When United Airlines announced the elimination of domestic change fees except on basic economy fares I pointed out that this increased the gulf between basic economy and ‘regular’ economy fares.
When American made a similar move, while adjusting basic economy I underscored how leisure fares were now basic economy fares – and elite status would no longer be earned on leisure fares.
- Airlines used to ‘segment’ business travelers and leisure travelers with change fees, advance purchase, and Saturday stay requirements. That way they charged higher prices to business travelers that were willing to pay more, while still offering lower fares (that business travelers wouoldn’t buy) to fill up empty seats on the plane.
- That’s no longer how airlines do it. Basic Economy was largely a replacement for this. Most fares started being issued one-way, so Saturday stay requirements were no longer a thing. And ultra low cost carriers offered great fares at the last minute, airlines couldn’t require advance purchase while staying competitive.
Covid-19 has been an opportunity for airlines to ‘start fresh’ in many ways and move quickly. Change fees are no longer the segmenting tool they once were. They’re largely waived through the end of the year anyway. Leisure travelers are booking last minute due to uncertainty. And there really aren’t any business travelers now to segment.
The only ‘mainstream’ writer who has picked up on this real shift that’s going on in pricing strategy in Josh Barro for New York Magazine who writes about the change in just this way.
[S]ome things have changed now in the industry that have 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.
…As the most price-sensitive flyers have been shunted into this basic-economy box, the remaining leisure travelers who continue to buy full-featured economy (or “main cabin”) 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. So from the airlines’ perspective, as they try to do price discrimination, this category of nonbasic leisure travelers isn’t as different from business travelers as the broader category of economy-class leisure travelers used to be.
Ultimately, Barro notes, the question of whether eliminating change fees ‘works’ depends on whether an airline generates more in sales and higher fare purchases to avoid Basic Economy than they’d have collected in fees and that’s the question to watch – but we’re not really going to know until 2021 at the earlier.
But the change isn’t about being ‘customer friendly’ and it wasn’t about share shift – which won’t happen, because major airlines quickly matched each other on this – it’s about modernizing the pricing model and getting rid of a tool that wasn’t relevant anymore, while at the same time making those non-basic economy fares more attractive to less price-sensitive buyers.