Why Did the Airlines Eliminate Change Fees?
Mark Stiving, Ph.D.
"Tap into unrealized customer value" | Founder @ Impact Pricing | Author, Speaker, Pricing Expert
Last week, United, Delta, and American Airlines all eliminated their change fees. United led the charge, and Delta and American followed the next day. Before I speculate why, here are a few facts.
- In 2019, these three airlines made about 3 Billion dollars in change fees.
- Change fees accounted for about 15% of their revenue.
- Right now, travel is down about 70% from last year due to COVID.
It may seem apparent to you now that they will do almost anything to get people to travel again. They NEED to do this.
A Desperate Measure by Airline Companies During Times of COVID
Think about the decision a buyer is making. Let’s say I am thinking about flying across the country to visit my Dad in Charleston, SC. If I know there are change fees, I’m only going to purchase an airline ticket after I’m 99% certain I have all of the other details. This is true even though the plane ticket is possibly the most expensive part of my trip. In other words, there is a big hurdle in my way before I buy the ticket.
Next, I have to worry about what COVID rules South Carolina will have in three weeks when I make the flight. Will they enact a 2-week quarantine before I get there? Will they ban people from Nevada (my state)? There is so much uncertainty now, so I’m less likely to arrange travel, especially knowing it will cost me $200 if SC changes their rules.
But what if there were no change fees? I would probably be watching the fares, and when I find a low enough price, I would buy it first and then arrange the rest of the details. I don’t have to worry about rule changes at the last minute. If the rules change, I reschedule.
Did the airlines make the right call?
Eliminating change fees makes so much sense if they want customers to fly again.
However, in the announcement, United said they were PERMANENTLY getting rid of change fees. Does anybody want to place a bet on how long permanent means? In game theory, this is called “cheap talk.” There is no commitment. Given the amount of money airlines made last year due to change fees, it’s probably a sure thing they will re-enact change fees once their bookings approach 2019 levels. When will that be? Perhaps within a few years.
It’s easy for airlines to pretend to care about customers when they’re trying to attract them. But what will they do once their planes are full again? Their attitude will likely shift to milking as much money out of their customers as possible. Operations and pricing will once again dominate over what’s best for the customer.
What do you think? I’d love to hear your explanations and predictions.
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Aviation Professional, Product Marketing Expert, Business Consultant, Speaker
4 年Eliminating change fees is a fast response and desperate measure of the airlines to compensate the uncertainty of passengers, based on the inability of authorities to jointly coordinate Covid-19 related restrictions with a reasonable and rational lead time, making air travel unpredictable.?Not only for domestic travel. Everyone in the aviation industry is struggling with the worst ever experienced loss in revenue. Even with a small and slow recovery, we still look at almost 75% less (RASM) across the board compared to 2019. So giving away 15% of almost not existing revenue is comparable cheap. The Business Aviation is looking at a fast recovery. In several countries their revenue is even higher vs. 2019. How come such - from a $ perspective - much more expensive flights are booked more often? They reliably fly! So being sure the flight takes place when you expect it, makes people - who can effort it - pay even more. Aviation companies in the air travel ecosystem are forced to extensive sanitary measures. Rather than a “change fee” coming back, I expect a hygienic fee to become part of bookings. That value everyone will understand.?Thanks Mark Stiving, Ph.D. for your education at the Pragmatic Institute (SF, MAR 2017).
When is anything permanently eliminated? Airlines have some great Marketing groups. If/when it comes back, they’ll call it something else or they’ll increase other fees to generate the additional income....
Deal Desk and Pricing Strategy | ex-Management Consultant | Non-Profit Program Director
4 年This is a competitive response (and as most have insinuated, perhaps only temporarily) to keep up with Southwest Airlines' policy, first and foremost. Although the other factors Mark listed above are applicable. SWA is currently the best positioned airline in the marketplace for the moment and are reaping the rewards of their strategy, the friendliest ticket policies and insane customer loyalty. So, airlines are now recognizing the importance of capturing travelers, by keeping up with SWA, and offering policy flexibility to customers. Notice the AA, UA, DL policy change does not include international routes likely because SWA does not fly EMEA / APAC, hell even Canada. Although no one is traveling international routes now, travel will turn around and these airlines do not want to commit to closing off this ancillary source when things come back. Further, airlines are recognizing the value of holding on to customer travel interest as opposed to revenue opportunities for individual itineraries. With this policy change, "hey, at least they're closer to coming onboard any of our aircraft and experiencing our level of service." Last note- AA, UA, DL are still applying "cancellation fees" so if the traveler chooses not to travel and/or experience your airline product, they're fining your change of mind.
Client Director, Airlines, Europe at Accelya I Passenger I Cargo I Airline Retailing Transformation OOSD I Distribution I Airline IT
4 年Of course they will be brought back when higher load factors come back. Changes, particularly when close to departure date and with high load factor in the cabin, mess and complicate optimal revenue management. Fees are used as a deterrent as much as a way to make revenue, in some cases for profit, in others to minimise opportunity cost (if the seat is not sold again before the plane takes off).
Experienced fintech executive and adviser
4 年I think there's a good chance change fees will be back. Worth noting though that the so-called discount airlines are yet to announce any changes to their change fee policy?