Delta has been talking about reducing or eliminating change fees, or providing additional value when they charge fees.
Currently the standard ticket change fee on Delta is $200, which is similar to what American and United charge. However they’ve been talking about changing that,
Delta Air Lines has been dropping hints about a more flexible change policy since its investor day in Atlanta in December – when a top executive said the airline is studying ways to “approach flexibility differently than this industry has in the past’
…”When you say that you want to be seen as a trusted consumer brand, it calls into question all interactions with customers and where there are vulnerabilities to being considered trusted,” [Delta CEO Ed Bastian] said. “When you ask that question, ‘Where are those vulnerabilities?,’ clearly fees are one of the factors that we get dinged on. … So it comes back to us to think about: Are their better ways to manage that?”
…”How do you, with change fees or other fees that you have in the process, how do you turn them into something that people can understand more, why they’re there, and maybe provide greater value alongside it, or change the structure?” Bastian said.
Other Airlines Are More Flexible With Changes Already
Southwest Airlines doesn’t charge change fees. If you buy a ticket and decide to cancel, you retain the full value of the ticket towards future travel. They aren’t the only ones with better change policies than Delta, United, and American.
- JetBlue: outside of basic economy fares, there’s a $75 change fee on fares under $100; $100 for fares $100 – $149; $150 for fares $150 – $199; and $200 for fares $200+.
- Alaska: outside of basic economy fares, there’s a $125 change fee – waived for MVP Gold and MVP Gold 75K members.
Change Fees Are A Price Discrimination Strategy
A couple of years ago I shared American Airlines CEO Doug Parker’s explanation for why they charge change fees and have no interest in changing. It’s part of how they segment business customers from leisure customers, so that they can charge business travelers higher fares.
- Since business travelers may have more uncertain plans, or are less willing to lock in plans no matter how meeting change, change fees cause them to book later.
- And business travelers pay higher fares for flexibility. Corporate deals that discount fares but retain flexibility are discounting off of a higher base.
However Delta’s strategy for earning a revenue premium has been to build its reputation and brand, becoming the preferred carrier for customers as evidenced by strong net promoter scores currently in the 50s. If the strategy is to deliver what customers perceive as strong value, and they’ve already lopped off the low hanging operational fruit like not cancelling flights as often as competitors, they need to turn to the way they charge customers in ways that customers see as punitive.
We don’t know exactly what that means. Parker is right that there is a role for using fees to gate off different kinds of customers in furtherance of a price discrimination strategy. On the other hand fees may discourage ticket purchases (if you aren’t 100% sure of travel plans you won’t buy, and then if tickets get too expensive you don’t buy).
Though Delta Wants To Eliminate Pain Points They Won’t Kill Basic Economy
Interestingly though Delta is reconsidering fees, which customers don’t like, they aren’t reconsidering basic economy. During Delta’s fourth quarter earnings call analyst asked Ed Bastian whether they’d consider eliminating basic economy since it may be ‘brand dilutive’ and Delta is trying to earn a premium from its brand?
Basic economy fares don’t allow changes at all, and don’t allow seat assignments at booking or full elite benefits.
Bastian offered that they “want to have best in class product and services no matter what” a customer’s travel needs, and that “for entry level customers only sensitive to price [Delta has] the best in class there.” He describes the Delta core product as delivering outsized value most greatly to basic economy customers, “but that’s the entry point, once they see the quality of service Delta people provide they’ll stay with us throughout the life cycle.”