AirAsia testing personalized baggage pricing option

SINGAPORE (Reuters) – Budget airline AirAsia Bhd is testing personalized baggage pricing and launching a travel money card, as it targets an ambitious 22 percent rise in revenue per passenger from add-ons by the end of 2018, its group CEO said.

The Malaysia-based carrier reported 49 ringgit ($11.73) of revenue per passenger beyond the ticket price in the quarter ended June, but hopes to raise that to 60 ringgit with the help of a $100-million investment in digital initiatives that also include a new duty-free website and reusable baggage tags.

AirAsia Group CEO Tony Fernandes told reporters the revenue target was a "tough ask at the moment" but the airline "had a shot" of making it. He was discussing the carrier's digital investment plans at a briefing in Singapore.

Research firm Crucial Perspective last month said the 60 ringgit target was "overambitious." AirAsia's June-quarter number was up from 47 ringgit a year earlier.

AirAsia receives around 18.7 percent of its revenue from sources other than ticket prices, ranking 13th among world airlines according to the latest annual report on ancillary revenue by US consultants IdeaWorksCompany.

Ireland's Ryanair Holdings PLC, which ranks fifth at 26.8 percent, changes the fee for checked baggage depending on the flight's demand and proximity to its departure date.

Fernandes said AirAsia was looking to tailor pricing to individuals and was using data and machine-learning to better understand what passengers were prepared to pay. The airline earns 49 percent of its add-on revenue from baggage fees.

"We begin to know what your tolerance level is for a certain ticket to a certain destination," he said. "We will charge you differently for baggage. We are testing it."

He said he did not believe passengers would stop logging in with their AirAsia loyalty program account before buying a ticket even if they realized they were being charged for baggage based on their travel profile. "They don't do it for airline tickets – why should they do it for bags?" Fernandes said.

AirAsia is launching a prepaid travel money card, which can be loaded with 10 different currencies, for Southeast Asian travellers, he said. Other airlines, like Qantas Airways, have already successfully rolled out similar cards.

Duty free, including the launch of a website offering home delivery and if possible airport collection, with personalised deals is another good opportunity to raise revenue, he added.

"If I can get that right, then 60 ringgit is a walk in the park, but there are a lot of things to sort out there," Fernandes said.