Budget airlines are being investigated in Spain over additional fees charged to passengers, such as for hand luggage, after several have penned growing ancillary revenue recently.
Fines worth up to €1 billion (£0.86 billion) euros could be dealt as a result of the probe, the Spanish Ministry of Consumer Affairs said on Thursday, which will focus on how customers are often charged more than the advertised price of airline tickets due to add-on costs.
Though the ministry did not name any specific airlines being investigated, the practice of charging extra for the likes of hand luggage, priority boarding, and seat selection is common among budget carriers.
Battle of the budget airlines
Ryanair Holdings PLC (LSE:RYA) and easyJet PLC, for instance, score a significant proportion of revenue through these ancillary costs, with both seeing marked increases in their latest respective quarters.
Ancillary sales generated a total of €1.18 billion for the Irish carrier during the first quarter—up 15%—of total revenue worth €3.65 billion.
easyJet marked a 28% increase in ancillary revenue in its latest quarterly results meanwhile, to £622 million, as passenger revenue climbed to £1.5 billion.
Per average passenger, Ryanair made €23.30 (£20.08) in ancillary revenue in the three months to June, while easyJet gained £23.75.
Given a flight between London Gatwick and Alicante in Spain on the same date in late August costs around £75 with each carrier—as per each company’s websites—roughly a quarter of the revenue per passenger could come from such costs.
A 2019 Spanish court ruling dubbed Ryanair’s hand baggage fee policy as “abusive,” though the Irish airline argued airlines have commercial freedom to determine cabin luggage sizes.
“[Airlines] offer in their advertisement very competitive prices,” the ministry added as its investigation was launched earlier this week.
However, these often “do not correspond in most cases with the price that the consumer ends up paying, as a consequence of these practices”.