How Airline Pricing Will Evolve With No Change Fees

Filed Under: Travel

In the past 48 hours we’ve seen what’s possibly the most positive change to US airline policies in decades — change fees (for most routes & fare types) have been eliminated permanently by Alaska, American, Delta, Hawaiian, and United!

While most of us can probably make sense of why this policy makes sense right now, how will this evolve over time, and will this change actually be permanent, as promised? I figured I’d share my thoughts on how I see this situation evolving…

Airlines need to waive change fees right now

I think just about everyone can make sense of how airlines cutting change fees makes sense now and for the foreseeable future:

  • Airlines are struggling to convince people to book future travel, given just how much uncertainty there is
  • We’ve seen airlines introduce travel waivers, but they’ve been temporary, and in some cases quite confusing
  • For the next couple of years (at least), consumers need flexibility, and these policy changes address that

Airlines need to offer consumers flexibility right now

What happens when travel recovers?

Right now consumers are in control. The logical question is what happens once the airline industry recovers. Historically US airlines have made billions of dollars per year through ancillary fees, and they’re not charities, so surely they’re not just going to keep waiving change fees out of the kindness of their hearts?

If you ask me, this new policy change might in fact make sense long term, and reflect a larger shift to how airlines approach ticket pricing.

There are a few factors to consider here:

  • Over the past few years airlines have introduced Basic Economy fares to better compete with ultra low cost carriers; these fares can’t be changed or canceled
  • Even prior to the pandemic, airfare was about as cheap as it has ever been, adjusted for inflation
  • All the while airlines kept increasing change fees over time, to the point that in many cases change fees were more expensive than the ticket value

Let me give an example of airline ticket pricing that perhaps demonstrates this. Take a one-way American Airlines flight from Tampa to Miami as an example, where the pricing is as follows:

  • A Basic Economy fare is $38
  • A Main Cabin fare is $73 (1.9x Basic Economy)
  • A Main Cabin Flexible fare is $262 (6.9x Basic Economy)
  • A Main Cabin Fully Flexible fare is $414 (10.9x Basic Economy)

Airlines have worked hard to create fare types for just about any consumer, though isn’t there something missing here? What if a consumer wants some flexibility at a reasonable cost? Is it logical that the cheapest Main Cabin Flexible ticket is nearly seven times as much as Basic Economy, and more than three times as much as Main Cabin?

One benefit of Main Cabin over Basic Economy is that the ticket can be changed for a fee. But that’s a worthless perk when the change fee is $200, and your ticket value is less than that.

With the elimination of change fees, I think airlines are addressing this problem in a creative way.

Airline pricing isn’t all that rational at times

Basic Economy will become the new “normal” fare

Once travel recovers, airlines may indeed maintain waived change fees on non-Basic Economy tickets. The catch is that the price difference between “regular” economy and Basic Economy will likely continue to increase over time.

Frankly that’s something I can’t blame airlines for. For the “big three” US carriers, there’s not currently a fare they offer that gives you flexibility without paying exponentially more for your ticket. Long term maybe we’ll see the premium for “regular” economy increase by an extra $25 per ticket, or something.

I think the general intention for this was made clear by American Airlines yesterday. While announcing waived change fees, American Airlines also announced that Basic Economy passengers will be less restricted, and will be able to pay for seat assignments, upgrades, priority boarding, and more.

In other words, if Basic Economy is less restrictive and offers an unbundled experience, it’s much easier for the airline to argue that “regular” economy is a bundled experience that you should be willing to pay more of a premium for.

Expect the cost to “buy up” from Basic Economy to increase

Bottom line

Airlines eliminating change fees is a positive development, and I wouldn’t be surprised to see it stick around long term. However, once travel does recover, I’d expect that the price difference between Basic Economy and “regular” economy will continue to increase, to reflect that regular tickets offer a bundled experience with more flexibility.

Ultimately that’s fine by me and perfectly fair, as the lack of any middle ground between non-refundable tickets and exponentially more expensive fully refundable tickets has seemed like a missed opportunity.

How do you see airfare evolving with waived change fees?

Comments
  1. @Ben: “I’d expect that the price difference between Basic Economy and “regular” economy will continue to increase, to reflect that regular tickets offer a bundled experience with more flexibility.”

    Since airlines are going to still charge the fare difference, as far as I can tell, there is no reason why they won’t increase prices as a result of dropping the change fee.

