The elimination by the three largest U.S. carriers of change fees on domestic routes sets the stage for a more dynamic business travel booking environment whenever such travel fully returns, with travelers able to rebook flights without incurring that expense. But the new policies largely don't extend to long-haul international itineraries, refundable tickets or void-window opportunities, leaving some uncertainty about their long-term implications.
United Airlines on Aug. 30 first announced its move to eliminate change fees, matched the next day by American Airlines and Delta Air Lines, and a day later by Alaska Airlines. There are differences among the carriers in the details of their policies, but they all require passengers only to pay the fare differential when changing tickets on flights with the United States.
In a video message, United CEO Scott Kirby said the move is indicative of how United will approach the Covid-19 recovery, instead of "defaulting to cuts."
"As we emerged from previous tough times, we made difficult decisions to survive financially but sometimes at the expense of customer service either by adding new fees or cutting the things that made the experience of flying better simply because they were too expensive," Kirby said. "United Airlines won't be following that same playbook as we come out of this crisis."
The moves come amid an ongoing deeply depressed business travel demand environment, due to the stubborn spread of Covid-19 and associated government quarantines and restrictions on movement. Eliminating those fees, which reached up to $200, removes an obstacle to potential travel, Cowen analyst Helane Becker told CNN.
"When times were good, the airlines wanted to have people think twice before they canceled," said Becker. "Now, [the end of change fees] gives people confidence they can book, cancel and rebook."
The carriers now are closer to the policies of Southwest Airlines, which does not levy change fees. Southwest CEO Gary Kelly this month told attendees of The BTN Group's online Business Travel Show America conference that even though those particular fees no longer are a point of differentiation, the move still benefits his carrier.
"The industry 12 years ago … started unbundling fares in an effort to match Southwest's low cost and low fares," Kelly said during the event. "It's work for us to make sure all customers understand that we're different, and they just made it easier for us. It's now a point of differentiation we don't have to explain."
Travel buyers during the BTSA event, held a week after the carriers' announcements, noted that the new policies likely would have at least some effect on their programs. Discovery Inc. VP of global travel services Yukari Tortorich said the move "will make it easier for us to manage those changes," and Microsoft global director of travel, VenueSource and payment Eric Bailey said "the way people book will be much more dynamic. It will be ever-changing."
A Fare-Assurance Windfall?
Many corporate programs have incorporated airfare price-assurance technology from third parties like Coupa, FairFly and Trappit, or from travel management companies. Since these tools re-scan booked flights for lower fares and, taking into account change fees, flag rebooking opportunities that yield savings, the carriers' moves to eliminate change fees could boost the value of these systems, but the details of the new policies adds a layer of uncertainty.
FairFly vice president of global marketing Chris Ulph was bullish on the move, noting fare scans would have to show savings in excess of the change fee to even bother with rebooking for a lower price.
"Historically, we would have to see at least a $201 drop to make ends meet, let alone make it worthwhile once you factor in if there's a TMC rebooking fee and then our slice of the pie," said Ulph. "We would need to typically find $400 in gross savings for that to be interesting. Now, that is significantly reduced, so our window for rebooking has widened considerably."
Coupa, meanwhile, which this year acquired Yapta, had some reservations about change-fee policies altering the equation much, given the particulars of some carrier policies and the typical areas where price-assurance long exceled.
"We believe the impact of airlines eliminating their change fees will have a minimal effect on airfare price-assurance technologies," Coupa VP of product management Valerie Layman said by email. "According to our data, customers receive the largest savings on higher-priced international fares since lower-priced domestic fares typically don't see dramatic price drops outside of the void window."
As with any policy, the devil's in the details. United's new change-fee policy includes an apparent slammed door for price-assurance.
In eliminating domestic change fees, the carrier also wiped out the opportunity for retrieving the original ticket's residual value—foiling the premise of price-assurance.
According to United's policy: "If the new flight is priced higher, the customer may change for no change fee but must pay the fare difference. If the new flight is priced lower, the customer may change without paying a change fee but no residual value will be given."
FairFly's Ulph was aware of United's price-assurance-hindering policy, which is similar to parameters included in its change-fee waivers this year. Yet, he noted that corporate travel buyers with leverage and relationships often can negotiate relaxed ticket-rule policies with preferred airlines.
American Airlines' stated policy, meanwhile, is more favorable to price-assurance than United's. Its new policy states that customers will have to pay the fare difference if the new ticket is higher, but also that "customers will not lose their ticket value if the new flight is less expensive," according to the policy. "For example, if a ticket cost was $500 and was exchanged for a ticket that cost $300 we will allow the $200 residual for use toward future travel."
Asked about residual value, Delta said it was "evaluating further policy changes as a result of our announcement," but "in the meantime, customers continue to have flexibility under the existing applicable Covid-19 waivers through Dec. 31, 2020." Most carriers for the remainder of 2020 have eliminated all change fees via waivers.
Void Window, International Opportunities Unaltered
Two areas where new change-fee policies won't affect price-assurance are for rebookings in the void window and, for most carriers, on longer-haul international itineraries, unaffected by the new policies.
The U.S. federal government requires airlines to offer risk-free cancellations or changes within 24 hours of booking. Some fare-reshopping tools and TMCs push this to midnight the day after ticketing. Price-assurance providers and TMCs long have seen this as a ripe opportunity to seize on lower fare pricing, regardless of the vagaries of change-fee policies.
Ulph estimated, on average, 40 percent of fare savings opportunities flagged by its FareSaver product are in the void window, with 60 percent outside.
Like the void window, the long-term price-assurance value proposition for long-haul international tickets is unchanged.
Same, too, with refundable tickets that already afforded flexibility on change fees.
According to Coupa, its Travel Saver airfare price-assurance product has flagged around $500 million in fare savings. Coupa noted that 47 percent of these fare savings were found in "no-penalty tickets," while a further 27 percent were found in the void window. Neither are affected by the new policies.
Of the remainder, Coupa's Layman said the "majority of the savings were found on higher-priced tickets, which tend to be international, long-haul flights—again, not part of the policy changes."