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Has the airline profitability cycle peaked?

A recent Cathay Pacific warning that deteriorating conditions will mean a worse than expected second-half performance may be a sign of a turning tide for airline profitability.

The International Air Transport Association in its latest financial monitor report has raised the possibility that airline profitability may be peaking.
IATA found that post-tax profits in its second quarter sample for 2016 were about 20 per cent lower in dollar terms than in the same quarter the previous year.

The airline umbrella group said the margin on earnings before interest and tax rose to 9.9 percent from 9.8 per cent and was robust by historical standards.

“However, operating conditions are becoming more challenging and the industry profitability cycle is showing signs of peaking,’’ it said.

  Hong Kong's Cathay reported an 82 per cent slump in profit when it released first half results in August and said at that time that the overall business outlook remained challenging.

At that point , however, it expected that results in its second half would follow the normal trend and be better that the $353 million first half net profit.

It said earlier this month that this was no longer expected to be the case.

“Since the interim report was issued, the outlook for our airlines’ business has deteriorated,’’ Cathay said in a statement to the Hong Kong stock exchange. “Overcapacity and strong competition is putting particular pressure on our passenger business, with continued shortfalls in revenue compared with forecasts and heavy pressure on yield.

“Against this difficult revenue picture, we are engaged in a critical review of our business, the goal of which is to improve revenues and to reduce costs so as to maintain a strong financial position and to deliver acceptable financial returns.

“The review will consider all options for improving efficiency and productivity.”

Cathay faces competition from Chinese airlines expanding internationally as well as encroachment from Middle Eastern carriers keen to secure a slice of the growing Asian market. Analysts have suggested a new departure tax of up $HK180 in Hong Kong may also have played a part.

However, the airline is continuing to invest in its business with orders for new planes such as the A350 and Boeing 777X.

Cathay shares have lost more than a fifth of their value since the beginning of the year and the outlook revision saw its share price has hit its lowest level since 2009.

Nor is Cathay the only major Asian airline to have reservations about the outlook.

Asked about the IATA report last week, Singapore Airlines chief executive Goh Choon Phong  said the airline had been “quite public” about the challenges facing the airline industry and SIA.

Goh said these related to overcapacity generally and pressures on yield, with many airlines “discounting away” lower fuel prices.

“So yes there is a challenge and we acknowledge that,’’ he said.

Yet some observers point to Asian network changes, rather than global forces, as a major factor in Cathay's woes.

A recent report by analysts at Australia’s Macquarie Equities suggested the Hong Kong airline’s problems stem from its reliance on transfer traffic, its network carrier status and the growth of competing hubs which no longer need Hong Kong as a waypoint.

“Chinese services are increasingly bypassing Hong Kong, growing capacity on direct services into the US,’’ the analysts said. “Our financial year ‘17 data shows Singapore and Hong Kong capacity growth rates appear subdued in FY17 despite their proximity to China which continues to significantly increase its international capacity.

“Double-digit growth on direct US-mainland China services versus a low-single digit outlook for Hong Kong and Singapore points to a bypassing effect, as carriers cut out the middle man, reducing connecting traffic.’’

Other factors indicating the global well-being of airlines were mixed in the IATA financial report.

Global airline share prices rose by 0.9 per cent in September, with the index of North American carriers up by 4.3 per cent during the month but Asia-Pacific carriers down 4.7 per cent and European airlines remaining flat.

Brent crude oil prices were $US52 per barrel in early October after an agreement between oil-producing nations to cut output, although there were questions about how successful this would be.

Oil prices were around 5 per cent higher than a year ago and oil analysts were expecting a weak upward trend with prices remaining below $US60 per barrel for the year.

The report said there were signs that the downward pressure on yields, a measure of average fares, had eased and IATA said it would be monitoring this closely to see if there had been a turning point with this parameter.

Growth in premium international traffic continued to lag behind that of the economy and a 5.3 per cent increase for the first seven months for 2016 was down from 5.7 per cent a year ago.

But premium fares had held up better than those in economy and the segment’s share of revenues had risen slight this year on the important Europe-Asia markets and was unchanged across the Atlantic.

