Since Southwest has come to Denver, I have been really concentrating my business with them where they have non-stop service (e.g., DEN-LAS). And, honestly, one of the reasons I do that is because Southwest does not have change fees. I still fly Frontier or United when I need to go from Denver to a city that Southwest does not serve non-stop, but F9 or UA do. A good example of that is STL. Its simply not easy to go through MCI with a 4-year-old.
I have wondered for years if any airline (other than perhaps Southwest) has really done a study to compare the revenue they get from change fees with the lost revenue opportunities that they give up by having them in the first place. Remember -- you can't extract a change fee out of somebody if he has bought his ticket on another airline. And, with Southwest's pricing model, they do extract the "fare difference" even without extracting the change fee, so they do make extra money when they let somebody make a change. Just not fare difference plus change fee.
I can understand years ago when the only way to make a change was to call an agent and that type of call really did take a lot of time. But today, with the Internet, a lot of changes a processed on-line where the cost to process is minimal. Southwest, without the change fee, is the king of making change simple. You can cancel your reservation, bank your money and then use it (along with additional funds off your credit card, when necessary) to book a new ticket, either within a few days of your original ticket or several months out. Its so simple, a caveman could do it!
In the years prior to Southwest, I was concentrating on United because I wanted the "2P" status. I was spending around $250 per ticket x 12 round trips per year = $3000 plus about $300 in change fees. Now with Southwest, I spend about $150 to $200 per ticket x 12 round trips = $1800 to $2400 with no change fees.
Was it really a good thing for United to try to squeeze that extra $300 out of me, causing me such a negative buying experience that as soon as there was an alternative, I jumped ship to Southwest? This is especially true of a United who converted to TED, where there were no first class seats available, thus removing the final reason why I would fly with United. United again made that experience quite negative by giving me free first class upgrades, but I almost never flew on a plane that actually had first class. The upgrades expired into a mere 500 points added to my account. Talk about rubbing salt into the wound!
I ask this question here for two reasons:
1) United doesn't seem to be monitoring Flyertalk, the ultimate free focus group.
2) Is there something Frontier can learn from this? Southwest has been profitable for 34 straight years. That string of profitability is what gave them the financial strength to buy their fuel hedges when other airlines could not, which further increased their number of straight years of profitability. There is a lot of similarity between F9 and WN, such as no first class seats and standardizing on one common aircraft (A3xx or 737-xxx). Yet, maybe its the change fee (or lack of it) that keeps Southwest's profitability more stable and adds to the variability of profit at Frontier?
I think a real study of the change fee might be quite revealing. Its not as simple as look at the "change fee revenue" account and saying "if we got rid of the change fee, we'd lose all that revenue, case closed." The important questions are: Do people understand the change fee and move more of their business over to Southwest because of it? How much in additional ticket sales would you get by luring people away from United and Southwest by getting rid of the change fee? Would the additional ticket sales more than offset the lost change fee revenue?
I know in my personal case, it would. I'd fly some of my DEN-LAS runs on Frontier when your departure times were better than WN. When it was even-up, Frontier would win with the Direct TV. I'd buy most, if not all of my DEN-STL runs on Frontier if Frontier didn't have the change fee and United did. I just did a DEN-STL run. I would have bought on F9. When I looked once, the price was great, but the need for my trip wasn't set. Then, when the need was set, your price jumped faster than UA. So, I went with UA. Had F9 had no change fees, I would have bought with F9, knowing I could either use those tickets immediately or cancel and rebook either soon or around XMAS time. Even if I cancelled, you'd know that you would have a customer at XMAS. Instead, you are in a price competition with UA for my XMAS business. And, God help you if WN decided to start flying between DEN and STL non-stop.
I can't be the only one that has figured out the change fee game and has been burned by having to pay them. I think there are a whole lot of people flying Southwest exactly for this reason.
This posting is strictly personal opinion and doesn't reflect Frontier's stance on this.
I personally wondered whether Frontier's change fee policy would change with the entry of Southwest into the DEN market - but Frontier seems to have strayed from that idea and gone with another strategy.
Frontier's "standby" policy allows passengers to standby for any flight between the two ticketed cities on the same calendar date at no charge.
Alternatively, passengers can also confirm a seat (if available) on another flight between the same ticketed cities for a $25 fee within four hours of the desired flight departure time.
On a return trip, or on a one-way ticket, any passenger can confirm a seat on another flight or flights between the same ticketed cities a day before or after the original ticketed dates for a $100 fee. The four hour rule also applies. The fee is waived for Summit-level EarlyReturns members.
In each of the above three scenarios, a passenger who had purchased a ticket on Southwest would have had to pay a fare difference. Depending on the type of ticket and the action taken, the Southwest fare difference could be more or less than the Frontier charge.
These fees are tracked by accounting, and Frontier is becoming more and more detailed about fee collection. In the latest release of SABRE, the ability to "override" the system has been disabled, and only fee collection will ensure that all flights are confirmed OK after changes. Waivers are checked and followed up on.
Additionally, the functionality of electronic flight credits and voucher hasn't been implemented in the online SABRE system. Flight credits can be applied, but only by reservations or airport ticket agents. Flight vouchers are still paper vouchers, and it appears that it will stay that way for the time being.
Frontier is still adopting technology conservatively, beginning with new kiosks being implemented in Denver. Kiosks and barcode scanners at the gate will start appearing in more stations later this year.
I think until customers demand a change in the current policy or a study is done and suggests that a revised policy would generate more revenue or loyalty, the current policies will stay and evolve.
Thanks foxnine. Always interesting to get an insider's perspective.
