Airlines hope new change fee rules move bookings from basic economy

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United led the charge on eliminating change fees permanently, but competitors quickly followed.
United led the charge on eliminating change fees permanently, but competitors quickly followed.

The recent decision by major U.S. airlines to do away with most domestic change fees is a recognition that consumer-friendly measures will remain necessary to convince a wary public to fly again.

But the moves, which were implemented by United, American, Delta and Alaska over the space of less than two days, can also be viewed as strategic efforts to more sharply differentiate economy tickets from basic economy, analysts say. 

United led the way, announcing on Aug. 30 that it has eliminated its $200 change fee "forever" on domestic flights, with the exception of basic economy tickets. The carrier, like others in the U.S., had suspended change fees early in the Covid-19 pandemic.

In making the announcement, United CEO Scott Kirby said that unlike previous downturns, when airlines responded by cutting services or adding fees, United will improve customer offerings as it emerges from the Covid-19 crisis.

"When we hear from customers about where we can improve, getting rid of this fee is often the top request," he said. 

A day later, American and Delta took similar measures, with American rolling out a policy that is more customer-friendly than United's.

Under United's policy, flyers who change their plans will get a credit for the value of the fare, which can be used within 12 months. But customers who rebook for less than the original ticket cost won't be able to retain that additional value for future use. In contrast, American will issue a new credit for the value of that difference. American also said that it is putting an end to change fees on flights to Canada, Mexico and the Caribbean in addition to domestic flights. 

Like United, Delta is only eliminating change fees on domestic flights. The carrier hasn't decided whether to take the United or American route when it comes to the use of ticket credits. 

Alaska has eliminated change fees throughout its network but also hasn't clarified the details of its policy related to ticket credits.

Airlines might not have had much of an option but to scale back change fees long-term as a result of the pandemic.

"[Change fees] create a perverse incentive for people to fly sick," noted analyst Judson Rollins, founder of the consultancy Propel Aviation Solutions.

JetBlue CEO Robin Hayes had acknowledged as much in May, telling a Washington Post forum that airlines will have to rethink fare structures.

"It's not going to be acceptable, I don't think, for somebody who is unwell to feel that they are being made to fly," he said at that time.

Jay Sorensen, president of the consulting firm IdeaWorks, which tracks the ancillary revenues of airlines, said that as airlines repeatedly extended temporary waivers on change fees during the spring and summer, they locked themselves into doing away with the fees long-term. 

"What the waivers were admitting is that people were not going to book travel during the pandemic if they had to assume the burden of risk," Sorensen said. "It became a consumer expectation. If they turn the spigot off, I think the airlines are terrified that traffic will plummet."

Still, the moves will have a significant long-term impact on revenue. Last year, Delta and American each made more than $800 million on change fees, according to the Bureau of Transportation Statistics, while United made in excess of $600 million. It's not clear what portion of those fees came from domestic, non-basic economy ticket changes, though Sorensen estimated that it is more than half. 

Nevertheless, Southwest has long proven that during normal times, U.S. airlines can make healthy profits without the benefit of revenue from change fees. 

While the new policies of the Big Three and Alaska have differences, they align when it comes to maintaining change fees for basic economy tickets. Indeed, the announcements set the stage for the carriers to potentially reinstate basic economy change fees as soon as Jan. 1, when current waivers expire.

It's no coincidence that the carriers have come together on basic economy policies, analysts said.

"They are making the difference between basic economy and other fares even more stark," said Gary Leff, author of the View From the Wing blog. 

The goal of such a move, he said, is to drive a greater share of customers away from basic economy and into economy tickets, where they'll see more value in paying the higher airfare. That would help the airlines recover revenue they'll lose by doing away with change fees. Meanwhile, the full-service airlines will still use basic economy to compete against ultralow-cost carriers Spirit, Frontier and Allegiant. 

Rollins said he'll be watching to see if the discount carriers follow suit by also scaling back change fees. They might not, he said, since selling unbundled fares, with upcharges for all manner of additional services, is core to their business model. 

In either case, Rollins said, change fees had become less prevalent in recent years at the major carriers, in part because key corporate accounts have already negotiated them away. 

"We've gotten to the point where leisure passengers are mainly the ones paying change fees, and its's just an irritant," he said. 

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