“As we have argued before, in the current environment, the high-yielding premium segment offers an important buffer for airline financial performance,’’ the report said.

Annual growth in passenger traffic slowed to 4.6 per cent in August, down from 6.4 per cent in July, in the face of a subdued economic backdrop.  However, it was still broadly in line with the 10-year average.
 

Qantas boon for thirsty travellers in new lounge.

Australian carrier Qantas has launched a new lounge concept for people who want to get hydrated before they enter the moisture-sapping environment of an aircraft cabin.

Known as Quench, the station offers a range of non-alcoholic beverages — including a signature blend lemon myrtle, parsley and citrus — and will be rolled out to future lounge developments.  Other offerings include a ginger refresher, elderberry and pink grapefruit syrups with a choice of still or sparking water.

“It's self-service and offers a range of different non-alcoholic beverages to help our customers stay hydrated throughout their journey,"   said Qantas creative director food, Beverage and Service Neil Perry.

The new concept was launched at the opening of the airline’s new international lounge in the Queensland capital of Brisbane.

Brisbane serves almost 60 international direct flights each week and the new split-level lounge offers 30 per cent more space than previous lounges.  It is part of a multi-million-dollar upgrade by Qantas at the port

“This lounge marks our continued investment in the entire customer journey,’’  Qantas International chief executive Gareth Evans said. “We’ve almost finished the refurbishment of our A330 fleet at the Brisbane Maintenance Facility, added new services to Japan and New Zealand, and the domestic terminal lounges are set for a complete redesign in coming months.’’

The light-filled lounge is based on the airline’s award-winning Singapore and Hong Kong facilities and a new lounge to be opened at London’s Heathrow Airport.

It includes a bar serving craft beer and premium wines, an all-day barista coffee service and a new signature “breakfast hatch’’ with made-to-order dishes.

A key feature is an abstract glass and light art installation, The Pulse of Our Ancient land, which depicts indigenous lands.
 

Widening Note7 ban means users risk denied boarding

Samsung Galaxy Note7 users who haven’t returned their phones should use it to make a note to themselves:  don’t try to take your phone on a flight unless you want to risk being denied boarding.

 Airlines globally have been implementing a blanket ban on Note 7s after the US Federal Aviation Administration and US Department of Transportation issued an emergency order prohibiting the carriage of the troubled devices on US carriers or flights to or from the US  from October 15. The ban applies to phones carried on a person, in checked baggage or in carry-on.

Carriers outside the US which have implemented the ban include Qantas, Jetstar, Air New Zealand, AirAsia, Singapore Airlines and Malaysia Airlines.

Samsung announced last week it had stopped making the phones after a number of incidents in which they overheated began smoking or caught fire. The manufacturer recalled the original model only to find its replacement also had problems.  It is offering refunds or to replace a Note7 with a different device.

US authorities are now treating he phones as forbidden hazardous material under the Federal Hazardous Material Regulations and have also banned their transportation as air cargo.

Airlines in the US have been told to deny boarding to passengers found with the smartphones unless they give it up and flight crew have been told that phones found on aircraft cannot be kept in overhead luggage compartments, carry-on baggage, or seat-back pockets during the flight.

Passengers who attempt to evade the ban by packing their phone in checked luggage have been warned they could be subject to criminal prosecution as well as fines.

 “We recognize that banning these phones from airlines will inconvenience some passengers, but the safety of all those aboard an aircraft must take priority,” US Transportation Secretary Anthony Foxx said. “We are taking this additional step because even one fire incident inflight poses a high risk of severe personal injury and puts many lives at risk.”

Samsung has been working with airlines and airports and in Australia has set up service points at bigger airports to allow customers to exchange Note7s for an alternative device before they go through security screening. Other Samsung devices are not affected by the ban.

“Multiple airlines have prohibited the carriage of Galaxy Note7 devices on-board flights (both international and domestic) for both carry-on and checked baggage.’’ the manufacturer, which apologised to customers for the inconvenience, said on its website. “Airline passengers will not be permitted to take a Galaxy Note7 on a flight, either switched on or turned-off. ‘’

A Samsung spokeswoman said that globally the company was providing support to Note7 owners in as many locations as possible "including at some of the most frequently visited airports around the world".

