Can the ancillary fee strategy work for us?

By Christian Riddell

As the executive director of the Motorcoach Marketing Council, I travel. Some months it is more than others, but without fail, whenever I look at my calendar, I am always about to go somewhere.

As many of you who travel know, the mystique of flying wore off somewhere back when bellbottoms were all the rage, and travel today is more work than it is anything else. I am always surprised when people who hear that I travel a lot respond with, “Oh wow, so glamorous!”

If glamorous means what I think it does (and Uncle Webster seems to agree), that couldn’t be further from the truth. From tiny seats to packed flights and hotel rooms to eating all of your meals out, travel is not for the faint of heart. It’s stressful, crowded, delayed chaos that we pay good money to participate in. The days of, “Hello, sir, welcome aboard! May I take your jacket, and is the chicken entree still okay?” have, over the last decades, become a curt, “Take your seats, we want to leave on time…and I hope none of you brought any peanuts!”

Interestingly, the airlines are more profitable today than they’ve ever been. How, you may ask? How has an industry been able to engineer profits at the same time they’ve been cutting services at every turn?

I was recently asked to give a presentation on increasing profits in a motorcoach business. There are only four ways, I knew, to impact bottom line profits in your business. You can: lower your costs, charge more for what you are already selling, sell more of what you are already selling or diversify your profit centers.

At first blush it sounds simple, and in some cases, it can be. But as I began to prepare my presentation, one of those strategies stuck out more than the others: charge more for your service.

I hold a fundamental belief that we, as an industry, do not charge what we should for our service. Our prices are not commensurate with the risk and asset investments we are asked to operate under. If you have ever been at one of my presentations, this will not come as any surprise. During those sessions, I often ask the audience members if they believe that they could raise prices across the board 20 to 40 percent and maintain their customer base. In the five years I have been asking that question, I can only remember a few who thought they could.

But let’s look at what the airlines have done. In 2008, the airline industry was in trouble. Fuel prices and a lack of customers who still had money to fly were driving their profits into the ground. They knew they needed to do something, but with the country in the early stages of a massive recession, it simply wasn’t the time to raise prices. So what was an airline company to do? The answer came in the form of ancillary fees.

These fees were basically unheard of prior to 2008. When you bought your ticket, you also got things like a checked bag and even snacks on the plane. You could choose any seat you wanted; in fact, if you booked early enough, you could book aisle, exit row or even bulkhead seats.

In the wake of 2008’s shift, all of those things became what are now known as ancillary costs to the consumer. Today we pay for everything—checking our bags, WiFi, movies, early boarding and buying flight mile multipliers.

And how, you may ask, has this little scheme turned out for the airline industry? Good—$82.2 billion good in 2017 alone, to be exact.

So that raises the big question here, the one that keeps rolling around in my head. How can we learn from our cousins in the skies? How can we put the ancillary fee strategy to work for us? How can we raise our rates without raising our rates?

Maybe, for some, it’s fees. WiFi and movie fees, snacks or beverage fees, onboard attendant fees, value-add travel fees. One could even charge for storing luggage under the bus!

While I am not suggesting that we build a model that will nickel and dime our customer base, I am saying that we live in a world where consumers are used to an ancillary fee model. (Ever rented a rental car for $23/day for two days, only to end up paying $118?)

There are a lot of issues in this industry that could be closer to being resolved with additional bottom line revenue coming in. If you are like most operators who believe that a 30 percent price increase to your customers this January is tantamount to professional suicide, maybe it’s worth giving some thought to this idea of ancillary fees. It may not be right for everyone, but for some, it will drive new revenue streams that will help generate additional profits!


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