How did low-cost carriers managed to turn extra charges to an incredible cash machine, avoiding a tragic fall due to their poor financial results? Credit card booking, food and beverages on board, priority boarding, seat choice, insurance... almost everything with low-cost carriers is 'ancillary revenue'. These revenues are not ‘bonuses' for carriers, but essential to offset the low prices of tickets. Jay Sorensen, President of IdeaWorks declared: "The sickly patient known as the world's airline industry suffered through 2008 and only survived due to dramatic schedule cutbacks, the slow reversal of fuel prices and an intravenous injection of ancillary revenue." Now, the time is running out to find new best ideas to make passengers consume the most.

A study led by IdeaWorks revealed the total raised by Ryanair through 'ancillary revenue' soared by 73 per cent between 2006 and 2008 to hit 622 million Euros a year. They amounted to 19.3 per cent of Ryanair's total income, which ranked the Irish carrier in second place worldwide for that standing. SWOT analysis and recent announcements of Ryanair are clear: they will raise fees everywhere possible, challenging customers and their travel habits. Even if some announcements were clearly a part of the smart PR, like charging for toilets on board or the 'fat tax' on passengers, others are already ongoing. For instance, from October 1^st, Ryanair declared it would increase its luggage charges by 50 per cent, which will force passengers checking in two bags to pay about 100 Euros per flight (30 Euros for the first bag and 70 Euros for the second one). Passengers, who don't hold a Visa Electron card, will have to pay 10 Euros extra, 6 Euros more per flight for priority boarding...

Short on new ideas, Ryanair decided to ask their customers to give them some. That's how Ryanair launched a 1000 Euro game, last March, for best idea on making money with 'ancillary revenues'. Most of the ideas were just for fun, but at least Ryanair knows how to communicate and use social media for the business.

However, these 'ancillary revenues' are often considered as 'stealth charges' by local authorities and consumer groups. For instance, the regional government in the Balearic Islands has started legal proceedings against Ryanair for its 'hidden charges'. Officials from the government's consumer protection department noticed that Ryanair was charging passengers who had bought tickets online 19 Euros extra for a boarding card and 19 Euros for each bags checked in at airports in Mallorca, Minorca and Ibiza, which is a breach of consumer protection regulations. Similar legal proceedings have been taken against Vueling.

Few days ago, the Agencia Catalana de Consum (ACC) has opened files against Ryanair, easyJet and Vueling for the same reasons. ACC declared to have received almost 1700 claims for the first seven months of 2009, and expects more to come after the holidays (Ryanair focusing 50% of total complaints filed so far). 20% of these claims concern the billing charge for luggage, considered as an "abusive" practice by the ACC, because it leaves no alternative to the customers booking an Internet flight. Article 97 of current regulation (Act 48/1960) stipulates that "the carrier must carry along with travelers, and within the price of the ticket, baggage, with the weight and volume set regulations. The excess will be subject to special provision. The objects and hand luggage that travelers carry can't be considered baggage to this effect". Joaquim Bernat, Head of department Regulation & Proceeds of ACC, declared: "The law is clear in this regard (...). So we're going to punish, because we consider it illegal".

Low-cost carriers disagree with these legal proceedings, but the stake is important for them. If they lose their trials, this will have a significant impact on their business, as more bags means more ground handling staff and more expenses. Furthermore, if these legal actions are successful, these low-cost carriers could face fines ranging from 2 870 Euros to 286 800 Euros.

Authorities are not the only ones in the front line. Consumer groups regularly points out low-cost carriers and their 'hidden charges'. In June 2009, Which? Holiday, a consumers watchdog in the UK, has reported that passengers were automatically charged for travel insurance by airlines, in breach of a European Union ban on the practice. This report specifically points out three low-cost carriers: easyJet, Jet2.com and Monarch airlines, which are all adding the insurance fee when passengers book online. Usually, consumers do not notice the insurance fee, and end up paying it. Which? Holiday also published a report last year about ancillary revenues of low-cost carriers, especially lunch on board. "Food and drink onboard no-frills flights can cost almost half as much as the actual flight", warned Which? Holiday. The consumer group found Ryanair to be the most expensive, Flybe was the second most expensive, and BMIbaby was the cheapest.

James Fremantle of airline watchdog the Air Transport Users Council said: "There has to be a limit to the charges that the low-cost carriers are dreaming up to impose on consumers. Families and the elderly will find it much harder to avoid them". Even some analysts denounced these practices: Bob Atkinson, expert of TravelSupermarket.com, declared: "Easyjet has achieved this result, in part, by confusing customers through a complicated booking process and a series of hidden charges."... The moral of the story: be careful when booking on low-fare carriers, because sometimes you might end up being charged for a lot of 'extras' that you didn't know about, nor need.

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Matthias, WhichBudget Airline Market Analyst

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