Is A Big Change Coming To Cheap Airline Tickets?

We’re in an unbelievable era of cheap flights.  Every time I feel like saying these are the cheapest fares I can recall seeing, we catch another surprise.  As with many good things, it appears it may be possible that the government is fixing to put a dent in that, albeit unintentionally.

I’ve been reading about a bill working its way through Congress that would potentially limit fees airlines can charge.  This is on the heels of a few airlines raising the price of your first checked bag.  Not all the big airlines followed suit.  Even so, some members of Congress feel like they need to act to make sure airlines don’t push fees up further.

Keep in mind most of this is bluster at this point.  No legislation has passed yet, though there’s a reasonable shot something does.  American Airlines CEO Doug Parker decided to weigh in on that possibility.

His comments were interesting:

American Airlines Group Inc. would consider barring passengers from changing nonrefundable tickets if Congress limits what carriers can charge for the adjustments, Chief Executive Officer Doug Parker said Tuesday.

“That non-refundable ticket is of value to us,” Parker told reporters after speaking to a business group in Irving, Texas. “We knew that seat was going to be filled. It allowed us to do other things. We sold the rest of the airplane knowing that seat was going to be filled.”

What Doug Parker is referring to here is the fact that a nonrefundable ticket is currently revenue an airline can count on right now.  If the customer wants to change their flight, they’ll usually be subject to a $200 fee ($300 for international travel) on the Big 3 carriers American, Delta and United.  Even top elite members like myself are subject to fees like that.

My Two Pennies

I buy plenty of nonrefundable tickets throughout the year.  If I had to guess, I’d say over 80% of the airline tickets I buy are nonrefundable.  I’m well aware of the change fee when I’m buying the tickets.  However, the gap in ticket prices between a refundable and nonrefundable ticket still make it worth my while to buy the cheaper flight and pay the change fee once in a while.

You may be surprised by my opinion here.  As a business guy, I agree with Mr. Parker.  The airline industry has plenty of taxes and regulation today.  We don’t need another piece of legislation that tells the airlines what they can and can’t do.  Sure, checked bag fees are a bummer.  There are lots of airline fees that fall in that category.  Along the same lines, I don’t like paying $40 to park my car at a hotel in Denver, Colorado.  We should have legislation to cap those fees as well.

These are publicly traded companies that (unfortunately) have to answer to shareholders.  If they can’t get their returns by raising checked bag fees, they’ll find another way.  Chances are we’ll like that change less than this one.

The post Is A Big Change Coming To Cheap Airline Tickets? was published first on Pizza in Motion

 

10 Comments

  1. Ed, what is your position on the excise tax on tickets? Should it apply equally (or be removed equally) to fare and fees? Do you think that would change the breaking apart of fares and focus on fee revenue?

    1. Nick, applying the excise tax differently would likely bring some moderation to fees. I’m not sure that’s the outcome we want. Publicly held companies are geared towards shareholder return, not necessarily long-term value (though in some cases, both). Lower bag fees would likely lead to higher fares.

  2. The problem is not whether to put a restriction on airlines, but is the monopoly power they started exercising due to mergers. Increasing competition would be the cure but that faces a lot of challenges because of Big 3’s influence over politicians.

  3. I’m a free market guy. airlines can charge whatever they want as long as it is disclosed up front. If I don’t like it, I’ll fly with somebody else. If a non-refundable flight is cancelled, the airline should refund the taxes and government mandated fees that they DO NOT REMIT to the government but instead KEEP. This would soften the blow of ridiculous change fees and make it much more likely for passengers to cancel flights instead of just no-showing. I NEVER cancel tickets I’m not going to use because it gives the airline the option of reselling that ticket with zero benefit to me. If the fight is cancelled/delayed, I get ALL my money back. Airlines should create an incentive to free up that seat and try to sell it for a fortune at the last minute. To encourage airlines to treat tax and fee revenue fairly, maybe Congress should require airlines to remit every penny they collect.

  4. Equating that cap on fees will result in higher airfares doesn’t follow the laws of economics. Sellers will charge the price that the market will bear. I laugh at the people who think they are getting a lower airfare because they don’t check a bag. The airfare stayed the same as before with some now paying more for fees. This add on fee structure is working for the airlines because the market is willing to pay that extra cost. The market is not willing to pay more for airfare due to the growing competition and availability of flights.

    1. Glenn, ton of respect for you and your point of view. Still think it’s likely that if Congress caps fees ticket prices will go up in this economy. Planes are full, shareholder return demand is there. The big guys will push up prices on routes where they don’t compete with Spirit and Frontier. Leisure pricing probably stays low in that environment. But, business travel gets more expensive.

Leave a Reply