are holiday surcharges for peak travel days considered an ancillary fee?

* TRX (as reported in The Beat) **NBTA 2010 U.S. Business Travel Buyers' Cost Forecast.

Top 10 airlines – total ancillary revenue: 2009


* Source - Centre for Asia Pacific Aviation – October 19th 2010

Top 10 airlines – ancillary revenue as % of total re venue: 2009 *


* Source - Centre for Asia Pacific Aviation – October 19th 2010

Fees, Fees, Everywhere!


Ancillary Fees – What is the impact on travel progra ms?

Policy & Compliance

• Should policy be developed for ancillary fees?

Cost Impact & Budgeting

• Projecting traveler use of services is difficult

Expense Process & Reporting

• Expense systems must be changed to provide new categories


• Will it prompt travelers to use a service they would not normally use?

• Once added, do you have the manpower and reporting in place to enforce it?

• Data doesn’t currently associate service purchase with specific trip/project

• Fees are adjusted frequently

• Airlines should enhance reporting for their corporate customers

• Enhanced Corporate Card reporting to support program needs

Source: Deloitte

Data on Fees Provided to Card Companies - CO


Data on Fees Provided to Card Companies - UA


Data on Fees Provided to Card Companies - AA


?

These fees were once bundled –and already included in the ticket price.

Now, as airlines begin to unbundle


Now, as airlines begin to unbundle these fees, a new reality emerges for our industry:

Pay for what you use!

Airlines have unbundled services


Bundled Fee Packages - Now airlines are bundling fee s

� Not all bundled fee packages included the same ancillary charges:

� This creates added layers of difficulty for managing policy

� Example: United offers several packages

AIRPLUS. WHAT TRAVEL PAYMENT IS ALL ABOUT.

Example: United offers several packages today but some include club passes which are typically not allowed in a travel policy. But how would a corporate travel manager know?

� Each airlines bundled packages include different fees

� Would you like to value size that?

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Everyone is working towards a solution– but not toge ther!

BSPs- Developing EMDs

GDS’s - Building merchandizing platforms


ATPCO has introduced standardized codes for ancillary fees

IATA has set a deadline to standardize fees in 2012

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Agenda




3. Your Role

4. Q & A

Industry Proposed Solution and AlternativesTwo Parallel Paths: PoS and Credit Card Reporting


ATPCO• File fares with

ancillary products

• Already testing

GDS• Display

options• Multiple

products

BSP• EMD

TMCAgency Reporting

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Considerations

Point of Sale

• Not all buying decisions are made at the point of sale

Purchase Data

• No tie back to the original ticket number


made at the point of sale• Merchandising can vary by

airline• Technology needs to

support merchandising• Industry economics• Processing

changes/cancellations post-purchase

ticket number• Merchant transaction data

is inconsistent• Current IATA standard not

widely adopted• Standards do not address

all issues• Corporate card utilization is

critical

Tracking fees…

http://www.exploreflightfees.com/#


Concur’s Solution for Reporting of Ancillary Fees

� Concur identifies a charge coming from an airline based on merchant code or employee entry if not using a card feed

� If a charge is under a company-defined amount, the expense type is automatically entered into the expense report as “other airline fee”

� The employee is prompted to choose one of six sub-fee expense types: Baggage, Upgrades, Seats, Airline Club, On Board, Other

� Policy audit rules can be associated with each of the fee types


� Fee reporting available

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Party of Three – The Silver Bullet

Collaboration in place between AirPlus, Concur and Continental Airlines to find a solution


Weekly calls to discuss changes and announcements

Technical calls to review possible solutions

Communication strategy to spread the word and get maximum visibility

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Critical Components for a Solution

� Standardization across the industry

� Airlines sending the data in a standard format differentiating for all types of fees

� The data needs to be the same regardless of point of purchase

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� Ancillary fees need to match to the original ticket

� Transparency of services required throughout the buying cycle

� Point of Sale support of fees are more complex and may take longer to evolve

� Focus on corporate card solution can be a quick resolution

Key Findings 2010 NBTA Survey

58% of respondents were not aware of the total amount spent on ancillary fees

61% said it was very important to know the total cost of a trip

75% stated the most important reason to identify/track fees was to utilize this


information for future negotiations

86% indicated the industry should develop an industry standard

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Agenda




3. Your Role

4. Q & A

What are your thoughts?

Is it important to you to have visibility into these fees?

Are all fees of equal importance?

What information do you need and what


will you do with it?

Who needs information regarding fees?

Where will the decision to accept a service for a fee be made…during the original booking process, pre-trip, during the trip or on-board?

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What are your thoughts?

Do you want to be able to charge fees back to a lodged/ghost card?

Is it important to you to be able to negotiate


these fees?

Your average ticket price may stay the same or even decline but the total cost of air may go up.How do you explain that to your CFO?

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Voice Your Opinion

Remember YOU have a voice!

Share your ideas with the industry-Talk with your vendors

Urge for a common solution to be


Urge for a common solution to be found to resolve this issue

Encourage the development of a total cost calculator to provide greater transparency to what fees would be charged - help make better buying decisions

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Things to Keep In Mind

Ancillary fees are here to stay

This problem will continue to grow globally

Elite flyers will not be exempt from all


Elite flyers will not be exempt from all of the fees

It will most likely get worse before it gets better

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Agenda




3. Your Role

4. Q & A

Q & A


Q & A

P. 31

Whatâ€™s Happening with Airline Ancillary Fees?

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