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AirAsia testing personalised baggage pricing, eyes more add-on revenues

AirAsia has appointed Riad Asmat as the new chief executive of the budget airline’s Malaysia-based operations.

[SINGAPORE] Budget airline AirAsia Bhd is testing personalised baggage pricing and launching a travel money card, as it targets an ambitious 22 per cent rise in revenue per passenger from add-ons by the end of 2018, its group CEO said on Thursday.

The Malaysia-based carrier reported RM49 (S$16) of revenue per passenger beyond the ticket price in the quarter ended June, but hopes to raise that to RM60 with the help of a US$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 that the RM60 target was "overambitious". AirAsia's June-quarter number was up from RM47 a year earlier.

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AirAsia receives around 18.7 per cent 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 per cent, changes the fee for checked baggage depending on the flight's demand and proximity to its departure date.

Mr Fernandes said that 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 per cent 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 programme account before buying a ticket even if they realised 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?" Mr Fernandes said.

AirAsia is launching a prepaid travel money card, which can be loaded with 10 different currencies, for South-east Asian travellers, he said. Other airlines, such as 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 RM60 is a walk in the park, but there are a lot of things to sort out there," Mr Fernandes said.