Airlines now free to charge all passengers for specific seats, extra facilities

Mumbai: Indian airlines are now free to charge all of their fliers extra for choice of specific seats, luggage and use of airline lounges, among other facilities.

Airlines, which were allowed to set aside only a quarter of their seats for such differential pricing, can now charge all customers for these facilities, according to a 23 March circular by aviation regulator by the Directorate General of Civil Aviation (DGCA).

The new rules which unbundled these services are in line with global practices, and could boost earnings from ancillary revenue streams for airline firms.

In June 2013, Directorate General of Civil Aviation (DGCA) had capped the number of preferred seats for pre-booking at 25% of the overall capacity on domestic flights.

The facilities under the ambit of differential pricing include charges for services including preferential seating, meals, snack, drinks (except drinking water), check-in baggage charges, carriage of sports equipment, musical instruments and free for special declaration of valuable baggage.

DGCA cited that unbundling of services and charges have the potential to make basic air fare more affordable and provides customers an option of paying for the services which she wishes to avail.

When DGCA permitted airlines to unbundle services in May 2013, airlines including Air India, IndiGo and GoAir had started charging for choosing preferred seats and lowered free baggage allowance.

Later, airlines had to withdraw these measures as DGCA had introduced a cap on pre-booking of seats.

In November, US-based consulting organisation IdeaWorksCompany projected airline ancillary revenue will reach $49.9 billion worldwide in 2014. This is a rise of 121% from the $22.6 million ancilary revenues in 2006.

Ancillary revenue is generated by activities and services that yield revenue for airlines beyond mere air transport. This wide range of activities includes commissions gained from hotel bookings, the sale of frequent flier miles to partners and the provision of a la carte services, providing more options for consumers and more profit for airlines.

Worldwide, new airlines generate the highest ancillary revenues as a percentage of operating revenue. The percentage of revenue achieved by airlines such as AirAsia, Allegiant, Pegasus and Wizz Air grew to 23.6% from 21.6% for 2013, according to IdeaWorksCompany.

“Low-cost carriers (LCCs) throughout the world typically rely upon a mix of a la carte activity to generate good levels of ancillary revenue. The percentage of revenue for this group was 12.1% and is above last year’s 10.5%,” IdeaWorksCompany said in November. “Examples include IndiGo, Jazeera Airways, Jeju Air, JetBlue, Norwegian and Spring Airlines.”