Why are Jet Airways, IndiGo becoming revenue-savvy

Moneycontrol Bureau

Domestic air carriers are aiming for bigger revenue pie by charging for every additional service offered. The initiative may be new to inbound travellers, but it is trending and widely accepted world over.

Airlines like Jet Airways and Air India will now charge Rs 250 per kilo if a passenger's check-in luggage exceeds 15 kilogrammes. No frills carrier IndiGo is even contemplating to charge for pre-selection of seats.

What makes airlines unbundle passenger services

According to rough estimates, non-ticket revenues make up for around 2-3 percent of the total revenues to any carrier. Airlines are keen to push it up to around 10 percent at a time when airlines are unable to maintain yields per passenger. For instance, if a full service airline's quarterly revenues are over Rs 4000, then Rs 120 crore comes from non ticket revenues which can be easily increased by levying charges for every additional service offered.

Bigger airlines have aspirations to boost ancillary revenues from the current USD 3 to USD 10 on international routes in next one year to minimise impact of higher operating cost.

Aviation fuel cost and depreciating Rupee continue to be a cause of concern, hence airlines need to strengthen their fixed revenue stream by selling more convenience and comfort to passengers.

Travel agents however say that in an open market, airlines are trying to perfect the art of service delivery by identifying optimal price points. “Airlines are testing consumer reaction by charging excess baggage starting May 15. If the strategy does not work or comes out to be commercially unattractive, airlines will discontinue it,” says a travel agent who adds that the fraternity has been instructed by airlines to promote additional services.

Later, airlines may look at charging for priority baggage delivery upon arrival, just like what Malaysia’s Air Asia does. Airlines may also be looking at commissions from hotel bookings, priority security screenings and early boarding in times to come to improve yields per passenger.

An airline official says that in the US, major airlines generate around 40 percent of the revenues via sale of frequent flier miles linked to airline credit cards and through excess baggage fee. Indian carriers too are keen to push up their ancillary revenue receipts by introducing various incremental services..

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