The Associated Press’ Scott Mayerowitz recently wrote that airlines are moving from just charging fees for things that used to be ‘free’ (bundled in with the cost of your ticket) to offering value-added services for an extra charge. In other words, there’s a shift to actually offering things that make travel better as a way of generating more cash.
There’s some element of truth to that. Another thing airlines are doing is offering both things that used to be free but now are charged a la carte together with services that can make your travel better, overall less expensive, or more comfortable in bundles you can purchase together — sometimes for less than the cost of buying them separately.
The New York Times‘ Stephanie Rosenbloom helps sort through when these packages are worthwhile.
Sometimes the bundles are for a single flight, like American offering fares that include no change fees, checked bags, and bonus miles (sold mostly on their website though since these are actual fares they can be sold anywhere) and sometimes they are a single benefit valid for a person over time like United’s economy plus package.
Delta is selling a suite of benefits normally akin to the lowest level of elite status, and that you can get with a premium co-branded credit card. And those can be a better deal than bundles.
In general, the subscriptions “give people access to the kinds of stuff that airlines give at no cost to their bottom-tier frequent fliers,” Mr. Leff said.
So instead of buying a subscription, consider paying the annual fee for an airline co-branded credit card, which will duplicate a lot of the same benefits as a subscription. Many airline credit cards, for instance, give users priority boarding along with other perks like a free checked bag.
Why offer bundles? Because airlines make more money that way.
“This really is what the cable companies do,” said Gary Leff, a founder of Milepoint, a frequent-flier forum, and the mileage-award booking service Bookyouraward.com.
Airlines are experimenting with subscriptions and bundles at a time when they are raking in money thanks to fees for à la carte add-ons like early boarding and roomier seats. Their collective ancillary revenue from these amenities is now more than $27.1 billion, more than doubling since 2009, according to a new report by IdeaWorksCompany, a consulting company.
I explained the economics when American introduced their Choice fares last December:
It’s just like buying packages from your cable television company. One person values CNN at $100 and ESPN at $10. Another values ESPN at $100 and CNN at $10. If you bundle the two channels together you can sell them for $110, and earn $220. If you price them at $50 each you sell ESPN to one person, CNN to the other, and earn $100. (Price them at $100 each and earn $200, still less than $220 and at the same cost.)
Since it costs you virtually nothing to add a channel for a given consumer, the extra $120 is like free money. And both customers get the channels they want at a price they value. That’s why cable TV bundles. It’s why software companies bundle. And it’s why I’ve been saying we’ll increasingly see airlines bundling the services that have low marginal costs to provide more of.
This analysis is why I wrote back in March that in the future airlines would no longer charge separately for either inflight internet or checked bags. Time will prove me right or wrong, but American’s move here bolsters the argument I think.
What are the downsides to these packages? You may like the idea of what they offer but if the flights you’re going to be on won’t have economy plus then a bundle won’t help you. And you may get locked into flying a particular carrier, while other airlines may be cheaper for tickets you’ll purchase in the future.
But if you fly the same airline frequently, albeit not enough to earn elite status, then bundles can make sense.
A good rule of thumb is that subscriptions are best for travelers who fly frequently, but not enough to reach elite status, which, in many instances, would allow you to get those perks at no extra cost. “If you’re flying a single airline 10,000 to 20,000 miles a year, then the subscriptions make good sense,” Mr. Leff said.
If you’re flying only two or three times a year, experts say, take a pass, because you may not fly the same airline each time. And even if you do, chances are you will not be doing so often enough to reap the benefits of a subscription, as opposed to simply buying the amenities you want à la carte.
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