Why Did the Airlines Eliminate Change Fees?
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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Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.