How airline prices will evolve without change fees

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Over the past 48 hours, we’ve seen what is possibly the most positive change in US airline policies in decades – change fees (for most routes and fare types) have been permanently eliminated by the ‘Alaska, American, Delta and United!While most of us can probably understand why this policy makes sense right now, how will it evolve over time and will this change really be permanent, as promised? I thought to myself that I would share my thoughts on how I see this situation evolving…

Airlines must waive change fees now

I think almost anyone can understand how lower airline change fees make sense now and for the foreseeable future:

  • Airlines are struggling to convince people to book future trips, given the degree of uncertainty
  • We’ve seen airlines introduce travel waivers, but they have been temporary and in some cases quite confusing
  • For the next two years (at least), consumers need flexibility, and these changes

Airlines must offer flexibility to consumers now

What happens when the trip resumes?

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 a year from incidentals, and they’re not charities, so surely they won’t continue to waive change fees out of kindness?

If you ask me, this new policy change might actually make long-term sense and reflect a bigger shift in the way airlines approach ticket pricing.

There are a few factors to consider here:

  • In recent years, airlines have introduced Basic Economy fares to better compete with very low cost carriers; these rates cannot be changed or canceled
  • Even before the pandemic, plane tickets were about as cheap as ever, adjusted for inflation
  • Meanwhile, airlines continued to increase modification fees over time, to the point that in many cases the modification fees were more expensive than the value of the ticket.

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

  • A Basic Economy fare is $ 38
  • The main cabin fare is $ 73 (1.9x Basic Economy)
  • The flexible main cabin fare is $ 262 (6.9x Basic Economy)
  • The fully flexible main cabin fare is $ 414 (10.9x Basic Economy)

Airlines have worked hard to create types of fares for just about every consumer, but isn’t there something missing here? What if a consumer wants some flexibility at a reasonable cost? Does it make sense that the cheapest Flexible Main Cabin ticket is almost seven times more expensive than Basic Economy and more than three times more expensive than Main Cabin?

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

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

Airline pricing is not so rational sometimes

The basic economy will become the new “normal” tariff

Once the trip is reestablished, airlines can in effect keep the change fees exempt on non-Basic Economy tickets. The catch is that the price difference between the “regular” economy and the basic economy will likely continue to increase over time.

Frankly, I cannot fault the airlines. For the “big three” US carriers, there is currently no fare they offer that gives you flexibility without paying exponentially more for your ticket. In the long run, we might see the premium for the “regular” economy go up an additional $ 25 per ticket, or something like that.

I think the general intention in this regard was clearly expressed by American Airlines yesterday. While announcing the removal of change fees, American Airlines also announced that Basic Economy class 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 is much easier for the airline to argue that the “regular” economy is a bundled experience for which you should be prepared to pay a fee. higher premium.

Expect the cost of “buying back” the basic economy to increase

Conclusion

The elimination of airline change fees is a positive development, and I wouldn’t be surprised to see it persist in the long term. However, once travel recovers, I would expect the price difference between the basic economy and the “regular” economy to continue to increase, to reflect that regular tickets offer a bundled experience. with more flexibility.

In the end, that’s fine with me and perfectly fair, as the lack of a happy medium between non-refundable tickets and exponentially more expensive fully-refundable tickets seemed like a missed opportunity.

How do you see the evolution of air fares with the elimination of modification fees?



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