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How airline prices will evolve without change fees

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How airline prices will evolve without change fees

Over the past 48 hours, we’ve seen what is arguably the most positive change in US airline policy in decades – change fees (for most routes and fare types) have been permanently canceled. Alaska, American, Deltaand United!

While most of us can probably understand why this policy makes sense right now, how it will evolve over time, and will this change really be permanent as promised? I thought I’d share my thoughts on how I see the development of this situation …

Airlines need to waive the change fee right now

I think almost everyone can understand why the airline cut makes sense now and for the foreseeable future:

  • Airlines are trying to convince people to book tickets in the future, given how uncertainty is.
  • We’ve seen airlines introduce travel waivers, but these were temporary and in some cases quite confusing.
  • In the next couple of years (at least), consumers will need flexibility, and these policy changes address that issue.

Airlines must offer flexibility to consumers now

What happens when the journey recovers?

Consumers are in control right now. A logical question arises: what will happen when the aviation industry recovers. Historically, US airlines have made billions of dollars a year from surcharges, and they are not charities, so surely they are not going to give up the change fees out of the goodness of their soul?

If you ask me, this new policy change might make sense in the long run and reflect a broader shift in airlines’ approaches to ticket pricing.

There are several factors to consider here:

  • Over the past few years, airlines have introduced basic economy class fares to better compete with carriers’ ultra-low fares; these rates cannot be changed or canceled
  • Even before the pandemic, airline tickets were as cheap as ever, adjusted for inflation.
  • However, airlines have increased their shift fees over time to such an extent that, in many cases, the shift fees were more expensive than the cost of the ticket.

Let me give you an example of airfares pricing that perhaps demonstrates this. As an example, take an American Airlines one-way flight from Tampa to Miami, the prices of which are as follows:

  • Basic Economy Fares are $ 38.
  • The fare for the main cabin is $ 73 (1.9x Basic Economy).
  • The cost of the flexible fare in the main cabin is $ 262 (6.9 times higher than the basic economy class).
  • The fully flexible main cabin fare is $ 414 (10.9 times the base Economy Class).

Airlines have worked hard to create fare types for almost any customer, but is there something missing here? What if the consumer wants flexibility at a reasonable cost? Is it logical that the cheapest flexible fare in the main cabin is almost seven times more than in Basic Economy and more than three times more than in the main cabin?

One of the advantages of the main cabin over the basic economy class is that the ticket can be changed for a fee. But this is a useless bonus when the change fee is $ 200 and your ticket costs less than that.

I think that by abolishing change fees, airlines are getting creative with this issue.

Airline pricing is sometimes not so rational

Basic Economy Class will be the new “normal” fare.

Once travel is re-established, airlines may indeed retain the waived non-Basic Economy flight change fees. The catch is that the difference in prices between the “normal” economy and the underlying economy is likely to widen over time.

To be honest, I cannot blame the airlines for this. There is currently no fare for the “big three” US carriers that offers you the flexibility without having to pay exponentially for your ticket. In the long run, we may see an increase in the premium for “regular” economy class by an additional $ 25 per ticket or something.

I think that the general intention of this was made clear by American airlines yesterday. In announcing the cancellation of change fees, American Airlines also announced that base class passengers will be less constrained and will be able to pay for seat assignments, upgrades, priority boarding and more.

In other words, if the base economy fare is less restrictive and offers a shared experience, it is much easier for airlines to argue that “regular” economy class is a combined experience for which you should be willing to pay a higher premium.

Expect the cost of “buying” from the underlying economy to rise.

Bottom line

The airline’s elimination of replacement fees is a positive development, and I wouldn’t be surprised if it continues in the long run. However, once travel truly recovers, I expect that the price differential between basic economy and “regular” economy will continue to widen to reflect the fact that regular tickets offer more flexible travel options.

In the end, this is okay and completely fair to me, as the absence of any middle ground between non-refundable tickets and exponentially more expensive fully refundable tickets seemed like a missed opportunity.

How do you see the development of airfare when the change fee is canceled?

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Economy

Europe plunges into the Red Sea. Oil rises as euro falls against dollar – Markets in a Minute

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European markets are in the red.  Interest on Portugal's debt hits 2.5% - Markets in a minute

Europe is optimistic about the beginning of the session. Shell spends energy in anticipation of marginal losses

Europe was full of optimism and started the session in positive territory after finishing the session in the red on Wednesday. This week was particularly volatile as investors anticipated signs of tight central bank monetary policy going forward.

Stoxx 600 adds 0.39% to 400.45 points. Among the 20 sectors that make up the index, losses are controlled by energy. European stocks in this sector were tainted with bad news from Shell.

