On Monday of this week, Terry Maxon on his Airline Biz blog reported on the bag fees being collected by the various airlines for the first nine months of 2008. According to the Bureau of Transportation Statistics (BTS), American Airlines collected the most in excess bag fees at $164 million. That equated to $2.30 per passenger based on Mr. Maxon’s calculations.
As if we need another acronym in the industry, but I am thinking we might. We routinely discuss PRASM, or Passenger Revenue per Available Seat Mile. We also refer to TRASM, or Total Revenue per Available Seat Mile. I am now thinking that we will begin to talk about FRASM, or Fee Revenue per Available Seat Mile. PRASM, FRASM and TRASM – Oh My.
But ancillary fees are more than bag fees. Fees for sodas, meals, pillows and blankets along with fees that have been around for awhile like change fees, can probably be found in Transport Related Revenues. This component of the income statement, as reported to the US Department of Transportation, is largely comprised of revenue generated by each major carrier’s respective regional affiliates.
Popular or Unpopular, This Fee Strategy Is Proving Beneficial
These fees have the added benefit of avoiding the ticket tax and therefore fall directly to the bottom line. The US airline industry is already heavily taxed (and seems to get very little in return), so the use of fees by the US industry a very good strategy to address a regressive situation. Somehow though, I am sure that there will be governmental cries to figure out how to tax these fees generated from the unbundling because there would be none if a ticket was not sold.
That would be just plain wrong as, this morning, the administration capitulates and bails out the car industry ignoring the majority of Bob Corker’s tough-minded proposal. FRASM is but one strategy the US industry is employing to address the historic CHASM between passenger revenue and the expense of carrying that passenger from A to B. I sure hope that the tax hungry bureaucrats leave it alone because this is one industry that is actually doing some very good things on its own -- continuing the hard work that began in 2002.
Can Southwest Airlines find enough revenue elsewhere to offset this new revenue stream called FRASM?