Many aviation experts argue that South Africa has yet to see a true low-cost carrier operating in its skies, but the increasing pressure on local carriers to operate profitably could see that change this year.
In the US, UK and other global regions, LCCs have generated millions in ancillary revenue by charging separate fees for services such as checking in baggage and excess baggage, assigned seats, early boarding benefits and even call centre support for reservations.
Ancillary revenue has become an important financial component for airlines, particularly low-cost carriers, yet South Africa’s carriers have been slow to adopt this model.
“I think this is an aspect that airlines have tried to avoid in South Africa until now,” says Aasa CEO, Chris Zweigenthal. In line with its European sister airline, easyJet, fastjet claims to offer its customers the lowest possible fares in addition to pay-as-you-travel extras. The airline’s website states: “Low cost is quite simply the avoidance of costly frills. This affords passengers the flexibility to pay for additional services such as a bag or refreshment rather than having to pay for it regardless of whether they want it or not.” 
While it’s not a familiar concept in South Africa, domestic travellers will have to get used to it quickly. Garth Wolff, eTravel CEO, says: “With the high price of fuel and the low margins in the airline business I think it is inevitable that all airlines start thinking about making ancillary revenue streams.” He believes, as local airlines are now making losses or tiny profits, they have to look at reducing costs and increasing income streams more than ever before.
Kulula.com has already started introducing a number of ‘extras’ passengers can pay for to include in their travel experience. Nadine Damen, Marketing Manager for kulula.com, says: “One way to keep your ticket prices low is to only charge customers for the services they really need, and offer everything else as an ‘extra’ or an add-on to their airfare. This ensures that everyone is charged for only the things they really need.” Kulula offers its passengers one free bag with the option to pay for an additional bag. “We already allow customers to purchase insurance and their meals on board and soon we will be rolling out the ability to purchase a specific seat,” she adds.
Wolff says no airline can lower its fares. “If they do not increase income streams they will be out of business sooner rather than later. They have to increase the income streams to stay viable; hence they have to look at ways to bring in more revenues.” 
Initially, airlines are likely to suffer a backlash from the public, who already complain that all the charges, taxes and levies that are added to tickets make it very difficult for them to know what the total cost of the ticket is, explains Zweigenthal. “Customers will have to become used to the fact that the basic fare, although appearing reasonable initially, is not the final cost. My experience travelling in Europe recently was that once I had chosen the extras, such as checking in bags, choosing seats so that I could together with my family, etc. the cost of the ticket nearly doubled.” 
According to Damen, customers are happier to pay for what they need rather than being charged more for extras they may not need. But Hein Kaiser, Mango’s communication manager, disagrees. “Gauging the less than favourable response our competitor received upon the introduction of its piece concept, it would be fair to say that charging for extras such as checking in baggage, etc. would not be palatable to the travelling public.”
 He says extras, whereby additional value is created, such as on-board Wi-Fi and other positive value propositions are likely to prove better methods of generating ancillary revenue. 
“Lower fares or more affordable fares are achieved through operational efficiencies and not through carving up basic services into additional fees. Ancillary revenue models in South Africa, where the landscape is different and consumers’ appetite is financially fatigued, have to be based on value-addition as opposed to value dissection,” says Kaiser.