Ancillaries, options, abusive billing: the next frontier of RM & Pricing regulatory?

In short

For the past thirty years, aviation and then hospitality have been breaking down their pricing structures to sell separately what was once included (baggage, breakfast, seat selection). The European regulator is now intervening to reclassify certain “ancillaries” as integral components of the base service: this is the case for cabin baggage, as it was for roaming charges in telecoms in 2017. The boundary between paid option and consumer right is becoming a new central challenge in Revenue Management.

For decades, companies have sought to deconstruct their products to sell separately what was previously included. This strategy has created significant value.

But today it is reaching a limit: that of the regulator, when it considers an element is no longer an option but a fundamental right.

The early stages: the great “depackaging” movement

In aviation, always ahead of other sectors, until the 1990s a ticket included cabin baggage, a seat and a meal (on long flights).

Today, the price is broken down to display the cheapest possible “ticket” component in search engines. Additional options then follow, some of which may still be sold in bundles (“branded fares”): cabin baggage surcharge, checked baggage, seat selection, priority boarding, lounge access, etc.

A less pronounced but similar trend exists in hospitality: the flexible room with breakfast has become Room Only as a NoFlex lead-in price, followed by additional options or add-on products: breakfast, early check-in / late check-out, flexibility, parking…

Sorting options and services

Not all ancillaries are equal. There are those we can call “comfort” ancillaries: they are never controversial and customers clearly understand their value (Fast Track, upgrades, lounge access, VIP experience…).

Others, already in the legislator’s sights, have real value and meet a need, but remain debatable when offered as paid options. These are what we can call “need-based” ancillaries: checked baggage, parking, seat selection (you have to sit somewhere).

And then there are “necessity” ancillaries. This is where problems begin: cabin baggage, ticket printing, administrative fees, payment fees. Customers often feel they are paying for something that should already be included.

The regulator enters the scene and becomes a new RM&P player

The current debate around cabin baggage is fascinating. When travelling by plane, you are rarely just “hands in your pockets and head in the clouds.” You have luggage.

It would not occur to a car rental company to charge extra for access to the boot. Nor to a hotelier to charge extra for the mattress or access to the bathroom in the room. These are included.

The question for legislators therefore becomes: are these services options or integral components of the core service? Increasingly, the answer is leaning in the same direction: the consumer’s.

On the European Union’s radar today: cabin baggage. Yesterday, roaming charges once billed by telecom operators banned since 2017.

The legislator keeps a close watch on these issues of abusive options, as it recently did with certain deemed inappropriate fees: cancellation of return tickets in case of no-show on the outbound leg (the end of the “full use of tickets in sequential coupon order” rule). We can also mention questionable credit card surcharges, automatic subscription renewals, booking fees…

And more broadly, the continuous strengthening of consumer rights against abusive fees or misleading commercial practices. This is the spirit of the Omnibus law.

Let us not blame the regulator. It often acts with common sense on these issues, even if it can sometimes be heavy-handed.

The best ancillary revenues are those that create real perceived value, are based on voluntary choice, improve the customer experience and remain understandable. Let’s be creative and give meaning.

More than ever, Pricing and Marketing will have to address this.

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