Shares of the London-listed oil company tumbled 3.93% after the company this Thursday expected refining margins to fall from $28/bbl in the second quarter to $15/bbl between July and September. On the other hand, travel, leisure and retail lead the way.

Elsewhere in Europe, Madrid added 0.33%, Frankfurt 0.52% and Paris 0.31%. Amsterdam is up 0.34%, while London is trading at the waterline (0.07%). Milan goes against the trend and loses 0.29%. Here PSI follows the trend and rises by 0.29%.

In a major market move, Credit Suisse rose 3.2% after JPMorgan Chase revised upwards its Hold recommendation. In turn, Imperial Brands shares rose 4.3% after announcing a share buyback program of up to £1bn (around €1.14bn at current exchange rates).

European equities are enjoying a particularly volatile start to the fourth quarter as investors weigh in on central bank monetary policy and a slowdown in macroeconomic data, while short sellers retreat after betting on a decline in Old Continent-listed securities. .

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The banking sector, which is more sensitive to changes in interest rates, and technology, which mainly consists of growth stocks, which are more sensitive to changes in monetary policy, will be the sectors most followed by the market during the session, as the ECB publishes reports from the latest monetary policy meeting. – a credit policy on which direct interest rates were raised by 75 basis points as never before.

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Economic situation ‘will get worse before it gets better’: IMF director warns

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Economic situation 'will get worse before it gets better': IMF director warns

Kristalina Georgieva admits that the war in Ukraine violated the forecasts of the International Monetary Fund

The Director General of the International Monetary Fund (IMF) said on Thursday that the global economic situation, aggravated rising inflation “it will still get worse before it gets better”, acknowledging that the invasion of Ukraine undermined the organization’s predictions.

Speaking at Georgetown University in Washington DC, Kristalina Georgieva said he thought the situation would “get worse before it gets better”.

“Uncertainty is very high,” he said, highlighting the effects of the war, noting that the pandemic “hasn’t gone away yet” and adding that “the risks associated with financial stability are growing.”

The IMF’s director-general said the organization had again lowered its forecasts for the global economy in 2023, projecting four billion euros of lower economic growth through 2026.

Georgieva also revealed that the institution had already cut its global growth forecast three times and now expects 3.2% this year and 2.9% in 2023.

The IMF Director General said that the situation could be resolved by three priorities for the economies, calling, firstly, for measures to reduce inflation, preventing it from “fixing” at current levels. However, these efforts must be balanced, he said, because otherwise they could plunge “many countries into a protracted recession.”

“Central banks must continue to respond,” he said, “even if the economy slows down.”

The second priority, Georgieva said, includes fiscal measures that protect “the most vulnerable families and businesses,” warning that these measures must be “very targeted” and urging countries “not to subsidize the rich.” The IMF Director General also warned of the negative effects of universal price controls.

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Finally, Georgieva stressed the importance of supporting emerging market and developing countries.

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Economy

Banco de Portugal is revisiting high inflation this year to 7.8%. The economy grows until the end of the year, but will stop in 2023

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Banco de Portugal is revisiting high inflation this year to 7.8%.  The economy grows until the end of the year, but will stop in 2023

The Bank of Portugal revised upwards by 1.9 percentage points (pp) its inflation forecast for this year to 7.8%, the highest since 1993, reflecting growing external pressure on prices.

In its October economic bulletin released today, the Bank of Portugal (BdP) predicts that the harmonized consumer price index will hit 7.8% this year. upward revision from 5.9% forecast in Junebut still below the eurozone.

The regulator explains that inflationary pressures remain high in the second half of the year despite some signs of easing, which it estimates will see the rate stay above 9% during this period, peaking in the third quarter (9.9%) . 5%) and slightly reduced by the end of the year.

On the economic front, the BdP improved its growth outlook by 0.4 percentage points this year. to 6.7%, signaling a recovery from pre-pandemic levels in the first quarter but a subsequent slowdown that will be reflected in 2023.

In the October Economic Bulletin, released today, the organization, led by Mario Centeno, presents only forecasts for this year, but points to the impact of the slowdown in economic growth for 2023 recorded from the second quarter onwards.

“The negative effects of Russian military aggression in Ukraine have intensified over the course of the year, which suggests a relative stabilization of activity from the second quarter onwards. These effects will be more pronounced in 2023, foreseeing a significant slowdown in growth compared to 2022, with a domino effect of over 3.9 p.p. [pontos percentuais] up to 0.5 p.p. ”, it can be read.

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However, for this year, the growth forecast for gross domestic product (GDP) has been revised upward by 0.4 percentage points. up 6.7% from June, with the Portuguese economy “benefiting from a recovery in tourism and private consumption”.

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