In just three years, ancillary charges have enjoyed a meteoric rise as a source of income for American carriers. Some estimates say they bring in an incredible €7.68bn a year. So far this has been largely a US phenomenon but there is a growing belief that European airlines will increasingly adopt them. What will this mean for buyers?
The main topic at a meeting earlier this month of the UK Guild of Travel Management Companies' (GTMC) air working party was unbundling. Up to now this relatively new concept of airlines charging for individual items of their service has been largely an American phenomenon. In Europe it has been mainly low cost carriers, like Ryanair, which have adopted it.
But there is a growing feeling that it will cross the Atlantic. At the GTMC meeting, the agents listed nine possible areas where airlines could unbundle: hold baggage, seating, lounge access, upgrading, check-in charges, priority boarding, pre-ordering of food, credit card fees and GDS surcharges.
They decided that the first six were very likely to happen. Pre-ordering food was unlikely but the last two could also happen. Mike Hare, chair of the GTMC committee and also to be chair of the Guild itself next January, said the feeling about the first six was ‘Why not'?
BA, he pointed out, had already introduced charges for selecting seats at the time of booking and he thought the airline would possibly "develop this further". The same carrier is also trialling charges for lounge access at JFK.
Upgrading on flights where the business cabin was not full was another facility carriers were beginning to charge for and Mr Hare also thought this would continue.
If these views are typical, then a growing amount of unbundling will be adopted by legacy airlines in Europe in the next year or so. There are good reasons to believe this will be the case. The first is the astonishing amount of money that unbundling adds to an airline's revenue. The second - and from a buyer's point of view far more crucial - is that the Electronic Miscellaneous Document (EMD) will be available next year to deal with the complications caused to MI by these ancillary charges.
The revenue on unbundling is startling. IdeaWorks, a Wisconsin-based company which promotes new forms of revenue for airlines, said in 2008, it brought in €7.68bn to airlines. This compares with €1.72bn in 2006 which allows IdeaWorks to say the practice is now "commonplace".
But it is not just the substantial figures that intrigue. It is the carriers which gain the most income from unbundling. This was previously very much the province of the low cost carrier. Not anymore.
IdeaWorks' current Top Five are: American Airlines which took €1,65bn in 2008, United Airlines (€1.2bn), Delta Air Lines (€1.13bn), Ryanair (€625m) and Qantas (€458m).
IdeaWorks remarked on the release of these figures in September: "The current top five list demonstrates how much has changed since the last Guide. Legacy airlines now fill the top three positions, which once included low cost carriers Ryanair and easyJet.
"And the ancillary revenue produced by individual carriers, such as United and Ryanair, has increased dramatically. The top five club now requires far more revenue to join - in excess of €450m. That's more than any single carrier produced to join the prior top five list."
Just compare these to another, less happy set of figures: BA's recent results. The UK national carrier announced a pre-tax loss of £401m for the year ending March 31, 2009 and , more recently, a £292m pre-tax loss for the three months to the end of September. The money brought in by the top three from unbundling dwarfs these figures. Even the figures from the two other top five carriers would have substantially reduced BA's losses. The significance of these figures will not have escaped BA.
But if it is a no-brainer for airlines hit by the biggest downturn in their history and desperate to increase revenue, the argument is not so clear cut for buyers.
Just go back in time to March and the National Business Travel Association's (NBTA) Financial Forum in New York. Here buyers made it clear their anger with the ramifications of unbundling. It might help airlines but it presented them with the problem of finding out just what had been spent on what services and by whom.
The airline replies were not encouraging with Jim Compton, executive vp of marketing for Continental Airlines, several times describing ancillary charges as a "work in progress" - giving the impression the charges had been levied before being fully thought through.
By August, when the NBTA held its annual conference in San Diego, there was whole session devoted to unbundling - or more accurately the use of the EMD, which can account for payments made for unbundled items, as the proffered method of payment. This was backed by the US Airlines Reporting Corporation (ARC) which felt it would solve buyers' difficulties.
Mr Hare said the problem for agents and corporates was exactly how to handle this charge and the EMD could be the solution when it arrives in the next year or so. But he warned that TMCs would have to adapt their systems so it was clear how much a client had spent on hold baggage or priority seating which corporates are likely to demand to know.
But if EMD does achieve this, the unrest among buyers may not be over. American Express in its Business Travel Monitor Europe, released in September, said the spread of ancillary charges was adding 15% to the cost of a trip.
In the same monitor, Amex said that business and economy class fares had dropped 19% in the past year. If demand returns, as most think it will, fares are likely to rise so buyers could find themselves faced with not only higher fares but a wider range of extra charges.
They might also find themselves paying extra for services which, a few months before, were part of the package bought with an airline ticket. In other words, at the end of the recession corporates could be faced with the double blow of increased fares and new ancillary charges.
This may put a smile on the faces of airline executives but the buyers are unlikely to find much to laugh about.
www.ideaworkscompany.com www.gtmc.org