All-inclusive vs à la carte: finding the best-value airfare is never straightforward

The lure of buying a ticket from a low-cost carrier can be tempting for any budget-conscious traveller. But the process of booking a flight, can be a mixed experience, reports Ritesh Gupta.

Once you have chosen a route, the price you are shown mainly consists of base fare and taxes. And it is no real surprise to see options to pay for add-ons from there on. But, it’s the seemingly never-ending extras or even the different ways each airline offers the same thing that can be frustrating. In the end, if your base price plus add-ons (such as paying for seat, luggage, meals and so on) still fits your budget, you’ll be satisfied. If it doesn’t, no doubt you’ll look elsewhere.

A couple of months ago, US-based Spirit Airlines announced its new route from Minneapolis to Las Vegas. So this week I tried to book a one-way, non-stop flight for mid June, and found Spirit to be the cheapest - around $100 inclusive of airfare, fuel and taxes. I expected to pay for checked baggage and my chosen seat (between $45-$55 cumulatively) but not for carry-on baggage. However, an overall price of $170 still seemed reasonable value.

Spirit is planning more changes for later this year. The airline has indicated that passengers will have to pay as much as $100 per bag each way if they show up at the gate with a standard-size carry-on bag that hasn’t been paid for in advance. The $100 fee is due to take effect from November 6.

Consumer choice

Most airlines, especially the ones in the low-cost category, now sell what were once considered to be core services, such as checked baggage, seat selection and so on. But the list continues to grow.

These airlines recognise the importance of letting consumers decide what is of value to them. For instance, do they want to pay for only carry-on baggage or would they like to pay for both carry-on and checked luggage? Or perhaps they don’t want to pay for either? Carriers say they prefer to offer their customers the ability to choose what they pay for in addition to base fare and taxes.

The unbundling of airfares and services over the years has seen the growth of ancillary products, such as checked baggage, meals, lounge passes and upgrades. According to the US-based Open Allies for Airfare Transparency (OAAT), airlines aggressively began charging for checked baggage in 2008 and expanded unbundling to include many other services. The revenue stream created from unbundling has turned into a flood, projected to generate more than $32 billion worldwide in 2011, including $15 billion in North America.

Value for money

A recent study by Price Waterhouse Coopers (PwC) found that 65% of leisure travellers value all-inclusive fares over à la carte options. It highlighted that ancillary fees may drive up revenues, but drive out customers. The firm claims that disaggregating ticket prices makes it harder to understand the value of what you are buying. However, providing all-inclusive fares with the addition of premium options can enhance the perception of value. Airlines may target these aggregated prices based on different experience segments. PwC recommended that airlines look closely at what they charge for and how they package fares.

The PwC study raised several points:

  • Offering all-inclusive fares may result in lower margins but lead to long-term benefits as passengers don’t feel short changed during the stressful travel process

  • All-inclusive fares also encourage purchase by making it easier to compare fares, so reducing the complexity of choice

  • Airlines have the chance to differentiate by tailoring fare bundles to customer segments

“Airlines have an opportunity to create travel bundles aligned with a flyer’s known preferences and their purchase history,” says Paul D’Alessandro, global customer impact practice lead, PwC. “Airlines can also determine which flyers represent add-on purchasers and which do not. This insight can help airlines target their bundles to the flyers who are most likely to purchase them.”

For its part, Spirit says it doesn’t want its customers to pay for services they don’t use. The airline could charge more and include everything in a high fare, but that presumes all customers want all options. By lowering the fare for everyone, it is letting the customer decide.

Unbundling can clearly bring benefits to the travel distribution chain at all levels, while offering more choice and more possibilities to the travelling public. As OAAT says, that can only happen if the fees for core services, whether offered a la carte or in packages, are fully transparent and dynamically presented wherever airline tickets are sold. 

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