  2. @ Mike — Yes and no. Ultimately airline pricing is based on consumer demand. Willingness to pay certainly isn’t increasing overnight right now given how depressed demand is. At some point in the future if flights are totally full and demand has recovered then airlines will have more pricing power, but that’s not really the case right now.

  3. People think this is fantastic. I think not.

    So what I see happening is that we shall return to the pre e-ticketing days. For most of you, too young to remember, let me take you back to those days when load factors were in the 60’s and 70’s in %. Fundamentally airlines took reservations, travel agents issued tickets based on those reservations. However the reservation was never matched up to the tickets issued until after travel had occurred. Hence airlines had flights with 100% + reservations and a lot did not turn up as the tickets had not been issued. Then overbookings happened with airlines compensating based on prior history of what they would call no-shows. Fares were high to compensate for poor business practises.

    Once e tickets came in, load factors got up to the 90’s with e tickets and also with ways of fulfilling projected empty seats with FF miles, the airlines turned to making monies with change fees, bag fees, seat fees. fares came down down, as did the service levels.

    Now fast forward. The airlines are goingto allow no change fees. The effect of this is that people will book multiple flights and then keep pushing forward unused reservations at the last minute. That will have a similar effect of overbooking for airlines. Loads will go down, fares go up and then overbooking comes back into play.

    Also, with this allowable free change, seats will get booked far further in advance, having the effect of increasing fares based on advance purchase dates.

    All in all I think this is a terrible idea and a marketing gimmick that will fundamentally increase fares for all in the future. Expect new revenue streams to be generated by seat fees, bag fees, food fees, priority boarding.

    Why was the old system broken? To me it was not. Certainly far from perfect. This policy could have been introduced for a limited COVID time, say til end of 2021.

    The benefit of this will not be the consumer IMO. Just the airlines who control the various service levels and income streams outside of the ticket price. It a marketing gimmick and a highly effective one.

  4. Hi In Europe I book 2 or 3 Basic Tickets early for different dates and use just 1. It is much cheaper than last minute changes

  5. I think this is a good perspective and certainly elements of some of the variables of future pricing. Airlines will work to find ways to recover revenue and raising airfare is one of the quickest.

    At the same time though, our LCCs (Spirit, Frontier, Sun Country, etc.) haven’t gone away. And once international demand resumes, there are still a lot of airlines with a lot of widebodies interested in the US market (especially the Chinese, also competing on price). My point is there will still be competitive pressures that keep even basic economy fares from skyrocketing. The market will always find a balance, eventually.

  6. There is nothing I hate more than change fees, so this is the best! I could not even stand change fees in the 90’s when they were $25, $35. Also in the 90’s they let every pax standby on the same day of travel. Things really went to h*** around Sep 2002 when Us Airways introduced use it or lose it ticketing and tried to dissuade agents from waiving change fees or fare rules. Delta’s, Simply Good Business, initiative was another dark times in the airlines but also a challenge taken on.

    I’ve been flying for about 2 decades, and I would always go to the airport to try to get my change fees waived. In other words, I would make a specific trip to the airport just to try to coax or charm my way out of my change fees. I had a very good batting average at this, thus its a practice I’ve kept up for 20 years!

    This will make it easier for me, I won’t have to go to the airport every time I want a free change or cancellation.

    I tended also to go to B6 as a Mosaic since they have for some time waived change fees, cancellation fees, and same day confirmed fees for Mosaics.

    Also it will be interesting if WN can come up with a new differentiater. Say allow elites to fly with in 72 hours of original time standby. Of if they offered all pax free WiFi with the 2 bags.

  7. @ Paul B – The change fee waiver may not mean that tickets are refundable. If that is the case then multiple bookings would require multiple non ref tickets, and that wouldn’t be feasible for anyone.
    The problem may be that airlines will prob incorporate the loss of those ridiculous extra charges into their pricing which means that even customers who don’t plan on changing their bookings will have to pay higher fares.

  8. Yes this was the first thing I thought of too Ben, but then I read an interesting comment saying they will need to compete with SWA on some routes and there economy cannot be fully priced as high as fully flex.

    I expect we’ll see low BE fares where competition is primarily with ULCCs, low econ fares where compete with SWA (and a small discount for BE) and high econ fares where there is no SWA competition. Something like the totally made up example below:

    SWA ($100) and ULCC ($30),
    Competes with both something like BE $40, Econ $100
    Competes only with SWA , econ $100, BE $90
    Competes only with ULCC, BE $35, econ $200

    I really didn’t like the old BE, but if you can pay for a seat and its cheap enough, I’m all game…

  9. Can you now get hotels to eliminate resort fees? 🙂
    Especially with many of the resort items closed or reduced in functionality.

