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Lessons Learned from Southwest Airlines on Ancillary Charges

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Southwest goes against the industry norm these days of charging for a lot of ancillary fees. They don’t charge for checking baggage, for larger seats, or for flight changes.

So are they losing out on revenue?

Possibly, but they may be recouping revenue with other fees. One of the unique fees that Southwest does charge is $15 for an early bird check-in, which lets you board the plane earlier. That might not sound like much but they reported adding $220 million from this fee in 2014. That is a lot of early birds.

So what are some unique ancillary fees that equipment rental companies are changing today? One area that was recently discussed at our user conference was how various companies recouped their transportation costs. Some outsourced transportation and simply passed on the bill as a straight line item. Others took that outsourced charge and added a small margin to recoup the overhead costs. Still other companies use their own drivers and trucks and tracked driver mileage and time via telematics to make sure they were recovering their freight costs.

One unique idea I heard recently was to charge your smaller renters for a premium for delivery but discount your large, national accounts customers. The rationale was that customers that used your equipment occasionally were less price sensitive than your larger, repeat business customers. That company reported a marked increase in their freight recovery from 80% to 92%.

If you have other unique ideas or thoughts, we would love to hear about them. We will send you some free peanuts for your trouble.

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