US AIRLINES RAKING IN BILLIONS FROM SEAT ASSIGNMENT FEES

It took airlines a long time to realize they could make millions from getting economy customers to pay twice for their seat. Once for getting access to a seat via their ticket and the second time when they wanted to sit in a particular seat, and so was born the seat assignment business model.

Selling preferred seats is big business

There are a handful of airlines globally that earn more income from selling ancillary products and services than they do from selling tickets. While this fee-for-service approach started in the world of low-cost carriers, it is now embedded at many legacy carriers that have unbundled fares in the name of giving passengers more choice, with one choice being where to sit, which is not a reference to their class of travel.

The subject of seat assignments, particularly as it relates to families sitting together, somehow made it into US President Joe Biden's State of the Union Address on February 7th, when he said:

IdeaWorksCompany (IWC) is a US specialist consultancy in airline ancillary revenue strategy and regularly reports on developments in the sector. Its president, Jay Sorensen, said those words strongly suggested it was time to review the state of assigned seating fees to determine the scale of activity, how these are implemented and how this ancillary revenue business can be improved.

Last week IdeaWorksCompany (IWC) produced a report entitled Airlines Assign Big Revenue Priority to Seat Selection, which said eight key US airlines generated $4.2 billion from assigned seat revenue in 2022.

The eight airlines analyzed were Alaska, Allegiant, American, Delta, Frontier, JetBlue, Spirit and United Airlines. It may surprise some that assigned seating now generates around 80% of the revenue that comes from checked baggage, which IWC estimates was $5.1 billion for the same eight airlines last year.

Is it too complicated?

The IWC report sets out all the methodology and assumptions made to produce the revenue estimates and also stresses that these numbers are for the US domestic services of the eight researched airlines. They do not include the longer international flights or global carriers, which would add billions more to the revenues generated by seat assignments.

IWC said that Alaska and Delta are not in the following table because they do not allow consumers who have purchased a basic economy ticket to select and pay for an assigned seat.

The report highlights that booking an assigned seat can be complex and may have terms and conditions that, in effect, don't guarantee the selected seat anyway. Sorensen believes these onerous terms and conditions and lack of disclosure "invite regulators to focus on ancillary revenue," which may explain how the subject made it into President Biden's speech.

With seat fees now a billion-dollar revenue opportunity and consumers accepting these as part of the deal, the IWC report lists five ways to improve the seat assignment business.

• Encourage purchase with miles/points and integrate assigned seats as a bonus offer
• Create a product by guaranteeing travelers will receive their assigned seat or get an automatic refund or equivalent
• Accommodate families by guaranteeing an adult and child will receive no-fee assigned seats in the booking path
• Simplify seat maps by marking each seat with a price that implies value
• Reduce and simplify the rules and decrease complexity.

The IdeaWorksCompany reports are produced with the support of CarTrawler, a global B2B provider of car rental and mobility solutions to the travel industry. CarTrawler's technology platform expands ancillary revenue opportunities for airline and travel partners, including United Airlines, easyJet, Alaska Airlines, Emirates and American Express.

Do you pay for seat assignments? Let us know in the comments.

Source: IdeaWorksCompany

2023-05-29T01:41:04Z dg43tfdfdgfd