Alaska Air Group, Inc. (ALK)’s Remarkable Revenue Strategy

The IdeaWorksCompany reports some interesting observations about this unique program. First, by forcing itself to perform in delivering baggage to customers, Alaska Airlines started using metrics in order to track and improve, and it had a real incentive to do so. The company now enjoys a truly remarkable success rate in baggage delivery: over 99.9% of its bags were delivered in 20 minutes or less last year. Thus, baggage delivery has evolved from a net cost, to a profit center, due to the attachment of the ancillary revenue and the goal-based performance of the BSG program.

Increasing revenue without alienating customers

Alaska Airlines’ approach to its baggage fees is evidence of a thoughtful management team as well as a mini-case study into how ancillary revenue can work for both an airline and its customers. In this case, Alaska turned the pain of a new charge for checked bags into an incentive for customers to choose its airline over competitors. Particularly in the case of business travelers, the BSG lends itself to being perceived as having a greater benefit than cost. And, because the company already has burnished its ability to move luggage on time, most of the $50 million of new revenue will flow straight to that sweetest of sweet spots: the net income line at the bottom of the profit and loss statement. If you follow or are invested in Alaska Airlines, look for similarly nuanced strategies to boost profit through ancillary revenues in the future.

The article Alaska Airlines’ Remarkable Revenue Strategy originally appeared on Fool.com and is written by Asit Sharma.

Fool contributor Asit Sharma has no position in any stocks mentioned. The Motley Fool recommends Southwest Airlines.

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