Delta Wants To Revamp Change Fees, Make Them Less Painful

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.”

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. I’ve been on their planes and they are far from a best in the market product
    That’s before we discuss their 500 k one way awards to Europe or Sydney

  2. I think a sliding scale of change fees based on how far out you cancel would be appropriate.

    Higher fees closer in when it’s harder to resell the ticket, lower further out.

    Might make people more likely to pull the trigger on tickets as well

  3. @Gary, I was thinking about this the other day and thought it might be just wishful thinking. I book a lot of corporate travel myself and the airline TIX are the most frustrating piece of the puzzle, causing me to coordinate with others around the world and wait to book my ticket (I book hotels right away because they fill up) or I will invariably be calling Delta to change my flight.

    Being a data analytics guy, it seems like Delta actually *could* move the needle on this one by simply altering their models to respond to more fluid booking commitments.

    Here are some options:

    1) Change fees only within 14 days. This would be chaotic, as people would book months out and lock up all the cheap fare classes. Not tenable in the short term, but intriguing: the models would be wacko for the first few weeks and months as they would adapt to “leading indicators on fare classes” to derive a score on “overselling” a few months out. Nobody likes overselling, but let’s say for argument that 30% of bookings 8 months out would be fungible? they would have to build this into their oversell model to prevent prices from skyrocketing as all the indecisive people book a year out and use up all of the X,V,T,U,L,S fare classes.

    2) Modest change fee months out, gradually increasing as we get closer. This might help handle the trip speculators whilst training data for the model is gathered; if a family of five is booking a couple “versions” of a trip schedule eight months out, they would pay a nominal penalty of, say, $50 per ticket if they cancel. Most families would NOT do this booking. I actually might if it is just myself/my wife.

    3) Eliminate elite change fees for highest status members. This would make most expensive flights more fluid; my guess is they would still be charging a premium for, say, a flight MSP-ATL at the 2 week window, but I would be able to change it without penalty. Ditto on an international flight where the “revenue” of a change fee is more or less “built in” to an ever increasing fare as I get closer to the date of the trip.

    Hopefully Delta can lead the industry on this. How the hell does Southwest get away with it? Clearly they seem to function with 1) No change fees and 2) No bag fees !!

  4. The Southwest model is genius because it keeps people booking with Southwest. For example, I might buy PIT-TPA for $150 when the schedule opens.

    As the date gets closer, the price falls to $125. I rebook (without change fees) and secure a $25 credit. This credit (even though it isn’t much) then motivates me to book more flights with Southwest.

    What about making the change fee a percentage of the fare? Just make the change fee 20-25% of the paid fare. I think that would be pretty fair.

  5. That would be great since this is the biggest single reason I don’t book Delta. If I want to change tickets for a family of 3 it’s $600 on Delta, $200 on American (free to change dates to an award ticket same origin destination) and $0 on Southwest. Since I book a lot of trips well in advance, I don’t like having to make a $600 decision since that is going to almost always result in throwing the tickets away.

  6. This is a good sign – very curious how they land on this.

    I choose to go with Southwest primarily because they have a consumer-friendly change policy. It doesn’t seem very fair to me that the airline can cancel my flight, move my flight, change my seat, etc, – all without any recourse on my end – but I can’t cancel or change my flight without an immediate charge. Southwest doesn’t penalize me for life happening.

    If Delta changes their policy on this front, my family’s bookings may no longer be exclusive to WN…

  7. Southwest has it right, hold onto any monies involved in a change and then charge no change fees…that way I still don’t want to change just because I can since I’ll leave money tied up at the airline.

    DL will change and then UA and AA will have to copy just to keep up…but they’ll lose money on this one!

  8. If the airlines drop change fees the Wall Street hedge fund managers will have a fit. “You are hurting shareholder equity!”

  9. One thing I would like airlines to do is expand same-day change (SDC) policies to 24-hours before and after your flight. I’m currently sitting in a hotel in Minneapolis because I finished my meetings way earlier than I thought, and instead of being able to take the 5pm flight back home tonight, I have to take the originally booked 5:40am flight tomorrow because SDC does not apply.

    It seems like a minor IT change…and would make my life a lot easier multiple times every year.

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