Allegiant

Airlines let passengers hedge against airfare increases, for a fee

After the introduction of additional fees for luggage, extra legroom seats, and in-flight catering, to name a few, a new category of ancillary revenues seems to be taking hold. A growing number of airlines are offering passengers a paid option to increase or descrease their exposure to rising ticket and fuel prices. For example, U.S. low-cost carrier Allegiant wants passengers to consider a variable-price ticket, where the final fare could rise or fall based on the cost of fuel, while Vueling, Air France, KLM and Continental offer customers a paid option to ‘freeze’ their fare for up to 14 days when making a booking.

Allegiant ‘variable fuel fare’
Las Vegas-based low-cost carrier Allegiant has come up with a new way to share the pain of rising oil prices with passengers. It has filed a request with the U.S. Department of Transportation for permission to sell a new type of flexible ticket. The purchase price would be less than a normal ticket’s, but it could subsequently rise or fall (with the customer either paying more or getting money back) depending on oil-price flucutations between the purchase date and the flight date. The increase would have a maximum that would be clearly disclosed. Allegiant will continue to offer the ‘traditional’ fixed-price ticket as well.

Because many passengers book months ahead, it is difficult for Allegiant—which unlike most airlines doesn’t hedge its future fuel needs—to predict what the fuel price will be at the time of travel. Furthermore, the U.S. Department of Transportation has proposed a new consumer protection rule that will prevent airlines from increasing prices after purchases are made, and Allegiant is suggesting its variable fuel fare as an alternative. The airline says it doesn’t have any immediate plans for the new pricing option but that it is looking for an approval in case its wants to offer it in the future.

With the fluctuating airfare the passenger is basically betting on oil prices as Allegiant is passing some of its fuel risk to the consumer,  who gets a lower base fare in return. However, as  airlinetrends.com commented to CNN.com (“Vegas airline proposes rolling dice on fares”), few consumers may actually want to incorporate this kind of risk into their ticket, since hardly anyone can make an educated guess about the future development of oil prices. For some passengers though, it may be a way to start their Las Vegas trip in style. Read full article »