What s Happening with Airline Ancillary Fees?

WHAT TRAVEL PAYMENT IS ALL ABOUT. What s Happening with Airline Ancillary Fees? June, 2011 OVBTA Education Day Aaron Kelling, Executive Vice President for AirPlus International Ancillary Fees - 2010 P. 1

Agenda 1. Ancillary Fees - Status Quo 2. Solutions Discussed 3. Your Role 4. Q & A P. 2

Agenda 1. Ancillary Fees - Status Quo 2. Solutions Discussed 3. Your Role 4. Q & A P. 3

Ancillary Fees include: Checked bags Onboard internet access In-flight meals & beverages Preferred seating Airline club access Upgrades Standby fees Overhead bin space Pillows & blankets Seat assignment fees Onboard entertainment P. 4

The Cost - $22.6B Collected in 2010 and Rising* It is difficult to quantify the cost of ancillary fees: Prices change frequently amount collected has doubled since 2008 Airlines have different products: (examples) Spirit recently introduced fees to use onboard overhead bin space British Airways charges for advance seat assignment US Airways fees collected equal to their profit in 2010 Corporations are trying to understand the impact of these fees Some studies show that ancillary fees represents only 1% of air costs**, some up to 30%*** Latest Concur study shows the cost at 2.3% of air cost ** Worldwide estimate - 2010 Amadeus Guide to Ancillary Revenue by IdeaWorks **TRX (as reported in The Beat) ***NBTA 2010 U.S. Business Travel Buyers' Cost Forecast. P. 5

The Cost - $3.4B Collected in 2010 in baggage fees along for US airlines* It is difficult to quantify the cost of ancillary fees: Many fees are waived for elite flyers but not always the case Continental charges Gold & Silver Elite members for standby US Airways charges even Chairman s Preferred members (100K a year flight miles) for select coach seating Some fees can be paid via the GDS Each airline determines what fees can be purchased through the GDS, premium seat fees is most common What is considered an ancillary fee? Change fees are often included in published figures Are ticket related fees, e.g., change fees, even considered ancillary? * Associated Press June 13th P. 6

Key Findings 2010 NBTA Survey 58% of respondents were not aware of the total amount spent on ancillary fees 61% said it was very important to know the total cost of a trip 75% stated the most important reason to identify/track fees was to utilize this information for future negotiations 86% indicated the industry should develop an industry standard P. 7

Fees, Fees, Everywhere! P. 8

Ancillary Fees What is the impact on your program? Policy & Compliance Should policy be developed for ancillary fees? Will it prompt travelers to use a service they would not normally use? Once added, do you have the manpower and reporting in place to enforce it? Cost Impact & Budgeting Projecting traveler use of services is difficult Data doesn t currently associate service purchase with specific trip/project Fees are adjusted frequently Expense Process & Reporting Expense systems must be changed to provide new categories Airlines should enhance reporting for their corporate customers Enhanced Corporate Card reporting to support program needs Source: Deloitte P. 9

Data on Fees Provided to Card Companies - CO P. 10

Data on Fees Provided to Card Companies - UA P. 11

Data on Fees Provided to Card Companies - AA? P. 12

These fees were once bundled and already included in the ticket price. Now, as airlines begin to unbundle these fees, a new reality emerges for our industry: Pay for what you use! P. 13

Airlines have unbundled services P. 14

Bundled Fee Packages - Now airlines are bundling fees Not all bundled fee packages include the same ancillary charges: This creates added layers of difficulty for managing policy Example: United offers several packages today but some include club passes which are typically not allowed in a travel policy. How would a corporate travel manager know? Would you like to value size that? P. 15

Everyone is working towards a solution but not together! GDS s - Building merchandizing platforms ARC- Released EMDs (4Q10) IATA has set a deadline to standardize fees in 2012 ATPCO has introduced standardized codes for ancillary fees P. 16

Agenda 1. Ancillary Fees - Status Quo 2. Solutions Discussed 3. Your Role 4. Q & A P.17

Two Parallel Paths: PoS and Credit Card Reporting Industry Proposed Solution and Alternatives ATPCO GDS ARC TMC File fares with ancillary products Already testing Display options Multiple products EMD Agency Reporting P. 18

The industry is focused on a point of sale solution POS The industry including airlines & GDS s are focused on pushing a point of sales data solution but will require travelers to change the way they buy ancillary services CARD Getting the data from your from your card is more practical and doesn t require travelers to change when & where they pay for ancillary services P. 19

Considerations Point of Sale Purchase Data Not all buying decisions are made at the point of sale Merchandising can vary by airline Technology needs to support merchandising Industry economics Processing changes/cancellations postpurchase Will the Government Step In? No tie back to the original ticket number Merchant transaction data is inconsistent Current IATA standard not widely adopted Standards do not address all issues Corporate card utilization is critical P. 20

ARC has introduced the EMD EMD was released in 4th quarter 2010 GDS merchandising platforms need to be finalized Each airline will have discretion on which fees can be paid at point of sale Agencies will have to adopt new policies, pricing & procedures to facilitate point of sale fees The WHAT IF s. I decide to check a bag after I buy my ticket, who do I call to add a bag? My flight gets cancelled, how do I get a refund? What happens if I am rebooked on another airline, does my fee follow me to? P. 21

Concur s Solution for Reporting of Ancillary Fees Concur identifies a charge coming from an airline based on merchant code or employee entry if not using a card feed If a charge is under a company-defined amount, the expense type is automatically entered into the expense report as other airline fee The employee is prompted to choose one of six sub-fee expense types: Baggage, Upgrades, Seats, Airline Club, On Board, Other Policy audit rules can be associated with each of the fee types Fee reporting available P. 23

Example Report: Summary By Merchant Report P. 23

Tracking fees http://www.exploreflightfees.com/# P. 24

Party of Three The Silver Bullet Collaboration in place between AirPlus, Concur and Continental Airlines to develop a solution Weekly calls to discuss changes and announcements Technical calls to develop solution Communication strategy to spread the word and get maximum visibility P. 25

Critical Components for a Solution Standardization across the industry Airlines sending the data in a standard format differentiating for all types of fees The data needs to be the same regardless of point of purchase Ancillary fees need to match to the original ticket Transparency of services required throughout the buying cycle Point of Sale support of fees are more complex and may take longer to evolve Focus on corporate card solution can be a quick resolution P. 26

Agenda 1. Ancillary Fees - Status Quo 2. Solutions Discussed 3. Your Role 4. Q & A P. 27

What are your thoughts? Is it important to you to have visibility into these fees? What will you do with the info if you get it? What information do you need? Will having the information change the behavior of your travelers? Where will the decision to accept a service for a fee be made during the original booking process, pre-trip, during the trip or on-board? P. 28

Voice Your Opinion Remember YOU have a voice! Share your ideas with the industry -Talk with your vendors Urge for a common solution to be found to resolve this issue Encourage the development of a total cost calculator to provide greater transparency to what fees would be charged - help make better buying decisions P. 29

Things to Keep In Mind Ancillary fees are here to stay This not just a domestic issue, it will continue to grow globally Elite flyers will not be exempt from all of the fees It will most likely get worse before it gets better P. 30

Agenda 1. Ancillary Fees - Status Quo 2. Solutions Discussed 3. Your Role 4. Q & A P. 31

Q & A P. 32