Yield? It’s all about the Extra’s

When low-cost carriers entered the travel scene in the mid-1990s, they focused on operational efficiency by flying high-frequency short durations city routes. However, as they grew, they realised that it was easier to maximise aircraft flight hours by incorporating beach holiday destinations, such as the Canaries with their longer flight durations into their programs.

This led to the dynamic packaging revolution and the creation of low-cost tour operations like Jet2 Holidays, which over the last 15 years has destroyed the traditional charter-based tour operation model, with only a weakened Tui Holidays left remaining.

Low-cost carrier’s 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 dominates low-cost flight sales.

Initially, Low-cost carriers introduced a “First come seating process” to force customers to arrive early at their low-cost but remote departure gates. However, they quickly realised that they could charge for the privilege and the first “Add on” was created in the form of paid-for “Priority/Speedy boarding pass”.

As airline booking technology advanced, this morphed into charging differential prices for different seats on the aircraft and today this is a highly fluid algorithm, based on historic demand for those seats on a route-by-route basis.

The post-Covid-19 restart issues of airports and the difficulty of checking hold luggage, has been a massive bonanza for airlines like Ryanair, who 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 2 items of luggage which is often sufficient for a short holiday.

Recent industry statistics show that flight “Extras” now represent 40% or more of the average flight 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 different airlines. However, research shows that 80% of customers only compare the lead flight prices of airlines, assuming most airlines charge the same for pre-booked seats, luggage, and speedy boarding extras. They are clearly wrong and Ryanair seems to have mastered the low-price “hook and add” methodology better than most.

To be fair, I am not aware of any customers complaining about this “Add what you need approach” and not surprisingly other travel sectors are now joining in.

Airports now charge a £5.00 drop-off and pick-up fee to access the airport by taxi or car, whilst charging customers to bypass the worst of their inefficiencies with a £5.00 fast track security or passport control fee. The income from these fees must now be close to overtaking the landing fees they charge to airlines, but customers have accepted it.

Tour operators have been relatively slow to adapt this extra’s model, but many years ago did remove “transfers” from the basic holiday price, on the basis that it allowed customers a choice of continuing to be herded onto transfer buses or to book private taxi transfers.

They also operate their own price tricks such as “Free kids”. In the small print, it says that these do not count towards “occupancy” in self-catering rooms, allowing them to in effectively recover 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 double sun beds and “Cabanas”, in the best spots by the pool. You could soon find a booking tool in hotel rooms, that saves the 7 am alarm call to get your towel on a lounger, by making them all bookable for a fee the night before.

So, what could be next in this “Hook and add” game?

Could airlines sell standard weight tickets and introduce “Super Scales” at checking to measure not just the weight of the luggage, but the size of the humans they are transporting?

If Michael O’Leary is willing to consider charging £1.00 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 only continue to get more sophisticated as it will be a brave airline that bucks the trend and reverts to all-inclusive flight pricing.

However, in the holiday sector, Jet2 Holidays have bucked the trend by including 23kg of luggage and transfers as part of their ultimate holiday package, so it’s clear that even in this price-conscious sector product differentiation can allow a premium to be charged.

Who’s right and who’s wrong will only emerge over time, but even though I hate to admit it, so far Ryanair does seem to be a consistent winner.

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