The Hindu Business Line : Low cost. High tension.

One day last week, I took one of those new-fangled call cabs to the international Airport here in Mumbai. The wife, thanks to her conventional career choices in the area of finance and banking, was off to Hong Kong for a week on work. Thanks to the recent unrest in the city, particularly the lashing out against cabbies, I did not want to risk one of the regular black-and-yellow cabs.

The cabby was a nice chatty fellow who gave me a rather detailed low down on the economics of the call cab business. That particular discourse I will save for another column. But towards the fag end of our trip, he suddenly asked us how much we were paying nowadays for domestic flight tickets.

We told him we were paying some two-and-a-half-thousand bucks for a one-way ticket to Delhi. And four-fifths of the fare was just taxes, surcharges and other mysterious fees.

“Do you know why you are paying all those charges?” he asked, grabbing glances at us in his rear-view mirror. He did not wait for us to answer.

“All the private airports owners are passing on their costs indirectly to you through these fees and all. Customer only pays for everything.” We nodded along trying not to show our scepticism at his over-simplification. Yet, something that happened earlier in the week did seem to give some weight to our cabby’s insinuation.

Seating fee

I was on an airline Web site booking tickets for a wedding in Delhi and had just picked my flights. The regulation button appeared asking me to choose my seats if I wanted to. Of course, I did. The right seats with good legroom and maximum recline angles can make even the tardiest low-cost jet bearable.

As soon as I had picked seats for the to and fro flights, a little popup window appeared that had me completely surprised. The box asked me to fork out an additional 200 bucks as “Seating Allocation Fees.”

This had never happened to me before. I had always taken for granted the option to choose my seats whenever I could while booking tickets online. I had never been asked to pay for it. I was scandalised. I immediately clicked the option to ignore my selection and completed the transaction as is. (I did keep an eye open for other fees and charges though. Once bitten, twice shy and all that.)

Low-cost travel

Ever since Captain Gopinath made air travel accessible to all with Air Deccan’s launch some five years ago, we have all gotten used to the pleasures, and eccentricities, of low-cost air travel.

No doubt that air travel has grown by leaps and bounds since then. And to an extent it has helped to highlight and, therefore, improve the shortcomings in our civil aviation infrastructure. Burgeoning competition has helped to keep fares low and supply high. Both perhaps unrealistically so.

Yet there are signs that things are soon going to get very complicated indeed.

World over, low-cost airlines have evolved in very set patterns. And a quick overview of mature low-cost markets indicates that ancillary revenues will soon become a big part of low-cost airline revenues in India as well.

Ancillary revenues

This means that just like I was asked to pay up to choose seats you can soon expect to pay extra for luggage, call centre use and other such services. All these little bits and pieces receipts fall under the heading of ancillary revenues.

This concept owes its popularity to one of the most successful low-cost airlines in the world. Ryanair is one of Europe’s leading low-cost airlines. The airline carries over 40 million passengers a year and racked up profits of 330 million euros for the first half of this financial year.

In 2001, during an interview, Micheal O’Leary, CEO of Ryanair, stated their strategy of focusing on ancillary revenues to pump up profits. He even outlined the vision of a future where the passenger literally travels for free while the airline makes revenues from several small transactions including fees for checking-in, luggage, seating, food and drink, shopping, on-board entertainment, hotels, cabs and so on. (Which means if you are an easily amused individual with low hygiene standards and slow metabolism, you can expect to see the world for peanuts in the near future.)

At the time his statement was met with ridicule. But over time, as fuel prices went up, competition intensified and fares dropped, the whole industry has adopted the idea of ancillary revenues wholeheartedly. Today 16 per cent of Ryanair revenues come from such sources.

Will the scene in India be any different? Not really. The airlines are facing much the same pressures here too. And infrastructure constraints are making things even more difficult for them. If they intend to stay alive and keep making money, then they will try to monetise as many services as possible. We already get over-priced food on-board. Cancellation charges are a thorny issue. Seat allocation is the latest ancillary.

Surely more charges are on their way as well.

But the airlines will do well to be cautious. Ryanair was voted the least favourite airline in the world by a travel Web site recently. And much of the ire came from poor service and messy charges and fees.

The ancillary game comes with a price. I sure hope the passengers don’t have to pay up for that one too.

(The writer, an alumnus of IIM-A, was a management consultant before quitting to work as a freelance writer, author and general handyman. He blogs at www.whatay.com)

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