Jay Sorensen flies both business class and economy.
While the differences between the two have always been stark — priority boarding and free alcohol are decades-old features of first-class travel — lately the gulf seems to have widened, said the U.S. consulting firm president.
Economy-class trips are defined by shrinking legroom, narrower cushion space, diminishing rewards for frequent fliers and, especially, the myriad fees that can pile up like thunderclouds as airlines increasingly offer top-up options on their tickets.
“Traditional airlines seem to want to punish passengers who buy these fares,” Sorensen said of bottom-rung tickets.
The additional money passengers pay for checked bags, pre-selected seats and onboard snacks makes up a growing share of airline revenue, even as a debate swirls around whether the charges amount to “junk fees” or the lower base price offers greater choice for travellers.
Air Canada took in nearly US$2 billion in so-called ancillary revenue in 2022, up by nearly 50 per cent from five years earlier, according to Sorensen’s IdeaWorksCompany. The category’s share of total revenue grew to more than 15 per cent from below 11 per cent in the same period.
WestJet this month introduced a new service tier, “Extended Comfort,” where economy-class passengers can pay for extra legroom, early access to overhead bins — coveted real estate due to checked baggage costs — and a free alcoholic drink.
Popularized by budget carriers more than 15 years ago and adopted by mainline players since, ancillary revenue plays an increasingly critical role in the industry, helping to diversify income and insulate companies from fluctuations in fare prices, fuel costs and competition.
“Ancillary revenues are stickier than passenger revenues, which can be subject to fare changes related to competitor fares on the same route,” said TD Cowen analyst Helane Becker, adding that airlines aim to “create moats around their business.”
COVID-19 also spawned habits that have been tough for some travellers to kick, including advance seat selection.
“Where you sat became important to many customers, because if you sat at the front of the airplane, you got off the airplane first. People paid a premium for that, and I think that that behaviour has stayed,” Sorensen said.
Ancillary income derives mainly from three streams: à la carte services such meals, onboard Wi-Fi and extra bags — or any bags; frequent flyer programs; and commission-based offerings such as hotel bookings, car rentals and travel insurance.
Globally, ancillary revenue was forecast to hit a new high of US$117.9 billion in 2023, up from the previous record of US$109 billion in 2019, according to an October report from travel technology platform CarTrawler.
Not everyone is on board.
Endless “nickel-and-diming” risks alienating passengers, who grumble online about a dizzying array of extra fees and service tiers, said John Gradek, who teaches at McGill University’s aviation management program.
On social media, WestJet’s new Extended Comfort option elicited everything from confusion — “are we getting an extra bill?” — to irritation — “just adds more … costs to already rising cost of air travel.”
But the fees aren’t going anywhere.
“They love these things,” Gradek said of airline executives.
“The revenues are very big dollars, and in some cases are the lifeline for survivability of ultra-low-cost carriers.”
Indeed, they make up about 40 per cent of Flair Airlines’ revenue — 50 per cent is the goal — according to its vice-president of ancillary revenue and digital experience.
“Everyone wants a bigger share of the wallet of travellers,” said Juliana Ramirez.
Part of the strategy is to lure consumers to the website with rock-bottom fares, and then offer numerous add-ons, she said.
A $67 fare for a one-way Toronto-Vancouver flight next month quickly balloons to $323 after selecting the $90 “Big Bundle” — one carry-on, one large checked bag, priority boarding, trip modification — plus a front-row seat, a bundle of travel insurance, a $15 online check-in ($25 if you wait until the airport) as well as taxes and third-party fees.
Ramirez acknowledged the frustrations of paying well over twice the price of your ticket simply to secure what would have been standard parts of the flight package a few decades back.
“We get it. No one likes to pay for a carry-on,” she said.
In its budget last week, the federal government pledged to “crack down on junk fees” charged by carriers. That prompted the National Airlines Council of Canada to demand greater clarity from Ottawa, arguing that fees give customers greater flexibility.
Air Canada said the advantage of unbundling is that customers know precisely what they are paying for.
“It is very transparent,” said spokesman Peter Fitzpatrick, highlighting the different tiers of service.
“Our branded fares are part of our ancillary strategy, as each branded fare is a combination of ancillaries (such as bag, seat selection and flexibility) sold as a package.
“Our experience is customers appreciate having the option to tailor their travel to suit their needs, including not paying for services they do not wish to have,” he said.
(He also said earnings derived from sources other than fares and cargo amount to well under 10 per cent of total revenues — lower than the consultancy report’s estimate.)
WestJet’s Madison Kruger put forward a similar explanation: “By offering our guests unbundled product offerings, it ensures that they are only selecting the travel options that matter most to them.”
Larger airlines see no choice other than to slice their purchase options into ever thinner levels of service in order to beat back the threat of discount carriers, said Ricky Zhang, founder of Vancouver-based travel rewards website Prince of Travel.
“Most leisure travellers pick based on price,” he said. “So Air Canada and WestJet have had to lower their base fares … and that results in the unbundling of the experience.”
Whether it unravels Canadians’ taste for travel is another question.
“If you’re positioning yourself as a better-service airline than (ultralow cost carriers), that branding statement is not aligned with your behaviour to basic economy passengers,” Sorensen said of carriers with spartan service for lower-tier customers.
“Why are you treating me radically different when I happen to be in my value mode?”
This report by The Canadian Press was first published April 22, 2024.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
