With U.S. airlines eliminating change fees on domestic trips (excluding basic economy fares), will that least to more cancellations? And will higher cancellation rates mean that airlines need to overbook flights more than before?
Historically airlines have done a pretty good job managing overbookings, but when it happens it’s not possible. In 1976 Ralph Nader took Allegheny Airlines’ overbooking to the Supreme Court strengthening the ability to sue airlines for overbooking. The Court observed, even then when involuntary denied boardings were much more common, that the chance of a passenger being “bumped is so negligible that few prospective passengers aware of the possibility would give it a second thought.”
Involuntary denied boardings captured international attention three years ago when Dr. David Dao was dragged off of a United Express flight and bloodied by Chicago Aviation Police. After that airlines took significant steps to limit the practice, and even started paying huge sums (in travel vouchers) to voluntarily compensate passengers for bumps. United started giving out as much as $10,000 in bump vouchers, but in a cost cutting move just slashed their maximum by 75%.
- Airlines overbook flights because some people don’t show up. They put a passenger in the seat rather than having the seat go empty.
- This is only a problem when airlines ‘guess wrong’ about who won’t show up, because then they cannot offer immediate transportation to everyone they’ve sold space to.
- If more people can change plans without penalty, will we have more people changing plans – so more people not taking the seats they’ve booked? Will that mean airlines need to sell even more seats for each flight to make up for it?
- And as airlines figure out new change patterns, will there be more instances of ‘guessing wrong’ and therefore more involuntary denied boardings?
It’s really not clear. We’re likely to have more cancellations prior to the day of travel with no change fee. Customers will have an incentive to call in advance to reschedule their trip, since there will be a credit that’s worth retaining. In the recent past the value of the ticket has often been less than the value of the change fee, so customers just wouldn’t call at all.
On the other hand no change fees likely means fewer no shows since again, it’s worth calling in to retain the travel credit that won’t have a change fee wipe out its value any longer.
That could mean that airlines will at least know earlier than before when a flight is really oversold, with enough time to manage things proactively with customers rather than haggling it out at the airport. That will both lower the amount airlines need to pay (no bidding wars at the gate) and also inconvenience customers less.
During the global pandemic we’ve seen an increase in no shows even with waived cancellation fees so the ultimate effect of these fees on now shows, and thus on the incentive to increase overbookings, is not yet known.
And no change fees doesn’t need to mean overbooking flights. Southwest Airlines stopped overbooking flights after the David Dao affair, and they already did not have change fees. So if overbooking does grow, it’s on the airline that does it, not a necessary consequences of the new change fee policy.