"We know this ban of the Galaxy Note7 on flights is an inconvenience to our customers but safety has to remain our top priority,'' she said.

 

Air NZ’s all female crew celebrates aviation legend

Air New Zealand is celebrating the 80th anniversary of Jean Batten’s famous solo flight from England to New Zealand with an all-female crew for its Boeing 777-300ER.

Because of her good looks and attention to dress, Batten was dubbed the Greta Gabo of the skies.

According to NZhstory.net.nz Batten’s first success was in May 1934, when she successfully flew solo from England to Australia in the Gipsy Moth. Her trip of 14 days and 22 hours beat the existing England-to-Australia record of English aviator Amy Johnson by over four days.

For this achievement and for subsequent record-breaking flights, she was awarded the Harmon Trophy three times (1935, 1936, 1937). 

After her first Australia flight Batten bought a Percival Gull Six monoplane, G-ADPR, which was named Jean. In 1935 she set a world record flying from England to Brazil in the Percival Gull, for which she was presented the Order of the Southern Cross, the first person other than Royalty to be so honoured.

In 1936 she set another world record with a solo flight from England to New Zealand. 

Batten was created Commander of the Order of the British Empire (CBE) in 1936, and she was also given the Cross of Chevalier of the French Legion of Honour that year. 

In 1938 she was awarded the medal of the Fédération Aéronautique Internationale, aviation's highest honour; she was the first woman to receive the medal. 

Batten became a recluse and lived in several places around the world with her mother until her mother's death in 1965. 

Batten died of a dog bite on the island of Majorca in 1983.

Social media could undermine the cattle class crush

Green Newsweek rankings airlines
Aircraft such as the Airbus A350 and Boeing 787 are helping reduce airline greenhouse emissions.

The ability to access social media on aircraft will give airline passengers a greater voice in influencing the way cabins are configured, a senior Airbus executive believes.

Head of A350 XWB marketing customer affairs Marisa Lucas-Ugena said wi-fi connectivity would give passengers a greater ability to praise or criticise aircraft interiors as they were flying.

She said the Internet was also increasingly shaping the way passengers chose how to fly and agreed that the ability to tweet from aircraft could reverse the current trend to squeeze more people into economy class to maximise revenue.

“Any passenger having a great experience in flight can report it real time,’’ she said. “And while a few years ago that report would be when you arrive and have a nice dinner with your family, today you can spread it all over the world with social media.’’

Airlines have adopted new seat designs to cut seat pitch – the distance between a point on a seat and the same point on the seat behind it – and many are reducing seat width by adding a seat to each row in planes such as the Boeing 777.

Airbus has been heavily pushing the fact that its planes are designed to maintain a  minimum seat width of 18 inches, a campaign rival Boeing  discounts as marketing hype.

The cabin of the new A350 is six inches wider than the rival Boeing 787 and Airbus says this means it can offer a comfortable, wider seat in nine-abreast economy configuration as well as eight abreast in premium economy and four abreast in business class. Vertical wall panels and sophisticated lighting give a sense of space  and the airline has boosted this in business class by increasing the size of overhead lockers and doing away with the central bins.

Like the rival Boeing 787, The A350 has higher cabin pressure and humidity that helps people better handle long trips and is significantly quieter than older aircraft.

While the Lucas-Ugena said the 350 was not as quiet as upper cabin of the company’s Airbus A380 superjumbo, she claimed it was six decibels quieter than the 787’s interior. She said Airbus had focused on passenger comfort when it designed the A350 because of its long range of about 8,000nm (14,800km).

 “And that is a lot of time,’’ she told reporters at a briefing at Airbus’s Toulouse headquarters on Thursday. “We don’t want to stay 17 hours in the office, we don’t want to stay 17 hours on our sofa at home and the office and the sofa are normally more comfortable than an airplane.

“So that’s why at Airbus, and in particular on the A350, we are obsessed by comfort in the cabin.

