By John McDermott
Analysis: United Airlines Drops Change Fees
United Airlines announced over the weekend that it will permanently drop change fees on domestic flights in a move most likely intended to win over passengers while demand stays low amid the coronavirus pandemic.
Going forward, travelers with standard economy and premium class tickets will be allowed to change reservations without paying the once-standard $200 service fee. They will only be responsible for changes in ticket prices if they change to a more expensive option. There will be no limits on how many times a flight can be changed.
Passengers who book basic economy tickets will still need to pay applicable fees to change since basic economy does not allow for changes, though United has extended its change-fee waiver on all tickets through the end of the year regardless.
United is also going a step further. Starting in January, it will allow paying customers to depart earlier or later in the day to do so on standby without paying the current $75 same-day change fee.
How and whether these changes will be extended to United’s regional partners is unclear. The airline also didn’t announce any changes in fees for international flights, so it seems that those services will continue to see change fees in place.
“Following previous tough times, airlines made difficult decisions to survive, sometimes at the expense of customer service,” said United CEO Scott Kirby in a news release. “United Airlines won’t be following that same playbook as we come out of this crisis. Instead, we’re taking a completely different approach – and looking at new ways to serve our customers better. When we hear from customers about where we can improve, getting rid of fees is often the top request.”
United says it has dropped change fees “forever.”
Kirby said United is trying to serve its customers better. The airline has had a myriad of PR disasters in recent years, like when a doctor was forcibly pulled off an overbooked United flight 2017 or when several animals died in its care in cases that received lots of media attention.
United is making a bet that its announcement will make it seem like a more passenger-friendly airline — an image already attributed to carriers like Delta and Southwest — to convince people to fly with it more often, choosing it either over other airlines or over other modes of transport.
The carrier’s announcement will be especially welcomed by leisure travelers, which are driving much of the industry’s recovery at the moment. While business travelers often do not pay for their flights – companies pay instead – and therefore don’t mind as much if change fees are eliminated, leisure travelers do pay their own fares and will certainly be more apt to consider United for travel since there is less possibility for fees throughout their trip.
United is the first legacy airline in the U.S. to make this move, though Southwest Airlines has employed the same tactic for years. It’s one of many perks, including others like two free checked bags, that draw many to Southwest over other airlines that have become notorious for charging an increasing number of fees.
Southwest has said on multiple occasions that it uses its lack of fees to attract customers disgruntled over how high costs are at other airlines. That carrier’s practices are one of the big reasons that many see Southwest as especially good to its customers.
Fees on things like flight changes and checked bags gained traction in 2008 during the industry downturn associated with the Great Recession. Fees have since been added for things like priority boarding and extra legroom.
Airlines have long used change fees as a way to offset the lost revenue they could have made if the now-empty seat had been filled. They are meant to cover the cost of the seat a passenger is abandoning in case nobody else books it.
“We have the change fee policy to protect against revenue dilution,” Morgan Durrant, a Delta spokesperson, told Frommer’s. “In other words, it helps us retain revenue that otherwise could have been lost through another sale.”
Yet passengers worry that the massive amounts of money airlines bring in from fees – they made a collective $2.8 billion in ticket change fees alone in 2019, per the U.S. Department of Transportation – is really being used to unreasonably bolster profits.
United’s move is a monumental one, unlike any seen since the industry norm became adding on new fees. It may force other airlines who continue to charge fees to respond either by matching United’s deal or by offering better perks, possibly following Southwest in offering free checked bags.
At the time of writing, no other airlines have yet responded to United’s announcement, though such can be expected in the coming days and weeks. As passenger counts hover still around 30% of where they were a year ago, all airlines will make whatever effort they can to compete and gain passengers as demand recovers.
Questions still linger about what fees could look like in both the short- and long-term. Immediately, the fact that United canceled its change fees during an economic period similar to that in which it introduced them raises questions. Granted the nature of the coronavirus crisis is much different than 2008’s financial crisis, it seems that now United thinks scrapping change fees to attract more customers is a better way to raise money than adding or increasing – or at least retaining – fees at their current levels.
It is unclear if United’s move will have any real short-term impact if other airlines also follow suit. In an industry where pricing is notoriously competitive, airlines would once again be at a pricing stalemate if more drop or eliminate charges. It’s also unclear if United’s move will be enough to attract passengers at all considering that change fees will be waived through the end of the year regardless, but the announcement will certainly help to boost the public’s perception of the airline.
In the long run, United’s announcement could impact how it prices flights. In the past, change fees were a big source of revenue for airlines, especially if they managed to resell seats once occupied by a rebooked passenger. By eliminating change fees, United may need to slightly increase fares across the board to offset this lost revenue, which means that all passengers could have to pay for United’s choice.
Still, the move could prove to be part of a larger revamp of United’s pricing structure, which could impact the industry in a much-more influential way. We could see a bigger gap develop between basic and regular economy, or we could see a more drastic change in how the airline charges passengers.
The decision could also impact passenger booking behaviors, which airlines have long used to develop algorithms to determine how to price flights. It will take time for United to collect new data on how passengers book flights, which could throw fares off balance for months or years until any new trends are identified and accounted for. Algorithms that determine how much United can oversell flights safely could also be impacted, forcing the airline to adjust its data and potentially bump more passengers involuntarily for a time. This will be especially prevalent for passengers wishing to fly standby on a different aircraft who may have to deal with bumped passengers also trying to fly get back onto a flight the same way.
Despite all the uncertainties, United is confident that this move is one of multiple that will help it stand out as demand continues returning.
“We believe that when demand returns, based on the work the entire United team has accomplished in cutting costs to respond to the crisis, we will be in the best position to reach cash burn breakeven, which we expect will be in an environment where demand and capacity are down around 50%,” United CFO Gerry Laderman said in July, per Business Insider.
U.S. airlines lost a combined $10 billion in the second quarter. As the third quarter enters its final month, airlines will be preparing to announce their profits for the summer months — often considered among the busiest of the year — though passenger counts have not been much higher than totals in April.