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?