“This is one of the features we consider most important and it cannot be decoupled from efficiency and it cannot be decoupled from the range ability of the aircraft.’’

The A350 is set to become a major player in the Asia-Pacific with big orders from airlines such as Singapore Airlines and Cathay Pacific.

Singapore has ordered 67 of the fuel efficient aircraft – including seven ultra long range aircraft – and is taking delivery of the sixth A350-900 on Friday. The delivery will be key milestone for the manufacturer becasue it also mark Airbus’s 10,000th aircraft delivery.

The Singaporean carrier was instrumental in developing the ultra long range version of the A350-900 which it intends to use to re-launch flights on the Singapore-New York and Singapore-Los Angeles routes. It previously operated the flights using four-engine A340-500s but was forced to abandon the routes for economic reasons.

The A350-900ULR provides an estimated 25 per cent improvement in efficiency and uses a modified fuel system and aerodynamic improvements to increase the range to about 8700 nautical miles and a flight time of about 19 hours. Operators can also switch the plane back to the standard long-haul A350-900 specification if necessary.

Singapore’s head of sales marketing, Campbell Wilson, said the airline had yet to decide on the number of seats on the ULR or the exact cabin configuration, including what classes would be involved.

Airbus is preparing to flight test a bigger version of the A350, the A350-1000, and Lucas-Ugena would not rule out the development of a long-range version.

Steve Creedy travelled to Toulouse courtesy of Singapore Airlines.

Airbus: 10,000 up

European plane maker Airbus has celebrated its 10,000th delivery with a vow it will take just 10 years to deliver its next 10,000 aircraft.

A long and spectacular journey beginning with the Airbus 300B  — the world’s first twin-aisle, twin engine aircraft – hit a major milestone on Friday with the delivery of a  fuel-efficient A350-900 to Singapore Airlines.

The world needs more A380s.

The European manufacturer’s 10,000th delivery came as production at Airbus is at record levels and its ubiquitous single-aisle A320 is taking off around the world every two seconds.

The delivery milestone was celebrated today at a special ceremony in Toulouse attended by Singapore Airlines chief executive Goh Choon Phong and Airbus Group boss Tom Enders.

Enders said Airbus’s founders five decades ago could not have foreseen that the company would be delivering its 10,000th aircraft as early as 2016.

He said the company was producing at rate of just over half an aircraft a month in the 1970s.

Almost 8000 of the 10,000 aircraft delivered had been delivered in the past 15 years and it was less than nine years ago that Airbus had delivered its 5000th aircraft. It took Airbus 19 years to deliver its first thousand aircraft and just 19 months for the last 1000.

“There were years, I’m told, where we had more cancellations than new orders,’’ he said. “Today we deliver more than 600 aircraft a year and the ramp-up is continuing.’’

Enders said the company now had the widest product line in the industry and its manufacturing footprint extended far beyond Europe to China and the US. “We’ve gone from only 15 per cent market share as recently as 1995 to standard market share of around 50 per cent over the last 10 years or so and there’s not that much more you can wish for in a duopoly.’’

The Airbus boss said the manufacturer became faster and more efficient every year and the A350 gave a strong indication of what the next 10,000 aircraft would be.

He predicted accelerating technology such as digitalisation would see the next 10,000 aircraft come in many more versions and variations.

“I think we’ll continue to be smarter, we will definitely be more productive, we will be safer,’’ he said “The overall ingenuity our people and our many partners from all over the world can dream up will make them more fuel efficient, cleaner, easier to maintain, easier to operate… and able to carry more passengers hopefully in ever more comfort.

“And when we develop new aircraft, I’m confident we will be able to design and develop them much faster and with much less cost than is still the case today.’’

Goh was picking up the airline’s sixth A350-900 as part of an order that will see it take 67 of the fuel- efficient aircraft, including seven ultra long range planes that will be used on services from Singapore to Los Angeles, New York and an undisclosed third destination. It will be the launch customer for the A350-900ULR when deliveries begin in 2018.

The A350 delivered Friday will be used to re-establish long-haul services between Singapore and San Francisco and Goh said it showed how far Airbus had come.

