Travelers who increasingly have banked on nonrefundable airfares to keep within travel budgets and corporate policies will find it more difficult to do so now that the six largest U.S. airlines made such fares unusable after the ticketed date of travel if the traveler does not confirm itinerary changes beforehand.
US Airways, the first to announce changes on nonrefundable fares, initially imposed the most severe restrictions, but later backed off its policy to completely disallow standby flying. Rather than applying unused credit within a year, travelers on the six largest carriers will lose the full value of the fare unless they fly as ticketed or standby, or call the carrier beforehand and pay associated change fees.
"We have taught business travelers how to jump the fence, but too many jumped over to the leisure side," said Tom Barrett, global strategic sourcing director at American Standard Cos. in Piscataway, N.J. "This is the new fence."
Now, travel managers must teach their travelers, especially those arriving late to the airport but still intending to fly on the same day, simply to call ahead.
The impact on corporate travel programs will be significant, especially for those companies accustomed to compiling hundreds of thousands of dollars in unused credit and invested in unused ticket tracking tools offered by travel agencies and other third parties. Of course, nonrefundables are much cheaper than unrestricted tickets, usually by hundreds, if not thousands, of dollars. Nearly 40 percent of corporate bookings through American Express this year are on nonrefundable fares, up from 25 percent in 2000, according to Nancy Carlin, vice president and general manager of value-add business at the mega agency. But the days of establishing and drawing from unused nonrefundable ticket banks evidently are over.
US Airways' policy change already is in effect. American and Continental will implement their modified policies Oct. 1. Beginning Jan. 1, they will charge such passengers $100 for waiting standby for same-day alternate flights, a policy US Airways later adopted. Delta also similarly changed its nonrefundable policies, but the carrier will charge Delta Express passengers only $50 for same-day standby. Delta Shuttle standby fees are dependent on time of day.
United late last week followed Northwest's slightly more lenient variation on the policy, also effective for travel as of Oct. 1, excluding certain higher priced nonrefundable fares. United, however, will charge $100 for standby come Jan. 1, while Northwest left its standby policy unchanged, meaning same-day standby still is permitted at no charge. Same-day confirmed changes still will incur a $100 change fee. In a related policy tweak, Northwest upped the change fee for nonrefundable fares on routes between the United States and Europe, Africa and the Middle East. The fee now is $200.
The new nonrefundable fare policies, specifically addressing the perishable nature of airline products, represent just a few of several fundamental changes ongoing in the industry
(see story).AA added that the changes will "simplify its processes and lower its operating costs, while continuing to offer fares competitive with low-cost carriers." That rationale is taking hold throughout the commercial aviation sector as airlines redesign the cost-value equation.
Due to variation in matching policies by the other five majors, as well as customer feedback, US Airways late last week backed off of its initial, more severe stance. "If we need to make adjustments to make it more palatable, we will do that," said B. Ben Baldanza, US Airways senior vice president of marketing, in an earlier interview with BTN.
Baldanza specifically acknowledged the major dilemma in asking important corporate clients-most of which use a mix of refundable and nonrefundable fares--to swallow the new policy changes. "We have taken a strong view on several major issues and we will see the ultimate effect and what our ultimate position will need to be," Baldanza said. "But we also cannot ignore the economic reality of changed traveler behavior."
The difference between US Airways' policy change and the inability to reuse Broadway show or sporting event tickets--a comparison used by US Airways that Baldanza later admitted was an "imperfect analogy"--is that theaters do not resell unused seats, said one travel manager whose company has seen as much as $700,000 worth of unused nonrefundable tickets. In the current economy, however, the travel buyer said even airlines need to limit their year-over-year liabilities: "Now they can see what their contracts are worth."
Still, many throughout the corporate travel community were disturbed and/or confused by the new rules. According to some, it equates to a price hike and a slap in the face for many corporate clients who assumed they were important.
"Tighter restrictions on nonrefundables will be the equivalent of forcing frequent and business travelers, who require more flexibility, into higher full fare classes," said the National Business Travel Association in a statement. "This move may create more irrationality in an already irrational pricing system."
A majority of Black & Decker's airline tickets are nonrefundable, with the average nonrefundable fare this year roughly 40 percent below the average refundable fare. "There could be $100,000 in unused nonrefundables sitting in our travel center at any given time," said Pete Buchheit, the Towson, Md.-based company's director of travel and meeting services. "Carlson Wagonlit Travel manages that very carefully to make sure we use whatever is in there. But the bottom line, based on what we know, is we will be buying more refundable tickets with higher associated fares."
American Standard's Barrett said Corporate America's response to the likely increase in the average fare paid will be addressed by sending fewer employees on the road. "We all are responsible for budget numbers when it comes to T&E, so something will have to give," he said. "Most likely, demand for travel will further decrease."
The Business Travel Coalition slammed US Airways' move and said it is likely to fail due to further corporate travel cutbacks, wider use of low-fare carriers and travel manager estrangement. "If this policy were implemented as part of a broad airfare restructuring, it would make more sense," said BTC chairman Kevin Mitchell. "Will corporations have to implement new audit procedures as travelers seek reimbursement for two or more tickets for one business trip?"
Other concerns include carriers' ability to reaccommodate bumped passengers without recharging them and their ability to clearly inform customers of what they are purchasing. To that point, Baldanza said US Airways currently is working to ensure that all customers, regardless of distribution channel, "know exactly what they are buying."
The response has not been all negative. "The recent action taken by US Airways--in creating a divergent pricing structure--is actually a step toward airfare reform," said Association of Corporate Travel Executives executive director Nancy Holtzman. "The association regrets that this decision was made without broader industry discussion or dialogue, however."
Airfare expert Terry Trippler does not blame the airlines for going after the lower-paying customers and those that do not show up for their scheduled flights. "If you are a businessperson and you are not certain which flight you will make, don't book a nonrefundable fare," he said. "But the airlines will have to make some adjustments, perhaps by bringing back the old two-hour rule."
American, for one, reportedly has done so, allowing passengers to fly standby within two hours of original departure time without added fees.
"The rules read relatively draconian but we are not a draconian airline," said US Airways' Baldanza. "We give gate and ticket agents flexibility to deal with customers at the airport within a relative timeframe."
US Airways also backed off its initial decission to eliminate certain traveler rewards gained on nonrefundable tickets. Under the original plan, beginning Jan. 1, miles and segments earned on most of its nonrefundable fares would not have been applied toward preferred loyalty program status, though miles would continue to be credited toward frequent flyer accounts. US Airways did not change its decision to now charge $25 to customers requesting a paper ticket when an e-ticket is available on that route, regardless of point of sale
(see story).Separately, US Airways on Oct. 1 will implement a new policy that eliminates corporate discounts on nonrefundable H, K and V fares, though such bookings still count toward contractual goals. The carrier's clients will be asked to formally change their contracts through an addendum by Sept. 16.
Baldanza said the Oct. 1 date is not a postponement from when first announced last month but rather provides a realistic timeframe for implementation. Most other majors, either formally or informally, have eliminated lower-fare buckets from corporate discount programs
(BTN, July 29).