Are Change fees for airlines gone? What else has changed for air travel?

THE TRAVEL ADVISER: I have been stringent in advocating that we must learn from the pandemic and adopt new and creative ways in the tourism industry.

 TRAVELERS ARRIVING at Ben-Gurion Airport – looking forward to seeing which airlines buck the trend and state clearly that while they cannot waive an outright cancellation fee, a change fee can be made at no cost. (photo credit: NOAM REVKIN FENTON/FLASH90)
TRAVELERS ARRIVING at Ben-Gurion Airport – looking forward to seeing which airlines buck the trend and state clearly that while they cannot waive an outright cancellation fee, a change fee can be made at no cost.
(photo credit: NOAM REVKIN FENTON/FLASH90)

The political landscape is ripe with change, in Israel, Europe and the United States. Many readers will remember Israel actually had a party whose name was Change.

Shinui, the Hebrew name for change, was a Zionist, secular, free-market liberal party. It was also a political movement in Israel that in 1977 won 15 seats as part of the Democratic Movement for Change. By the next election it fell to two seats, and even in 2003, when it won 15 seats, it disintegrated three years later, when most of its members of Knesset left to form new parties.

Today, Change no longer exists as a political party, although the second largest party in today’s Knesset, Yesh Atid, has very similar principles.

Simply said, change is inevitable but rarely permanent.

It was a few months into the pandemic when the major US airlines in late August 2020 declared that they had permanently gotten rid of change fees for most economy and premium cabin tickets. There were a few caveats, but whether one was flying within the US or for international travel originating in the US, change fees were to be permanently eliminated.

United, Delta and American Airlines made similar announcements in quick succession: Change fees weren’t just temporarily suspended due to the pandemic; they were going away for good on most kinds of tickets for domestic travel.

 TRAVELERS COME and go at Ben-Gurion Airport last month (credit: Arie Leib Abrams/Flash90) TRAVELERS COME and go at Ben-Gurion Airport last month (credit: Arie Leib Abrams/Flash90)

Of course, the companies were not just doing this to be nice. A few things had changed about the airline business in recent years that made change fees less effective, as part of a pricing strategy, than they used to be. And abolishing change fees made it easier for airlines to raise fares on fee-free tickets – while leaving you the option of buying a cheaper ticket that cannot be changed at any price.

So few people were flying that airlines finally realized that change fees angered passengers. Consumer groups for years ranted that an airline seat could be sold again, and if the consumer was still planning on using the product, the concept that to simply change the flight date makes one subject to a fee was insulting at best and draconian in reality.

Please understand the difference between a change fee and a cancellation fee.

Say you purchased a ticket to fly in for your granddaughter’s wedding in February in Boston over President’s Day weekend. Now, why she chose to get married in the dead of winter is another issue, but you decided, after staying at home for the last two years, to venture out into the frozen tundra, and purchased an economy class ticket. You planned well in advance, scoured the Internet, probed your travel agent, and made your educated decision.

Sadly, two weeks later your son called up to say the wedding had been canceled and your favorite granddaughter had canceled her engagement. No reason to travel to Beantown and, sadly, there was no reason to even change your flight, so you had no option but to cancel the ticket completely. You quickly discovered that while those onerous change fees no longer existed, a steep cancellation fee would be applied.

The vast majority of the world’s airlines, including El Al, Israir and almost every airline that flies to and from Israel, quickly joined the bandwagon and loudly declared that one could purchase a ticket and, as long as there was space in the same class of your original flight, it could be changed for free.

Unlike their US counterparts, they were brazen enough to announce that they, too, would permanently waive change fees. Travel professionals made note of it, and even those three US airlines repeatedly pointed out that the free change promise was for flights originating from the US. Throughout the pandemic, American, Delta and United kept extending the no change fee for flights originating outside of the US, stating that their policy could change at any time.

FAST-FORWARD MORE than two years. COVID-19 is clearly in the rearview mirror. Only a few countries, the United States being one of them, still require tourists to be vaccinated to visit. Even fewer countries require a PCR test to enter their country.

Keep in mind that a key aspect of airline business models is price discrimination: finding a way to identify customers who are willing to pay high fares and charge them more than customers who are willing to pay only low fares.

That way, airlines can set their prices so that every passenger on a flight pays a fare that is at least high enough to cover the variable costs of transporting one passenger – such as the cost of drinks and pretzels, and the incremental fuel cost to move the weight of the passenger and his or her luggage – while the fares paid by all the customers on the plane add up to enough to also cover the fixed costs of the flight, such as employee salaries, landing fees, the fuel needed to move the plane itself, and the depreciation of the aircraft.

A price-discrimination strategy makes it possible to operate certain routes profitably that couldn’t be run at a profit if every customer were charged the same price.

Of course, one problem with price discrimination is that even customers who are willing to pay high fares would prefer to pay low ones. So, airlines have to find ways to make rules so that low fares are available only to price-sensitive customers.

It used to be that a key strategy for this was a Saturday night stay requirement: Business travelers usually don’t want to stay over Saturday night on their business trips, so offering lower fares for itineraries that include a Saturday night stay is a way to reach leisure customers but not business ones.

Another key strategy for price discrimination is fares that get higher as you get closer to the flight’s departure: Business travelers are more likely to finalize travel plans at the last minute, so discounts for booking early reach mostly leisure travelers, who may be more sensitive to price.

Of course, if you let people change and cancel their tickets without penalty, then business travelers may just go ahead and book flights early with the knowledge that they can change the ticket later if their plans change. So, for a strategy of price discrimination based on time of booking to be successful, you need a fairly steep ticket-change fee, so that buying strategy won’t work. That’s one reason airlines had historically imposed and increased change fees over the years, to the point where they were, on average, $200.

