• Thursday, May 23, 2024
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BusinessDay

Luggage charges turn cash cow as airlines tackle rising costs

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Domestic airlines are increasingly getting passengers to pay for their luggage in a bid to raise extra cash to offset high jet fuel costs in Africa’s most populous nation.

Airlines that have explored the ‘luggage pay’ option are Green Africa, and more recently, Value Jet and Air Peace.

For instance, the standard flight of Green Africa and ValueJet now allows hand luggage of only seven kilograms (kg) and charges for any extra luggage.

Green Africa however offers some packages like the Green Africa’s gClassic and gFlex, which allows hand luggages exceeding 7kg but the fares for the packages are higher to reflect the extra luggage.

Same goes for ValueJet airline, whose Value saver, Value Xtra, Value Plus and Value Premium also have higher luggage allowance but come with higher fares.

Air Peace which used to allow 23kg per passenger luggage on local destinations has reduced it to 15kg, charging passengers for the difference.

For extra luggage, airlines charge as high as N1,000 or more per kilogram. On a single flight, airlines can realise millions of naira on luggage charges alone.

Experts in the aviation sector explained that the more the luggage on an aircraft, the more the aircraft consumes fuel. Hence, the model airlines are adopting to cushion the effect of rising costs on their operations.

“There is a direct relationship between weight and fuel burn in flight operations. Travellers once flew without paying anything extra for checking a bag. Airlines first introduced bag fees in 2008 as fuel prices soared,” Samuel Akinyele Caulcrick, former Rector of the Nigerian College of Aviation Technology, Zaria and Aviation Consultant, Merchant Express Cargo Ltd said.

Caulcrick said that one of the reasons why seat occupancy is low on local flights is the cost of tickets, comprising many charges – including fuel surcharges.

He explained that the fuel an aeroplane burns on a flight is weight-dependent – the heavier an aircraft, the more fuel it burns.

“One of the pricing models is to lower the basic airfare ticket to improve patronage, and then lower the free baggage so that any travelling heavier would pay for excess luggage that would have increased fuel burn, in the first instance.

“Those who travel light would only pay for the basic flight air fare (less), thereby the first consideration of lower ticket fares will increase seat occupancy and those who choose to travel heavier will pay the additional. The focus is to boost passenger figures at no cost to the airlines and make the cost of operation efficient. It’s about volume to maximise seat occupancy which is the basic operation costs optimisation,” Caulcrick said.

He said most American airlines now use it for efficient cost control since the more weight one brings on board, the more fuel they consume making passengers pay for their choice.

BusinessDay’s check shows that excess baggage policies appear to vary between both the type of airline and the route being served. For example British Airways and Virgin Atlantic both operate a one-off fixed fee for each piece of luggage that exceeds the prescribed limitations irrespective of the amount by which it is exceeded.

However, weight-based charges appear much more common within the low-cost segment, examples of which include EasyJet’s policy of charging GB£6.00 per kg of excess weight and a respective charge of GB£5.50 for Ryanair passengers. Per-kilo charge policies represent an important source of additional revenue for low-cost carriers.

Sindy Foster, principal managing partner, Avaero Capital Partners told BusinessDay that Low Cost Carriers (LCCs) started the unbundling of fares and typically had a price for the seat with hand luggage only.

“Then if you wanted to check-in bags it cost extra. They also went on to include some bundled options of the seat with hand luggage and checked luggage. If you didn’t buy checked luggage in advance, it would cost you more at the airport. This was standard for LCCs. It was later adopted by legacy carriers as a way to unbundle prices and give more options. The same applies for extra baggage on top of luggage allowance,” Foster said.

She said the adoption of this model by domestic carriers is more of a change of business model as they were missing out on potential revenue, adding that this is not a recent change.

“It gave passengers choice and more flexibility. It also gave airlines more fare options. Lower fares are always more attractive to passengers, but sometimes passengers prefer the ease of a bundled price. Because some people realised the overall cost was not that dissimilar to legacy carriers if they added everything in.

“The reality is that before this change passengers were paying the same fare regardless of whether they had checked in bags. By giving people the option it works both for the airline and for the passenger,” she added.

BusinessDay’s findings show that aviation fuel currently take about 45 percent of operating cost; labour, 17 percent; aircraft rent and ownership, 8.5 percent; non-aircraft rents and ownership, 7 percent; professional services, 4.5 percent; landing fees, 2 percent; food and beverage, 1.5 percent; maintenance materials, 13 percent, and transport related, 1.5 percent.

It cost about $3,000 to operate a B737 aircraft on a one-hour flight when aviation fuel was less than N100 per litre about five years ago. Similarly when aviation fuel increased to N200 per litre, airlines operate a B737 aircraft at a cost of about $6,000.

BusinessDay’s findings show that with the current exchange rate and increase in aviation fuel, which currently cost about N1,300 per litre, airlines operate a B737 aircraft for over quadruple that amount.

BusinessDay’s findings show that a one way economy class ticket from Lagos to Abuja which cost N55,000 few months ago now cost between N100,000 to N150,000 on Air Peace; N90,000 to N160,000 on United Nigerian Airlines; N70,000 to N130,000 on Dana Air and N170,000 to N200,000 on Ibom Air.

Green Africa charges as high as N100,000 without luggage on the Lagos-Abuja route, while ValueJet charges an average of N75,000 without luggage.

A one-way economy class ticket from Lagos to Port Harcourt which cost about N55,000 some months back, now cost N105,000 to N160,000 on Air Peace, N85,000 to N100,000 on United Nigeria Airline, N65,000 to N125,000 on Dana Air, N96,000 to N130,000 on Ibom Air and N86,000 to N170,000 on Arik Air.

Alex Nwuba, CEO of Ghana based Smile Aviation and former CEO of Nigerian based Associated Airlines said that LCC works on a low ‘cost’ model with consideration on cost components such as hedged fuel and forex, low airport charges including service providers at specified airports, predictable currency with trends and sometimes airport incentives, which translates to ability to reduce fares.

Nwuba explained that there is the customer and cultural concept in Nigeria where customers think airlines that charge extra for everything are fraudulent and they do not become repeat customers.

He said any chance at the LCC market requires education and reorientation.