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Airlines Find New and Creative Ways to Make You Pay More

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Remember the furor late last fall when Bank of America (BAC) announced a proposal to charge a $5 fee for debit card usage?
 
The bank, along with other usual suspects like JP Morgan Chase (JPM) and Wells Fargo (WFC) were simply trying to make up for the lost swipe fees revenue effected by Dodd-Frank financial regulations, but its income-generating proposal was too transparent and became imminently unpopular with customers, so the bank scrapped the plan.
 
Like banks, airlines have been struck hard, if not by dwindling revenue then by skyrocketing fuel costs. As such, they have had to come up with new revenue streams. like excess baggage charges or flexible ticket booking.
 
Such "non-ticket" revenue sources have grown to become significant portions of airlines’ bottom lines. According to the Amadeus Worldwide Estimate of Ancillary Revenue, non-ticket revenue amounted to an estimated $32.5 billion worldwide in 2011, which represented a 43.8% increase from the $22.6 billion a year before
 
Airlines have also become increasingly creative in the types of money-making offerings they are coming up with, notes the New York Times. Air New Zealand, for example, has taken the never before ventured step into banking. The OneSmart card that it offers to members of its frequent-flier club will not only store airline miles, it will also function as a debit card and as a store of cash and foreign currency, effectively turning Air New Zealand into a mile-high bank. The airline will charge a small percentage fee for each use of the card and also a monthly fee if the card is activated but idle.

“It gives us the opportunity to build a larger revenue channel, the ability to make money from foreign revenue conversion,” Simon Pomeroy, director of loyalty at Air New Zealand, told the Times.

Closer to home, Continental, newly merged with United (UAL), has also come up with Wall Street-inspired products. Last year, the airline introduced for sale options on ticket prices under its FareLock program. By paying a tiny fee, prospective travelers can freeze the price of an air ticket for up to seven days and whether or not one actually buys the ticket, Continental pockets the fee. United is set to introduce the program in March.

“It’s a value to people like a stock option is a value,” Jeff Smisek, the president and chief executive of United Continental Holdings, told the Times. "It lets you buy stock at a fixed price. Well, this is an option on a seat.”

Other innovative new non-ticket fees include Air Canada’s flight interruption insurance, which provides passengers with amenities like flight rebooks and hotel accommodation even when a cancellation or delay is not the airline’s fault.

Of course, in terms of coming up with ingenious ideas for new revenue, nobody beats Ireland’s Ryanair (RYAAY). On top of the expensive fees for stuff like checked baggage and printing boarding passes at the airport, Ryanair boss Michael O’Leary said back last November that he was thinking of offering pay-per-view porn on his no-frills airline. The airline also once entertained the notion of charging passengers for the use of the airplane bathroom.
 
Clearly, cash-strapped banks need to hire O’Leary for a revenue-generation consultation.
 
(See also: Ryanair Boss Thinks Passengers Yearn for In-Flight Porn & Bank of America Nixes Debit Fee, but Tens of Thousands To Leave Anyway)
POSITION:  No positions in stocks mentioned.

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