But some things changed in the aviation industry that reduced the usefulness of change fees to airlines. First, full-fare airlines introduced a fare class called basic economy, which bundles a low price with a reduction in the privileges that come with an airline ticket. At first it was the US airlines, then the European airlines adopted this model, and finally El Al enthusiastically adopted this archetype.

Generally, basic-economy passengers can’t pick a seat in advance, have to board the plane last, and can’t change their itineraries at all. They usually also have to pay extra to bring a full-size carry-on suitcase aboard. A basic-economy offering allows full-service airlines to compete on price with deep-discount carriers like Ryan Air or Spirit while offering the lowest price only to customers willing to experience a degrading flying experience similar to the one they would face on a budget airline.

El Al, unwilling to anger its top-tier frequent fliers, waived the restrictions for its Gold, Premium and Top Premium fliers. They could purchase the most restrictive ticket but still reserve a seat and check in a bag. Credit goes to El Al for being one of the few airlines that sell these basic economy tickets that still cater to their frequent fliers.

As the most price-sensitive fliers have been shunted into this basic-economy box, the remaining leisure travelers who continue to buy full-featured economy fares must therefore be relatively less price sensitive, making it possible for airlines to charge them somewhat higher fares in exchange for features like seat assignments. From the airlines’ perspective, as they try to do price discrimination, this category of non-basic leisure travelers isn’t as different from business travelers as the broader category of economy-class leisure travelers used to be.

IN THE ensuing months, as the world learned to live and travel with COVID-19, leisure travel has rebounded significantly, but airlines continue to report that the recovery of business travel lagged behind. High inflation, huge numbers of company layoffs and a global recession have airlines exceedingly worried about business travel.

Surprisingly, in Israel, while not immune to company layoffs, business travel has returned to full strength. Companies are flying at levels not seen before, and both the last quarter of 2022 and the first quarter of 2023 show no weakening signs.

Globally it is a different story. So right now, there isn’t a lot of money to be made by segmenting business travelers into high-fare buckets.

One of the big questions for the airline industry going forward is how much of the loss of business travel is permanent. Have companies learned that some of their business travel was never really necessary, or could be adequately replaced with virtual meetings while saving time and money?

If the answer to those questions is yes, businesses might be less inclined to send their employees on trips and more sensitive to airfare costs when they do consider sending them. My data in the last six months show that this trend is not occurring, and recent reports show US companies are now flying at pre-COVID levels.

Of course, the other big reason to have change fees – they bring the airlines revenue when people change their itineraries – remains in place. Which brings us full circle to the changes, no pun intended, sprouting from the airlines that are eager to get additional revenue.

El Al just announced the following:

Customers who have purchased or will purchase a ticket until November 30, 2022, can change or freeze the ticket free of charge for departures until December 31, 2023, and will pay only the difference in fare, if the new fare is higher. If you purchase a Lite ticket, change and handling fees will apply.

For tickets purchased until this date, customers can cancel the ticket, receive a full credit voucher, and save the cancellation fee. A cancellation fee will still apply to cancellations of Lite tickets, Award tickets and tickets purchased with cash and points during promotions.

What happens December 1 has not yet been reported, but the writing on the wall is clear. El Al will reintroduce change fees. If so, it will only be joining the Lufthansa Group, consisting of Austrian, Brussels Air, Lufthansa and Swiss, which quietly changed its policy. If you purchase an economy ticket with these airlines, all of the lower economy fares will now carry a $120 fee to reissue. It does not matter if your actual flight date is in one day or six months, simply change the date and you will incur a $120 change fee. And if the new date doesn’t have space in the same class, you will also pay a difference in the fare.

Say, for example, you booked a ticket to Zurich this winter. Fares start in economy class at $270 without airport taxes for a round-trip ticket. If you need to change it, it will cost you a minimum of $120. Want to avoid change fees completely? You’ll need to pay up front $410.

Flying to the US, to avoid a change fee you will have to part with an extra $290.

Which airline is next to join the abolition of free change fees?

Look no further than the airline that swore change fees would never return on flights within the United States or on international flights originating in the US – United Airlines. Yes, United has already informed travel professionals that, very soon, change fees on their lower economy classes to North America would be reinstated. United, too, says that to avoid them, the flying passenger can simply pay more money up front.

I STRONGLY object to the policy of change fees for airline seats when the change is made well in advance. It is hard to think of any other product or service that, once purchased, cannot be changed or exchanged for free. Buy a box of cereal or reserve a rental car, and you can exchange or change it for free. Book a hotel in most locations throughout the world or hire a tour guide, and you can change the date for free. Airlines should be pressured to adopt a strict deadline of when changes can be made for free on all tickets to all destinations.

Most consumers would accept a fee if a change was made within one week of one’s planned departure date, but when it is done weeks or months in advance, there is no logic to believe that an airline cannot resell the seat. Why many airlines will go back to charging clients for a basic right to change their tickets makes no sense, except that they can.

I look forward to seeing which airlines buck the trend and state clearly that while they cannot waive an outright cancellation fee, a change fee can be made at no cost.

I have been stringent in advocating that we must learn from the pandemic and adopt new and creative ways in the tourism industry. Simply returning to what was done in the past is an insult to the changing consumer requirements and should be shunned at all costs.

Airlines understand they are in the service business. They can tout their products, boast of their business lounges, state how secure and safe their aircraft are, but taking advantage of a clients’ real needs, such as changing their flight dates, should be in the forefront of their mindset.

“The measure of intelligence is the ability to change.”

Albert Einstein

As Albert Einstein said: “The measure of intelligence is the ability to change.”

The writer is the CEO of Ziontours, Jerusalem, and a director at Diesenhaus. For questions and comments email him at [email protected]