“The A350s allow us to have more long haul destinations on a non-stop basis which helps to boost our network competitiveness and our connectivity and helps us further develop our home base, the Singapore hub,’’ he said, noting that customer feedback about the plane so far had been positive.

Singapore Airlines (SIA) and Airbus have a long history and shared several milestones, including the first revenue flight of the double -decker A380 superjumbo in 2007.

SIA placed its first order with Airbus in 1979 when it opted for the A300B4 and the group  has since operated aircraft from all of Airbus’ product lines – the A300, A310, A320, A330, A340, A350 and A380 families. 

The latest plane is adorned with  “10,000th Airbus Aircraft” decal  and will be used to launch non-stop flights between Singapore and San Francisco later this month. 

Singapore Airlines’ first A350-900 went into service in March and the aircraft type is now being used for Amsterdam, Dusseldorf and Johannesburg flights, with more destinations to be added as additional aircraft enter the fleet.

Airbus has 810 firm orders for the aircraft from 43 customers, with Singapore’s order the second biggest after Qatar Airways’ 80 planes. Airbus is making two versions of the plane:  the A350-900, designed to carry 325 passengers in a three-class configuration, and the bigger 366- passenger A350-1000, due to have its first flight by the end of the year and enter service in the second half of next year.  Both are powered by Rolls Royce Trent engines: the Trent XWB-84 EP on the -900 and the more powerful Trent XWB-97 on the 1000.

Seventy per cent of the A350 airframe is  composite Airbus says the aircraft offers a 25 per cent increase in fuel efficiency as well as significant reductions in noise, with exterior noise levels 21 effective perceived noise decibels below International Civil Aviation Organisation current standards.

Airbus currently produces about seven A350s a month but plans to increase the rate to 10 a month in 2018.

Steve Creedy travelled to Toulouse courtesy of Singapore Airlines.
 

Don’t discount the A380: Airbus

Enders leaves Airbus
Airbus CEO Tom Enders. Photo: Steve Creedy.

The A380 superjumbo is not dead, it’s just resting.

That was the message from Airbus and one of its major customers in Toulouse on Friday as speculation continues about the superjumbo’s future.

Airbus announced earlier this year that it will more than halve production of the superjumbo from the current 2.5 per month to one a month because of lacklustre demand.

But Airbus chief executive Tom Enders, speaking at an event to celebrate the manufacturer's 10,000th aircraft delivery,  predicted there would still be a demand for the A380 into the future.

Read: The world needs more A380s

“We’ve pulled down the rates for some time but we are very confident we will produce an aircraft for many years to come,’’ he said.

Enders said Airbus was continuously making small improvements to the A380.

“And we’ve said many times that bigger improvements such as the famous re-engining is not so much a question of if, but of when,’’ he said.

The manufacturer’s head  salesman, John Leahy, said the A380 continued to generate passenger interest around the world.

“People go out of their way to fly on the A380,’’ he said, adding that 10 per cent of passengers using London Heathrow Airport this year would be getting on or off one of the superjumbos.

Singapore Airlines chief executive Goh Choon Phong said he continued to see a role for the double-decker aircraft his airline helped launch flying on high demand, high density routes where there were  slot constraints.

“So we will continue to see demand for such aircraft types,’’ he said.

The Singaporean carrier is acquiring five new A380s but created waves for Airbus when it decided not to renew the 10-year lease on its first Airbus A380. The announcement came as Malaysia Airlines revealed it was in discussions with airlines in the region about offloading its fleet of six A380s.

SIA may also not renew four more leases due to end, although Goh reiterated that a decision on that had yet to be made.

The Singaporean carrier has also said it will launch new cabin products with the arrival in the second half of next year of the first new A380.

Goh said the new products, developed over “the last few years’, would wow customers and would ensure that the airline retained an industry-leading position on products.

 

Qantas moves back into Beijing

Photo: Qantas

Qantas will sharpen its focus on attracting lucrative Chinese business travellers as it heads back into Beijing with daily A330-200 services as part of its  strategy to boost its presence in Asia.

