What’s the Deal with Ancillary Fees?

February 17, 2010 at 1:36 pm 8 comments

by Tony

Ancillary fees have become the Susan Boyle of the travel industry.  That’s right, they aren’t sexy, but people still love to talk about them.  Plus, nobody agrees on the magnitude of these things, and how could they, when tracking them is such a daunting task.  For example:

  • Last week The Beat reported that that TRX found that “ancillary airline fees account for between 0.75% and 1.5% of the total air spend”.
  • On the opposite end of the spectrum, NBTA says ancillary fees could reach up to 30% of total airline spend. A couple weeks ago I saw a story claiming that in 2010 the airlines will make $58 billion in ancillary fees on everything from baggage to seat allocation, in-flight services and various products.

Who’s right? Who cares?

Until there is standardization across the industry, we’ll never know who’s right.  At a recent BTA meeting, I heard that could be years away, so don’t hold your breath. We’ll probably have a Starbucks on the moon before that’s all said and done. Even if you could track it to the actual percentage, what good would it do you? Airlines fees only make up one segment of expenses that comprise the total cost of a week on the road.  While it’s all real money, you can’t control some of these yet, so why not focus where you can make an impact?

Unless your travelers hitch rides to the airport and pack their own meals, these are two of the most common areas that lack proper management. They aren’t small ticket items, either. Dining alone is typically 10-15% of T&E, and can be the third largest expense category after air and hotel. Obviously you aren’t going to start negotiating deals with every pizzeria (although I do have my personal favorite where  my standard “two slices and a grape drink” order gets upgraded to a large drink every time), but imagine if your company could get rebates at many of the restaurants your travelers already frequent.   Or what about cutting a deal with an Internet provider so every time your travelers are on the road they know they’ll pay less?

Believe it or not, this is already possible. And, there are programs to reduce the costs of ground transportation as well. At the end of the day, I’m more of an action guy who’d rather figure out how to reduce my spend now, rather than sit back and debate it for another few years. It’s time to take action.

Now, let me sit back, throw on my headphones and enjoy I Dreamed a Dream – I find her voice to be quite melodic, especially while enjoying a slice of pizza so thin it cracks when you fold it, and washing it down with a vintage grape drink.

P.S. – Speaking of ancillary fees, I’m moderating a webinar next week that will cover this and much more. I’ll be joined by a great panel including Norm Rose, the CIO of a major TMC, and a 2009 BTN Best Practitioner of the Year. The webinar is free to all corporate travel managers, so click here to register.

Entry filed under: Ancillary Fees, Dining, Tony's thoughts. Tags: , , , , , , , , , , , , .

“Carrying On” Has Landed I Stand Corrected

8 Comments Add your own

  • 1. floyd widener  |  February 19, 2010 at 1:23 am

    Was warren B, and you damn well the B stands for “he’s got a ton of Banjamins”, correct when he said the Wright brothers should have been shot down at Kittyhawk to save everyones equity…I guess it was something like that but why the heck don’t the airlines just apply some simple price increases like the guy at the corner store who buys his oranges at 50 cents a pound then marks them up? If his cost goes up he increases his price…..call me a simpleton but they lose millions every year; are simple management practices too much to ask for instead of charging patrons to go to the head?

    Reply
    • 2. Tony D  |  February 21, 2010 at 7:56 am

      At least the trip to the head is cheaper than the beer, but point well taken.

      Agree on the straight forward approach especially now with less inventory out there and higher load factors. There was a fare increase in January that didn’t stick, so for now looks like more of the same, so all I can say is keep your beer intake to a minimum when flying :-).

      TD

      Reply
  • 3. Mike Daly  |  February 19, 2010 at 5:18 am

    No matter which side of the fence you are on, we can all agree this topic will be hotly debated in the months and years to come. If you are interested in reading more about “ancillaries”, I highly recommend checking out the following commentary by Jason Cottrell. http://www.airlineweekly.com/AWSR1.pdf

    Reply
  • 4. Paul  |  February 19, 2010 at 6:51 am

    I’ve just reimbursed an employee for a trip on which the baggage fees represented 42% of the cost of the flight. I think NBTA could be correct in their prediction of ancillary fees reaching 30% of total air spend. At what point will the airfare become ancillary to the other costs? I’m not necessarily opposed to paying for what we use, but this is turning into an accounting nightmare and airlines need to start thinking about providing level 3 data so corporate customers can start separating pillows, blankets and aisle seats, from those items which were truly an essential cost required to meet the business objective of the trip.

    As Boyle sang in Tony’s favorite song…”But there are dreams that cannot be
    and there are storms we cannot weather” I hope that is not the case for travel managers and the impact that ancillary fees have on costs or the ability to separate the chaff from the wheat.

    Reply
    • 5. Tony D  |  February 21, 2010 at 7:47 am

      Paul,

      I think your example is dead on for those who don’t have status. I hear there are things in the works on both the credit card side and ARC, but it will likely take a while.

      For now instead of dreaming, it’s probably best to communicate that this is out there and to advise employees to book in advance to get better seats and pack differently. Adding information about fees to the policy could at least let employees know its being tracked.

      If anyone else has any ideas, send them in.

      TD

      Reply
  • 6. Dave (Hockey Puck) Cooney  |  March 3, 2010 at 10:36 am

    I understand Paul’s point about wanting detailed data but I don’t envy travel manager’s having to decide not to reimburse for pillows and the like and then having to enforce such rules.

    Congratulations on the new venture, guys. I’m looking forward to reading it regularly. Interesting stuff but WHERE ARE THE BOWLING TIPS!?!?!?

    Reply
    • 7. Tony D  |  March 7, 2010 at 2:05 pm

      Go figure that my first request for a bowling tip comes from a guy named “Hockey Puck”, but here goes.

      This tip is for the novice bowler who likes to hit the lanes every few months for fun or for the fine cuisine most bowling establishments serve.

      Put your fingers in the ball and then rotate your wrist so your palm is facing the ceiling. When you release the ball, concentrate on having your thumb exit the ball first, and follow through by lifting your arm straight towards the ceiling.

      If your aim is any good, you’ll be bowling 150’s even with greasy fingers from the chicken wings.

      Reply
  • 8. Mike W  |  March 15, 2010 at 7:03 am

    just a quick thanks and congrats to Tony and Mike, just got on this blog, long overdue in industry and lots of fun, keep it coming

    Reply

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