Unbundling of services and fees by airlines

Default, Featured — By on May 19, 2013 at 5:50 pm

avhapril1The decision to allow airlines to unbundle services was taken in line with a report formulated by Nathan Economic Consultants — ‘Economic Regulations to Airlines : Ticket Pricing in India’. Nathan Economic Consultants in their report have recommended unbundling of services “since it has become a necessary aspect of exercising more control over operational costs and running a successful airline”. Globally, scheduled airlines are permitted to unbundle services and levy a charge for each of the unbundled services. These are called “Unbundled Flight Products” or a la carte pricing

According to travel technological solutions firm Amadeus, airlines globally are said to have generated around $36.1 billion in ancillary revenues in 2012. Following the western style, the Directorate General of Civil Aviation (DGCA) framed and allowed Indian carriers to charge passengers for add-on services like their foreign counterparts. The new rule “ Unbundle of services and fees by scheduled airlines” came into force from 2nd May 2013 . “Customers should have the choice to opt in for preferential seats. Besides, the middle seat in an aircraft cannot be termed a preferential one. There would be a cap on the number of preferential seats an airline can offer in a flight,” report from a senior DGCA official.

Following services are allowed to be charged separately:

a)Preferential seating

b)Meal/snack/drink charges (except drinking water)

c)Charges for using airline lounges d)Check-in baggage charges e)Sports equipment charges

f) Musical instrument carriage

g)Fee for special declaration of valuable baggage (allow for higher unit on carrier liability)

DGCA is empowered to monitor the levy of charges for such services/flight products under Rule 135 of the Aircraft Rules, 1937 and such services come under tariff as per the definition provided under Section-5 of the Aircraft Act.

However, the levy of such charges will be based on the following principles:-

1. Safety, schedule and reliability not to be compromised.

2. Services permitted for unbundling shall be distinct with a clear description and without any ambiguity.

3. Services to be provided on opt-in basis and not on optout basis i.e. customers should be given opportunity to pick and choose which amenities they want to receive and pay for.

4. Charges for unbundled services shall be a fixed amount and announced well in advance by the airlines which shall not vary with the base fare for a particular flight.

5. The key guiding principle shall be adequate disclosure and transparency on the part of airlines on the websites, online travel portals and travel agents so that the consumers maximize the informed choice.

6. Airline to file details of services to be unbundled and fee charges for the same to DGCA in terms of product description, charges/fee, manner of disclosure to public, terms and conditions etc.

7. DGCA may not fix fee for unbundled services but shall have the right to intervene and stop charging if regulatory principles are violated by the airlines.

Expecting to improve operating costs of airlines, the government had allowed Indian carriers to unbundle many services and charge these separately. The airlines would have to submit the details of various charges for such services. DGCA will monitor that the fees are not altered unlike air fares for flights. The decision is expected to open up additional revenue streams for airlines — from check-in baggage, use of lounges by economy class passengers for a fee, carriage of sports or musical equipment, etc. While airlines have welcomed the dismantling of regulatory control, opinion has been divided on whether the decision would result in spiralling upwards air travel costs. Some experts have held that since 80-85 per cent of an airline’s operational expenses are fixed in terms of fuel costs, airport charges, salaries payable to crew members and payments made to aircraft leasing companies, there is little room left for airlines to lower base fare despite the ministry’s decision to unbundle services. “Base fares are likely to reduce with the unbundling of services “ Biji Eapen , national president of IATA Agents Association of India opined. He continued that Indian Aircraft Act 1934 and Aircraft Rules 1937 defines that the cost or charges involved in the carriage of passenger and their baggage are included in the base fare which forms the tariff . Hence, as per Indian aircraft rules, any additional charges on baggage will be a violation of the national law. One side government makes the law and other side they themselves unbundle same” . Interestingly, all these developments happened after the announcement of the low cost airline Air Asia’s Indian operation and local connectivity. The entire revenue of Air Asia is from check-in baggage, preferential seats, in-flight meals and entertainment, while keeping its base fare low without publishing the high fuel surcharges “Internationally, around 10 per cent of capacity is earmarked preferential in airlines. In India, every window and aisle seats can be marked for pre-booking in lieu of a specified fee, two-thirds of in-flight capacity can yield ancillary revenues!” Saldanha S, national treasurer of IAAI from Mumbai remarked. Two airlines –Air India and Jet Airways already lowered free baggage allowances for domestic passengers to 15 kg from 20 kg and excess baggage will be charged at Rs 250 per kg. Premier seats charges been hiked to Rs 800 from Rs 500 by Indigo on international sectors.

Comments are closed.

Rss Feed Tweeter button Facebook button Linkedin button Delicious button Digg button Flickr button