  10. Lol at all the people saying that Southwest was a loser from the last couple of days. All this change means is that regular economy tickets are going up in price.

  11. @Ben
    you wrote:
    “For the next couple of years (at least), consumers need flexibility, and these policy changes address that”
    WOW!
    So, the new thought from you is that this mess will last for years? I think we are in for a bumpy flight. Buckle up.

  12. Southwest is a loser, take DAL and DFW for example. I can fly pretty much anywhere on Southwest or AA, southwest is consistantly more expensive (for many reasons) than AA. But the main reason i do pick SW is because i needed flexibility especially in years i did not maintain status on AA. I speculativly book a lot of southwest flights in case i want to go somewhere on some weekend and know i can bank the travel credit, now i can do this on American and i can do it at a lower fare which AA consistantly beats LUV..

  13. @Rich – I am currently in a NYC hotel that charges “resort fees” They have been suspended while all of this nonsense plays out.

  14. One thing is certain: Change fees were a gigantic revenue stream. The revenue will have to be replaced even after Airlines return to health. It can be done in two likely ways: Deconstructed fares ala Spirit or higher fares overall. The method which will receive too much blow-back is to raise the cost of items already ala/carte: A first bag is now $50.00 usually?? I am not sure because between CC and Elite status I haver never paid one, but how high can you make it? $75.00?? $100? $10.00 for a Coke? There is a limit before it becomes undefensible and anti consumer.

    I do not believe Scott Kirby et al is being dishonest but the model won’t survive after covid.

  15. Give me refunds for passenger-initiated cancelled flights. Just saying… This whole thing about credit with the airlines instead of a refund is total bull. And no, buying a fully-refundable ticket is not an excuse/option. Does anyone really ever pay for those fares? Just give me my money back, so I can put it in my bank account and earn interest. There’s no reason for them to keep the money when they can sell the seat to someone else. We’re just lending them money for them to play with it.

  16. One potential downside for business travelers is the new Basic Economy elite benefits. My company doesn’t push us to BE now but I can see with the change in elite benefits they might. But with no elite-qualifying miles, segments, or dollars that would be a huge loss to flyers.

  17. I think one reason is they need CASH. By eliminating changing fee, they can get a lot of money from speculation bookings for zero cost. Of course they need to give you a seat back sometime later. But LATER…

  18. I can imagine few ways more likely to get you on the DHS No-Fly List than this “buy multiple tickets” idea.

  19. Um, I just got a shock checking airfares on Delta in October for MCO to ABQ roundtrip. There are no Basic Economy seats, and all fares are at LEAST double what they are in September right now for just a couple of weeks out. I think they are already raising fares.

  20. This is all smoke and mirrors. The old “regular” (pre- Sept 2020) fares are going to go up (and allow no-cost changes). The new “regular” fares are going to be the Basic Economy type with restrictions. Most people will book those, and still have change fees. Unlike Southwest, the same issue will exist prior to these “amazing” developments by the Big 3 & Alaska.
    Gotta love marketing.

  21. “Ultimately that’s fine by me and perfectly fair, as the lack of any middle ground between non-refundable tickets and exponentially more expensive fully refundable tickets has seemed like a missed opportunity.”
    Bingo. Taking advantage of the opportunity to reset and end the poor perception that change fees offered. Brilliant

  22. If you paid for fully flexible economy class you should be able to change it without a fee. This is similar to the refund policies of hotels particularly for pre-paid reservations.

  23. Seeing the aviation industry around the world, including Europe on occasion, it’s easy to see why people consider travel so stressful everywhere, it’s almost like the airlines are out for your blood. I moved to India 5 years ago, was JetPrivilege Gold for a while but now fly IndiGo wherever possible, including internationally. Always on time, always spotlessly clean with helpful smiling staff from the check in counter to on board the aircraft, pay ~$15 on top of your ticket price to secure unlimited free changes and free cancellation (minus the $15), if you rebook on a cheaper flight, you even get the fare difference refunded to your account which is almost unheard of in the LCC space, best low cost carrier in the world, perhaps not just in my opinion.

  24. I do see BE fares being raised over time and look more like Main Cabin fares. Remember BE fares even with the changes won’t be attractive to elite chasing flyers as they don’t count towards status. They are geared towards the occasional flyer.

    The question is how are the ULCCs are going to react? Will they hold to their current policies instead offering lower fares than the majors but having more restrictions?

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