There have been a few headlines about the American Airlines CEO threatening to end flight changes and cancellations on non-refundable tickets. Disregard, there are much bigger forces at play.
Congress is considering a cap that would limit fees that airlines can charge passengers to change tickets. This is significant in two ways. It would be the first major new constriction facing airlines since the Ronald Regan era of deregulation in the 1980s. It is also good news for passengers.
The restrictions could take one or several forms. Total fees could be capped, but there is also discussion that airlines require longer grace periods within which free changes could be made to non-refundable tickets. Currently, U.S. passengers have 24 hours by law to cancel or change a ticket without penalty.
Some have speculated that any change or cancellation fee reduction would be made up in increased fares. This logic disregards the motivating force behind fee-based revenue: that fees are less visible to the market than fares, opening space for greater margins.
With change and cancellation fees capped, most flyers would neither notice nor give credit for any (mandated) fee reductions. The marketplace for advertised fares would still bare full competitive force.
Surely, airlines are upset about this prospect, as evidenced by Doug Parker’s gaping mouth. U.S. carriers made $2.9 billion off change and cancellation fees in 2017, per The Wall Street Journal. Hopefully, Congress doesn’t care.
High change and cancellation fees disadvantage the poorest and most price-sensitive consumers. Specifics about fees are not advertised with ticket sales, and vary wildly from airline to airline, sowing confusion.
Someone who chooses to spend precious disposable income on air travel and is beset by an unforeseen schedule change at work, or an urgent matter at home, can be penalized hundreds of dollars by airlines, forestalling other purchases. Those same fees don’t phase wealthy consultants and business travelers, who often still book full fare tickets, or can absorb the cost of changes into their business.
Change fees are also largely gratuitous, particularly when imposed well in advance of departure. There is little real cost, at least several weeks in advance, in reassigning a reservation and re-marketing a seat.
Consider that Southwest Airlines, which has never imposed any change fees on any tickets, is consistently one of the industry’s most profitable players.
The fact that Southwest is opposing new restrictions speaks only to the efficacy of these proposed caps. A limit on change fees would standardize one of Southwest’s most widely advertised service pitch: price transparency.
It already seems like airlines are budging, at least capitulating to consider expanding the change-fee window.
This is a somewhat remarkable development, considering that just months ago airlines were lobbying to eliminate the diminutive 24-hour change and cancellation rule already in place.
“I have sympathy for someone who is making a change well in advance,” Peter Ingram, chief executive of Hawaiian Airlines’ parent Hawaiian Holdings Inc., said in a Wall Street Journal interview. “It’s worthwhile for us to consider whether we should change something on that.”
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