The new service from Sydney marks the airline’s return to the competitive Beijing market since leaving in 2009 because it couldn't make it work and comes as travel between Australia and China is burgeoning. It will capitalise on the Qantas alliance with China Eastern, which will codeshare on the flights from the expected start date of January 25.

A strengthening of the China Eastern alliance will also see the addition of three international codeshare routes between Australia and China: Sydney-Hangzhou, Sydney-Kunming and Brisbane-Shanghai.

The China Eastern partnership and a second with China Southern allows Qantas  to offer more than 130 return services a week  between Australia and China, connecting to a further 256 codeshare services a week on intra-China domestic routes.  Low-cost brand Jetstar offers an addtional 20 return services a week into six Chinese cities from Singapore and Vietnam.

Beijing will be the Australian carrier’s third destination in greater China, building on its existing daily services to Shanghai and 28 return flights a week to Hong Kong. The new route represents an 18 per cent increase in Qantas’ total capacity into Greater China and a seven per cent increase in its total capacity into Asia.

The airline group said about half of Qantas and Jetstar international capacity is now dedicated to the Asia region, up from 30 per cent a decade ago, and it had  added flights to Hong Kong, Singapore, Japan, the Philippines and Indonesia in the past year.

The expansion comes as rival Virgin Australia has indicated it is also looking at services to Hong Kong or mainland China.

Two major Chinese groups, HNA and Nanshan, now own about 40 per cent  of Virgin,  and are moving to put representatives on the Virgin’s board.  The election of HNA representative Nang Qi and Nanshan’s Dr Chien-tsung Lu will be put to shareholders at the airline’s annual meeting on November 16.

China is becoming  Australia’s biggest source of visitors after New Zealand and Qantas chief executive Alan Joyce said the additional 3300 seats would help the airline take advantage of surging demand.

“Australia is now at the top of the wish list for Chinese travellers thinking about where they want to go next,’’ Mr Joyce said.  “There are 21 million people in Beijing alone and from the start of next year they will be just one Qantas flight away. The potential is tremendous.

“We’re seeing strong loads on our existing Shanghai and Hong Kong services, and on this new Beijing route we’ll have the advantage of China Eastern marketing the Qantas flight as part of their own network.

“We’ll be ramping up the work we’re already doing with the state tourism bodies and Tourism Australia on marketing campaigns in China to make sure we make the most of this potential.   Our pitch is that if you want to experience the best of Australia, your trip should start with the national carrier.

 “The business travel market is another key focus for this route, particularly off the back of the free trade agreement with China, which is increasing the amount of freight we’re carrying.”

The flying kangaroo has been on the hunt for new pilots as it brings in new Boeing 787 aircraft and looks to expand its presence in Asia and North America.

The airline said Thursday it had received more than 500 applications from Australian and overseas pilots for  170 new jobs it announced earlier this year.  The jobs announcement marked the first time Qantas had sought to bring in pilots from outside the group since 2009.

Renewed warnings on Samsung Note 7

Aviation authorities are ramping up warnings about the Samsung Note 7 smartphone as problems with supposedly safe replacement units have prompted the Korean manufacturer to halt production.

The US Federal Aviation Administration and Australia’s Civil Aviation Safety Authority  have  renewed warnings in recent days urging passengers not to use the phone on aircraft.

“We're urging all passengers with this phone—including replacement devices—to follow the instructions of their airline,’’ CASA said on Tuesday.
“If there are no instructions, then passengers should switch-off the phone, refrain from use or charging and not pack it in their checked luggage.’’

Airlines around the world have been warning passengers about using the Note 7 after a slew of problems with the smartphone’s battery catching fire or overheating.

Samsung recalled 2.5 million units but was forced to halt production when purportedly safe replacement phones also overheated.

The BBC reported that owners were expected to be able to return the phones for a refund or an exchange for a different Samsung phone.

"We recently readjusted the production volume for thorough investigation and quality control, but putting consumer safety as top priority, we have reached a final decision to halt production of Galaxy Note 7s," Samsung said in a statement. "For the benefit of consumers' safety, we stopped sales and exchanges of the Galaxy Note 7 and have consequently decided to stop production."

