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Follow the Money: the real truth about extra charges on budget airlines

For all those that hate Ryanair, there was a tinge of vindication about the easyJet results the other day.

Where Michael O'Leary's Irish outfit has announced plans to curtail its notorious charging regime on the back of two profit warnings in as many months, easyJet has chalked up a 51% rise in pre-tax profits to nearly a half billion pounds.

The group put this down to its allocated seating service, which was introduced last year, and strong revenues from various European routes. But talk to their press people or read what appeared in the next day's papers and the subtext was clear: he who shafts his customers hardest will suffer the consequences.

And certainly you'd need a neck as brassy as O'Leary's to argue that Ryanair is not the greatest income creator of budget airlines. As most of us know only too well, click past those alluring headline ticket prices and you sign your soul to a world of fees and charges that virtually makes a fetish of punishing customers.

Travel with a tot on your lap and hand over £30, plus another £20 if you decide at the airport that a travel cot might be handy. Type your name incorrectly while booking and you pay £110 to change it, or £160 if you only realise at the airport. Forget to print off your boarding card and it's £70 to have the airline do it for you. Turn up with too much luggage and you'll pay anything from £60 to £160 to put it in the hold. Oh the joy to be a Ryanair assistant on the receiving end from all those poor suckers that have to cough up.

This is more than just masochism, of course. It's a highly successful business model. The so-called ancillary revenues that Ryanair makes from fees and charges stood at £894m in the financial year ended March, or 22% of the airline's whole income, or £1 from every £5 that comes through the door.

This income stream has more than quadrupled over the past seven years, achieving double-digit percentage growth every single year. Over the first six months of financial 2013/14, it was up another 22%.

Most of it trickles straight through to the bottom line, one assumes. It's not as if there are comparable costs involved. Given that pre-tax profits stood at £478m in 2013, you have to wonder whether O'Leary is actually relying on his customers' shortcomings to stay in business.

For years, easyJet competed toe to toe in this ancillary assault course. Where back in 2006 it was attracting only about half the ancillary revenues as Ryanair, comprising just 8% of total revenues or £131m (Ryanair's was 15% of revenues that year), by 2011 it had overtaken its rival with £719m or 21% of the total compared to £674m/22% over the Irish Sea.

That was the first year after Carolyn McCall became chief executive, having arrived from the Guardian Media Group of all places. It was also the last time that the numbers were published by the company.

Communications head Paul Moore tells me it was felt that since "the majority" of this income was from baggage charges, which are central to flight costs, it was misleading to call it ancillary. Others suggest it was a recognition that customer charges had become so punitive as to be toxic for budget airlines in these new austere times, and that easyJet saw an opportunity to differentiate itself from the ever-unapologetic O'Leary.

Moore says the company subsequently pared back some of its charges, although the only one he is able to point to is a decision two years ago to remove the £8 administrative fee for debit card users in favour of a £9 charge for everyone that is included in the headline ticket price (It's since gone up to £11, and credit card users still pay a 2% surcharge on their ticket price). Ryanair followed suit a few months later with a £6 charge, while also surcharging 2% for credit card users.

These moves followed an Office of Fair Trading investigation in 2010 that ordered 12 budget carriers to stop debit card charges.

OFT chief executive Clive Maxwell said at the time: "It is important that the cost presented when they search for a flight is realistic and they are not surprised by extra charges."

Under McCall's tenure, the strategy has certainly shifted towards building on positive customer charges rather than negative ones. Easyjet says allocated seats, introduced last November, is appealing to older customers who don't want to fight their way to the front for a decent seat. These cost between £2.49 and £12 per flight, depending on how much leg room you want.

This followed the 'Flexi' enhanced ticket option, which launched in 2011. Flexi costs anything from a few pounds to upwards of £100 depending on the flight, bundling together allocated seats, priority boarding, a hold luggage item and a 50% bigger cabin baggage allowance.

Few would disagree that this is a softer way to make money than straight charges, but it means reducing the service for other customers. Reserved seats are seats that more frugal punters can no longer take. Speedy boarding means everyone else goes to the back of the queue. The bigger cabin baggage allowance is really paying for the right to avoid the 23 litre/33% allowance cut that all other easyJet customers received in May (except on quieter flights).

As for all the ancillary stuff, it hasn't gone away. You pay £30 at the desk or £45 at the boarding gate for luggage that's too big for the cabin, and both charges went up £5 this year.

You pay £33 for putting 20kg of luggage into the hold, or £105 for 32kg, plus £10 per kg of excess. You pay £22 to carry an infant - who must be under two or they need a separate seat and ticket - and you pay £35 to £40 if you have the wrong name on the ticket.

You don't pay anything for boarding passes at the airport, but you might want to adopt the brace position all the same: easyJet scrapped check-in desks earlier this year, four years behind Ryanair.

None of this is to say that McCall's changes at easyJet have not been successful. You only have to look at O'Leary's nods in her direction - Ryanair is belatedly introducing allocated seating, along with other changes such as a 24-hour grace period where minor errors can be fixed free of charge and cutting the boarding pass charge from £70 to £15 from next month.

The point is that rumours of the demise of easyJet's charging regime are much exaggerated. Contrary to what Clive Maxwell of the OFT said he believes in, there are still any number of extra charges to surprise an easyJet customer. The best you can say is that they are a bit less harsh than Ryanair's eye-watering ratecard. One suspects such charges are too integral to the business model for it to be any other way.

Little wonder that everyone from British Airways' budget sister Vueling to Air France to the train operators are disaggregating many of their services too. Touchy feely makeover or no, if easyJet's ancillary revenue growth has not kept pace with Ryanair's in the past two years, I would be very surprised.

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