Healthy yields are all about the extras, argues Steve Endacott
When low-cost carriers entered the travel scene in the mid-1990s, they focused on operational efficiency by flying high frequency, short duration city routes.
As they grew, they incorporated beach holiday destinations such as the Canaries with longer flight durations into their programmes.
This led to the dynamic packaging revolution and the creation of low-cost tour operations like Jet2 Holidays which over the last 15 years have destroyed the traditional charter-based tour operation model, with only Tui remaining.
Low-cost carriers’ yield models diametrically opposed those of charter operations, with seats discounted early to boost load factors rather than dumped at the last minute. However, in recent years it’s the ‘hook and add’ yield model that really has really dominated low-cost flight sales.
Initially, low-cost carriers introduced a ‘first come seating process’ to force customers to arrive early at remote departure gates. They quickly realised they could charge for the privilege and the first ‘add on’ was created in the form of paid for priority/speedy boarding.
As airline booking technology advanced, this morphed into charging differential prices for different seats on the aircraft and today there are highly fluid algorithms based on historic demand on a route-by-route basis.
The post Covid-19 restart issues at airports and the difficulty of checking hold luggage have been a bonanza for airlines like Ryanair which not only charge £30 a head to book front row, quick exit seats, but add a further £26-£30 to book priority boarding which allows two items of hand luggage, often enough for a short holiday.
Recent industry statistics show flight ‘extras’ now represent 40% or more of the total fare charged by some low-cost carriers.
Price comparison sites and Google make it easy for customers to click between sites to compare the seat prices of airlines.
However, research shows 80% of customers only compare the lead-in flight price of airlines, assuming most airlines charge the same for prebooked seats, luggage and speedy boarding. They are clearly wrong.
Ryanair seems to have mastered the low-price ‘hook and add’ methodology better than most.
To be fair, I’m not aware of any customers complaining about this ‘add what you need approach’ and, not surprisingly, other travel sectors are joining in.
Airports now charge £5 drop off and pick up fees for access by taxi or car and fees to bypass the worst of their inefficiencies through fast-track security or passport control fees.
The income from these fees must be close to overtaking the landing fees airports charge to airlines, but customers have accepted this.
Tour operators have been relatively slow to adapt this ‘extras’ model, but removed transfers from the basic holiday price many years on the basis that it allowed customers a choice of being herded on to a transfer bus or booking a private taxi.
Operators also operate their own price tricks such as offering ‘free kids’ places when in the small print it says these do not count towards the occupancy in self-catering rooms, allowing them to recover some of the cost of the accommodation used by the ‘free kids’.
Hotels have always charged different amounts for sea views or larger rooms but have now joined the game by putting bookable sun beds and cabanas in the best spots by the pool.
You could soon find booking tools in hotel rooms which save the 7am alarm call to get your towel on a lounger by making the service bookable the night before for a fee.
So what could be next in this ‘hook and add’ game?
Could airlines sell ‘standard weight’ tickets and introduce scales at check-in to measure not just the weight of luggage but the size of passengers?
If Ryanair chief Michael O’Leary is willing to consider charging £1 to use the toilets on board his flights, he could easily charge a ‘super size’ supplement to cover the fuel cost of flying larger customers!
The ‘hook and add’ yield model will continue to become more sophisticated as it will be a brave airline that bucks the trend and reverts to all-inclusive pricing.
However, in the holiday sector Jet2 Holidays is bucking the trend by including 23kg of luggage and transfers as part of its ultimate holiday package, so even in this price conscious sector product differentiation can allow a premium to be charged.
Who is right and who wrong will only emerge over time, but so far Ryanair seems to be a consistent winner.
Steve Endacott is a travel industry entrepreneur and non-executive director