No widespread solution has emerged to the lack of transparency in the booking and tracking of airline extras — but the situation shows signs of progress

Published: 13 May 2011

No widespread solution has emerged to the lack of transparency in the booking and tracking of airline extras — but the situation shows signs of progress

Charging extra fees for airline services — such as checked baggage or meals — that were once included in the price of airfare has been common among European budget carriers for a decade and traditional U.S. carriers for three years. Yet corporate travel managers still struggle to identify what was purchased with these ancillary fees because most airlines do not provide details about the charges. The result: When a $20 charge from an airline shows up on a corporate expense report, a travel manager has no way of knowing whether the money was used to check a bag or buy cocktails.

“I don’t think there has been any significant progress since ancillary fees were introduced,” says Julie Thomte, vice-president for Advito, the consulting division of BCD Travel. “There has been an exponential increase in the importance of unbundling to airlines, but they have not made any progress in introducing transparency, which continues to cause considerable buyer frustration.

“Understanding the full amount of ancillary spend is essential to detecting fraud, waste and abuse,” she said. “It also better ensures accurate planning and budgeting and assists with supplier negotiations.”

The problem has two main causes. It is hard to track ancillary fees using existing technology tools. And some airlines appear to be dragging their feet on changing an ancillary-fee system that is generating extraordinary revenue.

Technology on the table

With only a few exceptions, “optional” items such as extra bags or preferred seating cannot be booked and accounted for when a business traveler’s flight is booked through a global distribution system. And even if that were possible, travelers often buy their extras closer to departure, such as when they check in online or arrive at the airport.

Some travel industry players say making ancillary items bookable and trackable through GDSs is the right approach. Two principle industrywide solutions are under development:

• Options codes
  Options codes have been created by ATPCo, the Airline Tariff Publishing Co., which the airlines own and through which they file base fares. The codes can be used to categorise ancillary fees that are then loaded into GDSs. However, according to an April report in Business Travel News, only 27 of the 460 airlines that file fare data with ATPCo have gone live with filing optional services, a figure that has not increased in the past year.
• Electronic Miscellaneous Documents
  Electronic miscellaneous documents, or EMDs, serve as the equivalent of electronic tickets for ancillary services. However, only a handful of airlines are using them. Conspicuously absent are the primary practitioners of unbundling, including the major U.S. carriers and European low-cost airlines.

At an impasse

Airline critics blame the carriers for the impasse over making ancillary fees more visible. They contend that airlines don’t want their pricing to be transparent or their fares and fees easily compared, lest it negatively affects traveler buying decisions.

Ancillary fees have become big moneymakers for airlines. In the midst of a global economic downturn, revenues from ancillary fees shot up an estimated 120 percent between 2008 and 2010, according to the Amadeus Guide to Ancillary Revenues, released by consulting and research firm IdeaWorks of Shorewood, Wis. IdeaWorks predicts airline revenues for ancillary fees will total U.S. $22.6 billion for 2010 once final figures are tallied. The U.S. Department of Transportation reports baggage fees alone generate one-third of all ancillary fees collected.Some airlines say they would participate in an industry standard for ancillary fees if more GDSs used the ATPCo options codes. Other carriers say they don’t agree with the options code model because it further tethers them to GDSs rather than promotes their plan to establish so-called direct connects to TMCs and corporate customers. While some airlines believe direct connects hold the potential to reduce distribution costs and give them greater control over how they tailor products for different customers, no direct connect offerings to date have proven a cost benefit to corporate buyers. Despite promising new technology, GDSs still represent the most efficient channel for managing corporate travel.

Industrywide ripples

While airlines are at the center of the debate about making ancillary fees more transparent, the reality is that fully booking and accounting for ancillary fees would have repercussions beyond air carriers. Travel management companies too would have to adapt their processes and technology tools, as would the corporate card industry — a change that could involve hundreds of financial institutions.

What’s more, technology solutions now being developed will not necessarily solve the problem of travelers buying ancillaries after they book flights. Some of the technology involved in post-ticketing ancillary purchases may be the same; for example, an airline could issue an EMD for ancillary sales at the airport. But the data could be lost unless card companies become involved in the process. Mobile service providers also will become increasingly important as employees use mobile tools for their travel requirements.

“Unfortunately, only a limited number of solutions provide tools that can capture ancillary spend,” Thomte said, “and the true costs of ancillaries remain hidden within this complex set of industry dynamics.”

Breaking the deadlock

In spite of the frustrations, there are some signs of hope: GDSs claim negotiations with airlines are under way, and they expect to see more success in unbundling ancillary fees by the end of 2011. In addition, a limited number of airlines — easyJet being one example — are making ancillary fees available to GDSs through application programming interface connections, or APIs. This approach may provide an alternative template for moving forward.

The International Air Transport Association has mandated that by the end of 2012, airlines must adopt electronic miscellaneous documents as the accounting mechanism for charges such as cancellations and amendments. This is expected to speed the use of EMDs for optional unbundled items, as well.Policymakers and trade groups are getting involved, too. On April 20, the U.S. Department of Transportation issued a rule requiring carriers to disclose ancillary fees on their Web sites. A decision on whether to require airlines to make data on optional fees available through GDSs has been deferred until later in the year, but regulatory pressure is growing to make fees more transparent.

The Global Business Travel Association released a statement in April encouraging the Department of Transportation to move quickly to require airlines to provide ancillary fee and fare information on any platform selling airline inventory, not just airline Web sites.

Finally, some have sidestepped the industrywide impasse through workarounds. A few corporate clients are reporting that preferred carriers are beginning to provide them with data about expenditures on ancillary items. “An industrywide solution is likely to be three to five years away and will require all points of sale to offer clear and consistent coding of ancillary spend,” Thomte said. “In the interim, travel managers will need to use existing third-party systems for insight into and oversight of ancillary spend. They will need to find creative ways to monitor, track or mitigate unauthorised ancillary spend.”

(This article has been contributed by BCD Travel).