In 2019, airline change fees brought in $2.8 billion, yes billion, industry wide. With change fees bringing in so much revenue to the airlines, who would have ever thought that they would be eliminated, especially during a time where travel, especially air travel has bottomed out to modern-day lows with no sign of them coming back anytime soon. Most experts predict that air travel will not resume to 2019 highs until at least 2024. With airline revenue drying up, why would the airlines cut a major source of revenue? Here’s why:
To understand why, we need to go back to the date that will go down in the airline history books- August 30th. That changed the lives and wallets of millions of future travelers. On that day the notoriously non-customer friendly airline, United, introduced a flexible change policy that is very customer friendly. United Airlines removed all change fees on any economy or premium cabin tickets within North America, Mexico and the Caribbean.Just a day later, the other two legacy carriers, Delta and American added very similar policies. Within a week, Alaska Airlines and Hawaiian joined the bandwagon removing change fees… FOREVER. Of course, we cannot forget Southwest Airlines, which never charged change fees. Although these changes are a customer friendly move, the airlines benefit as well. United CEO Scott Kirby said, “When we hear from customers about where we can improve, getting rid of this fee is often the top request.” Although he is right that customers have been eager to be rid of change fees, something that should have been no surprise to the airlines, why are they waiving them now rather than early on when they first got negative publicity. The reason is it will help the airline’s bottom line revenue: ticket sales.
For the sake of this article I am going to refer to United Airlines because they were the first to cancel these change fee. However, my point will most definitely apply to all the airlines that have recently done away with change fees.
To look at US airline travel, it is broken down into two groups, business and personal travel. In the past, business travel plans are much more likely to be made last minute or need to be changed last minute than personal travel, which has set dates and is made much farther in advance. Business trips account for the majority of change fee revenue. After all, why should some employee care about switching to a more convenient flight for $200 when they can expense it. Unfortunately for the airlines, business travel has slowed and shows no sign of an immediate recovery.
In the past months since COVID-19 put a halt on business travel, both companies and their employees have benefited. Less time is being wasted getting to/from and around the airport which leads to more productivity. In addition, companies can save money by not having to pay for the airfare and hotels. Why should a company spend 100s if not 1000s flying someone to a meeting when it has been proven that virtual meetings work over the past 7 months. This benefits the employee because they can now spend more time at home with their families. That said, there are still going to be instances where an employee will need to physically be at a place. Additionally, those employees who truly love the travel aspect of their work will want to travel and that will lead to them getting back on the road. However, business travel as a whole will still greatly decrease even after the pandemic. Without business travel, the change fee revenue will mostly dry up, so why bother putting personal consumers through the headache and cost of change fees when eliminating change fees will barely affect airline revenue and will encourage consumers to buy more tickets.
I already explained that getting rid of change fees will not greatly decrease airline revenue, but what it will do is encourage consumers to buy more flights. After all, if you were thinking about going on a personal trip, you may as well book the ticket now before the prices go up and if worse comes to worse, you can always change that flight or use the value towards a different trip, so no risk. This alone will greatly increase airline revenue coming from the consumer market. Even if the person changes their flight, it comes at no cost to the airline, because the individual is not getting a refund. They are just switching to a different flight. If the new flight is more expensive then the individual will pay the difference. If the cost is less than they may get a voucher towards future travel. Airline revenue is not decreased and consumers still get a benefit. This is a win-win for airlines and consumers.
Years ago, full-service US airlines added ‘basic economy’ fares that were bare-bone tickets which lacked some benefits such as bags, seat selection, flexibility and more. They did it to compete with ultra-low cost carriers such as Spirit and Frontier. Getting rid of barebones ticket prices is a nonstarter for the airlines because it prevents full service airlines, such as United’s, ability to compete with the cheaper airlines. The barebones ticket’s prices lure people to buy tickets cheap, before the consumer needs to pay for extras such as bags and seat assignments, which makes up for the airline’s revenue. Pre-Covid, my family generally bought basic economy tickets because they were cheaper., We didn’t need anything more than a carry on and we were not trying to earn status. Now, I believe that most consumers will pay the extra $15-$60 (normally the difference between basic and full economy) to get full economy and save themselves the worry of losing the value of the ticket. This increased revenue will definitely account for a large part of what the airline industry will loose from ending change fees.
The airlines have been waiving change fees since March in order to encourage travel. These policies would have most likely stayed in place for many more months, if not, years. Why not eliminate these fees with a huge media fanfare to make themselves look good rather than having to continually waive them out of necessity. On top of that, the full-service carriers in the US can now stop waiving change fees on basic economy tickets when most of their existing policies expire in December. They will continue to receive revenue from change fees on the basic economy tickets and encourage people to pay more for flexibility, which will further increase their revenue. On top of the increased revenue, the airlines can finally be viewed as the ‘good guys,’ for helping the consumer even in their hardest times.
Overall, although their change fee revenue might decrease significantly, the airline industry’s bottom line of selling tickets will increase with the changes they have made. On the other hand, consumers get flexibility to be able to fly when they want without having to worry about fees for changing their tickets. This is a win-win for everyone involved and a great change to the industry that I hope will last for many years to come.
Leave a Reply