United Airlines' decision last month to boost its nonrefundable fare change fee by $50 to $150, matched soon afterward by US Airways, certainly will increase the cost of corporate travel, but most analysts said it likely won't alter buyers' fare-policy strategies.
The nonrefundable fare change fee increase is just the latest in a string of new or raised charges, as carriers crippled by skyrocketing fuel costs seek new methods of revenue generation
(BTNonline, May 5). United spokesperson Robin Urbanski said the change fee increase was "done in light of high fuel prices, as a way to find revenue beyond the fare allowance, since fares haven't kept up with the rising cost of fuel. While fuel prices change daily, United expects its fuel costs to be $2 billion higher in 2008 than they were in 2007, on top of other costs."
The nonrefundable fare fee change and its ilk nevertheless should have little impact on corporate travel management, said Barry Rogers, director of Chicago-based TCG Consulting's air practice.
"I don't think such fees inhibit air travel because most corporations have effective steps in place to combat the fees, such as working with travel managers to track unused tickets and reuse them," Rogers said. "The fees, though, certainly have an impact on the cost, including that the increase in change fees is not discountable," adding that if fares go up by $100, a corporation might get a discount but there is no discount with such fees.
Most corporate travel managers have to measure refundable and nonrefundable ticket prices and consider the net result, Rogers said, adding, "If we get hit every time we make a change, then are we better off buying a refundable ticket, spending a bit more up front to avoid the fee? What's the tradeoff between the two?"
Rick Seaney, CEO of Dallas-based airline ticket research site FareCompare.com, said the fee increase "will have little or no effect in making refundable tickets more attractive to major corporations since the increase is only $50. The only reason to have a refundable ticket is for the flexibility it offers, in reality a kind of travel insurance. However, smaller proactive companies that have bought further out—14 days and longer—to save may not do so as much, if those savings are eroded. Once it happens, they'll be wary of it happening again. The change fee increase is a just a way to prevent them from doing that, even though legacy airlines depend on the Monday-to-Friday business crowd."
Corporations that can, based on volume, may ask to have certain rules waived, Seaney said, adding that smaller companies may wait until they have, say, a group of 10 people traveling at the same time as a way to bargain for lower fares.
Robert Mann, president of Port Washington, N.Y.-based air consultancy R.W. Mann and Co., said that corporations with bargaining power that seek credit for the higher fee toward future purchases "will be successful, to some degree, but those that don't have that power won't be. The airline industry has the propensity to introduce or reintroduce policies and terms to garner additional fees to force people to buy things they don't want, as opposed to doing the things people so want. These issues have been put back in to make sure business travelers pay more."
Such fees, Mann said, usually come at the end of a business cycle when new sources of revenue are sought. "Travel buyers will compare the cost of refundable versus nonrefundable tickets, depending on companies' actual travel policies, and will bite the bullet on cost, if they have to."
TCG's Rogers said the choice between refundable and nonrefundable depends on the likelihood of change.
"As the cost of change goes up, the more valuable the refundable ticket becomes, but it depends on the dollar value of the fares," he said. "For example, a refundable ticket on United from Chicago O'Hare to Washington National is $593 roundtrip. The lowest nonrefundable, at this moment, is $281. The difference is $312. At that point, you could make two changes and still end up ahead, assuming the required class of service remains available. If the trip is canceled, you face the risk of eating the entire $281 fare, but you could do that twice and still end up ahead. If the difference between the fares were closer to $150, and the likelihood of change were relatively high, then it starts to make sense to look at the refundable ticket."
Seaney noted the proliferation of other airline charges, such as the roundtrip minimum-stay rule that can cost anywhere from $200 to $800, the fee for last-minute redemption of frequent flyer miles—usually $100 or more—and the second checked-bag fee, typically of $25.