Smart: Frontier Airlines May Increase Revenue By Reducing Change Fees

Frontier Airlines just announced something that’s quite surprising on the surface. In the US we have airlines offering various degrees of services included with ticket costs. On one end of the spectrum you have Southwest, which offers passengers two free checked bags, and doesn’t charge any ticket change fees.

On the other end of the spectrum you have Frontier and Spirit, which charge for everything, ranging from seat assignments to carry-ons.

Frontier Airlines is lowering change and cancelation fees

On the surface, Frontier’s latest announcement comes as a surprise. Frontier Airlines has announced that they’re greatly reducing ticket change fees. Frontier says they’re doing this because they want you to book with confidence.

Here’s how Frontier describes the changes:

While the big guys are increasingly penalizing their customers with high fees to make changes, Frontier is reducing the cost. In fact, if you are making changes 90 days or more ahead of travel you will pay NO FEE to make a change. If you want to make a change between 89 and 14 days, you’ll pay a reduced fee of only $49. If you are making a last-minute change less than 13 days before travel, it will be our normal $99 fee change.

Here’s a chart with their new fees:

As you can see, Frontier is completely eliminating change and cancelation fees 90+ days prior to departure. Between 14 and 89 days of departure, the fees are roughly being cut in half. Then the fees stay the same when changes are made within 13 days of departure (Frontier has historically charged $99 for any ticket changes or cancelations).

In theory, it’s logical for an airline to have reduced change and cancelation fees if making changes in advance. That’s because if you cancel early, the odds of the airline reselling the seat are quite good. Somewhere around 90% of domestic airline tickets are booked within three months of departure.

What’s Frontier’s real motive here?

Frontier Airlines is bucking the trend by lowering fees right now. Are they making this change truly because they think they’ll be able to get more customers thanks to this policy? Personally I’m skeptical of whether or not that’s the case, or at least am skeptical of whether or not this is their primary motive.

You can definitely differentiate yourself by not charging fees, as we’ve seen from Southwest. But at the same time Frontier charges fees for just about everything else, so…

What’s Frontier’s real motive here? My guess is that they do hope to capture some more advance bookings using this policy. But more importantly, I think the real motive here is that Frontier relies on fees to make money. Their base fares are really low.

Let’s say someone books a $20 ticket four months in advance. They decide they’re not going to take the flight anymore, but they have no incentive to cancel, since there would be a $99 fee to cancel a $20 ticket. They’re likely to just no show, and the seat will go out empty.

I imagine on a full flight, Frontier could get significantly more revenue if they could resell that seat. Not only could they probably get a $20 fare (or better), but they are also likely to make more money in fees from someone actually taking the flight (checked bag fees, carry-on fees, seat assignment fees, buy on board fees, etc.).

Bottom line

This is a positive move on the part of Frontier, and I commend them for it. Maybe I’m a skeptic, but my guess is that their primary motive here is actually increasing revenue by lowering these fees. Their fares are so low that it’s not even worth canceling tickets when there’s a $99 fee. So by being able to resell the seats they have better odds of having someone actually fly with them, which gives them access to more ancillary opportunities.

What do you make of this move by Frontier?

Comments

  1. @Ben
    Probably a good move for F9. However, the airline is now managed by a former Spirit guy who is known for being extremely rude and aggressive, so this may help them to achieve more revenue in the short-run, but in the long-run, they won’t be able to keep customers. F9 used to be a decent airline yet that’s not the case anymore and their customer service keeps getting worse and worse.

  2. This is an issue with airlines cancelation penalities. People have no incentive to cancel. Better to wait and hope your flight is cancelled or very delayed. With the move to ancillary revenue, getting a butt in seat is becoming almost as important as the actual fare for the cheap way advance purchase tickets.

    From a rational standpoint, airlines should have a system where they offer people who want to cancel some pecentage of their paid fare. For a sold out Friday afternoon flight In two weeks, it could well make sense for an airline to give me 100 bucks back if they think they can sell the seat for 400 bucks. For a Wednesday afternoon flight that never sell out, maybe 10 cents. Between the opportunity to resell a seat and get ancillary revenue it’s not rational to give people no motivation to cancel even when they know they can’t take the flight.

  3. I’m surprised that particularly (U)LCCs haven’t implement a system whereby you cancelling gets a % of the ticket back when cancelling, with a set upper limit for how much you can lose.

    Or, say that cancelling/changing for than 100 days away is free, and then within 100 days you get the % back of the ticket that is the number of days til the flight. Would be a neat solution.

  4. Smart move by F9. most of their sales with $20 fares are almost always for flights < 90 days. i'm somewhat surprised that they included the cancellation fee elimination as well.

  5. This move by Frontier could be a real win-win for the airline and the passenger as you outline. Bravo to Frontier. I’d be more inclined to book them for discretionary trips with this new policy.

    Of course lowering the price of something can increase overall revenue/profit. F9 didn’t claim the move was a revenue loss to help the consumer. They simply said the new policy would make it easier to book early and that seems to be the case.

  6. In a similar vein, could you write an article discussing the fact that US based airlines all make their international C class fares changeable, but nonrefundable? Just looking at a BR fare to BKK in December, the cost came to roughly $5,500 as did DL. The DL fare was nonrefundable, while BR charged a mere $100 to cancel. LH seems to charge a reasonable cancelation fee transatlantic as well. Why would anyone risk that much money other than to earn status?

  7. I’d like to see an airline try this: you don’t buy a ticket for a particular seat, but instead u buy an option to purchase the seat at a fixed price any time up until the flight takes off. The airline can run the options market in case you want to sell your option to someone else, taking a cut.
    It’d be similar to the way tickets are now being “reserved” for college bowl games w/ essentially an options market.
    If you no-show/cancel last-minute, your option expires, and the airline keeps whatever you paid for it.

  8. Why did anyone not see this. More people will book knowing their ticket can be refunded.
    Interest rates are going up. This is like getting 0% interest loan from you to reinvest in anything.

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