Smartphones have become  a problem for airlines and many have started warning passengers not to move their seats and to call cabin crew if they lose their phone. This follows a number of instances where phones began smoking after they were crushed by the seat mechanism as passengers  attempted  to retrieve them.
 

Passengers pay more for airline extras

America's expert consultancy on airline fare add-ons is expected to report next month that so-called ancillary revenue has grown by at least another 20 per cent in the past year as the air fare pricing revolution becomes a permanent feature of the travel landscape.

IdeaWorks' November update will follow its 2016 Ancillary Revenue Yearbook, published last month, which details, airline by airline, how dependent the air travel industry now is on so-called a la carte pricing, which travel consumers have taken to in the past decade.

The numbers bluntly illustrate why there's no going back to the era of fully inclusive air fare pricing: airlines globally are collecting around $US60 billion in air fare add-ons. But the global airline industry is collectively making less than $US40 billion profit – one of the best (or least worst) years for an industry which is said to have lost more money than it has ever made, but still a paltry return on an estimated $US717 billion in revenue.

In other words, take away a la carte pricing and airlines are collectively losing $US20 billion a year.

There's no doubt that consumers reacted badly when airlines – having to devise new ways to recover their losses when fuel prices soared last decade – started to charge them for items that were previously "free". Complaints against airlines soared.

It wasn't helped by the fact that the new extras pricing is for products and services that cost airlines next to nothing to provide – like preferred seating. 

Even the new baggage charges – once originally part of the ticket price – are based on steep markups on the cost actually incurred in airport ground-handling.

But, as average air fares globally continue to fall, travellers have realised they're not paying any more overall. In fact, a la carte pricing  has been most successful among price-sensitive travellers flying on low-cost airlines on holiday routes.

"Low-cost carriers rely upon a la carte activity by aggressively seeking revenue from checked bags, assigned seats, and extra leg room seating," says IdeaWorks' 2016 Ancillary Revenue Yearbook. "Some of the best in this category have extensive holiday package business with route structures built upon leisure destinations.  Allegiant in the US and Jet2.com in the UK share the common bond of emphasizing leisure travel; the airlines essentially are holiday package companies that own an airline."

To that category you can add low-cost Asia Pacific carriers like Scoot, AirAsia and AirAsia X, Jetstar and Tigerair, all of which are focused on holiday routes and use add-on pricing options, though they lack the aggressiveness of the so-called ultra-low-cost carriers of North America.

In the US, the fast-growing Spirit Airlines is the world leader in a la carte pricing, deriving 43.4 per cent – or $US51.80 per passenger – of its total revenue from optional extras. Spirit is one of the few airlines globally that charges for cabin luggage carried onto its planes by passengers – from $US35 to $100 per passenger, dearer even than its checked baggage fees that range from $30 to $50.

The number two airline globally is also a US ultra-low-cost holiday airline, Allegiant, which derives 37.6 per cent of its totally revenue from extras, an average of $US49.94 per passenger.

It's not just on short-haul low-cost networks where a la carte pricing has taken over. Ideaworks' yearbook notes that trans-Atlantic carriers Norwegian Air Shuttle and Icelandair, as well as Jetstar and Scoot in the Asia-Pacific are "dedicated to an a la carte mission on long haul flights".

"IdeaWorksCompany believes the outcome is very predictable –basic economy (without add-on extras) will eventually be offered on long haul markets by carriers with names like American, Lufthansa, KLM, and United," the report says. 

"Some may mourn the passing of simpler times when a long-haul ticket price included the promise of a checked bag, seat assignment, and an oftentimes inedible meal. 

"But consumer behaviour supports the popularity of seat-only tickets that deliver a lower price.  The array of choices provided by a la carte methods allows these consumers to click and pay a premium for more comfort and convenience.  Ancillary revenue represents the safety net which determines whether low fares can coexist with airline profitability."

Air travel consumers can now add to their checklist their own survey of how hungry their chosen carrier is for extras. The alphabetical listing of airlines showing what percentage of revenue each derives from ancillaries begins on Page 20 of the 2016 IdeaWorks Ancillary Revenue Yearbook.
 

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