I don't think that customers are going to "demand change." I was a F9 customer and probably will be again. But, I'm not going to "demand change." I'm going to "vote with my feet" and "vote with my money." While Frontier is "studying the problem" I'm over flying on Southwest. Would I switch back to Frontier if Frontier didn't have change fees? YES. You've got the DirecTV that Southwest doesn't. But, if it comes down to DTV or change fees, Southwest is going to win. Southwest is winning.
Frontier doesn't need to survey its own customers, it needs to survey Southwest's customers to figure out how to get them to come over to Frontier.
Those change fees are now officially waived for Summit members (they seemed to do this before but it was on a case-by-case-basis, a couple months ago it appeared "officially" on their website). I don't believe there is any other airline that offers this benefit this for those who fly a mere 25,000 miles per year. With 100% success rate getting exit row aisle seats at time of booking for the last 6 months+, I'm going to go ahead and keep my business with Frontier, rather than enjoy the cattle-call seating and no entertainment that Southwest offers (well, unless you count the "funny" FA's as entertainment, which I am sure would get very old, very fast).
Most interesting. I did not know they waived change fees for SUMMIT level members. I knew that United wavied change fees for their top level flyers, but of course that is the 1K members that fly 100,000 miles per year. There is a big difference between flying 25K miles per year and 100K miles per year.
I fly 25,000 to 30,000 miles per year, which would get me SUMMIT *IF* Frontier flew everywhere I needed to go. However, they don't. For example, RNO-LAS (I'm not flying back to Denver to go from one to the other). Frontier's times for Denver-Reno aren't very good for me. If I drop out the flights where RNO is a beginning or end point, that puts me below 25,000 that I can give to Frontier. Actually, its kind of questionable if I'd make 15,000 (ASCENT level).
The SUMMIT offer works good if you do a lot of out-and-backs from Denver, but not if you have a more complex flight pattern.
If I could get SUMMIT from Frontier, yeah, I think that would be better than flying Southwest. But, not really a practical option for me.
While IFE is great and assigned seats sometimes would work in my favor (other times not -- if your preferred seat is already assigned), the cool thing about Southwest is that you don't have to be so loyal to them to get all of the perks. With Southwest, you get no change fees and preferred boarding (at least the A group) whether you fly with them one time a year or 30 times.
By not being loyal to anybody, you can get some perks on other airlines some of the time, as well. Example: Say you want to go from DEN to PHL. Southwest isn't a great option as you need to connect at MDW. Frontier didn't have the flight times that I needed. So, I took United. Could have (and should have) bought my way up to E+ for $44. Came back on US Air and paid $150 for an upgrade to first. Obviously, not options on Frontier, yet nice for a long flight.
That is why Southwest has become my primary carrier and then I just spread a little bit of business around on the other airlines. I don't have to "earn" the SUMMIT and associated no change fee treatment. I get no change fees from day 1 with Southwest.
Now, if Frontier and the others would see that and see how much business they are losing by continuing these crazy change fees, they'd have a better chance at my business, instead of just getting the "crumbs" -- the few times when I really know my travel dates and Frontier just happens to price out better than United and Southwest, and has better times than either of them.
For me, its a situation where "Southwest wins all ties" -- when everything else is equal, Southwest wins because of no change fee. When Southwest isn't non-stop, or rarely is priced higher, then, and only then does United and Frontier get a shot at my business.
No wonder Southwest has been profitable for 34 straight years. It is a case of the legacy carriers just being too greedy regarding the change fee and chasing away a lot more business than they make up by charging the change fee.
Its no wonder so many airlines are unable to compete with Southwest. They are unable to get the simplest idea - Do right by the customer. They solve for short term revenue by nickel and diming customers - at the expense of customer loyalty. Below is one horror story I had with trying to change tickets and getting screwed by one of the formerly 'Big' airlines that are getting their butt kicked by Southwest.
I booked a trip for Europe on Continental, but went into escrow on a house I had been trying to buy for 6 months. They charged me for each ticket - somewhere in the neighborhood of $100-$200 each (I can't remember) for changing my itinerary, and gave me only 1 year from the change date to complete the new flight, and said I had to get 2 tickets of equal or greater value. As my wife was a teacher - we could only go to Europe during the summer - so the end date of our trip would be longer than a year - so we had to travel during spring break. We wanted to go to Florida, but we could not find a flight that was equal or greater value so we had to settle for a trip to Hawaii which ended up costing about $1400 a ticket for really crappy flight times and layovers. Despite my frequent flyer miles and my 12+ year association with Continental, that was the last time I flew on the airline - 4 years ago.
The airlines know they can extort rediculous amounts of money from fares by targeting business fliers who care little about how much it costs.
Companies pay the high fares for several reasons.
1) Sometimes it's a company's client who pays the fare.
2) Their employees like to be on legacy airlines with which they have status and lots of miles with the opportunity to get upgraded. SWA does not offer business class.
3) Employers also probably would rather pay the higher fares for the sake of efficiency and employee happiness.
4) They get special deals from the airline
If there were no changes, nobody would buy a $500 refundable domestically, becuase you could buy a $130 fare and change it all you want as business schedules change.
I don't think United really wants to charge the change fee. I don't think they make much money out of it. What it does is force people to buy refunable tickets which is where they make bank.
Maybe you can think of a policy where the legacies can sell business tickets at outrageous prices without charging a change fee to the average joe. I believe they'd even prefer it, but it's just not easy to do.
Last edited by Khabibul35; Sep 12, 07 at 11:06 pm.
Maybe you can think of a policy where the legacies can sell business tickets at outrageous prices without charging a change fee to the average joe. I believe they'd even prefer it, but it's just not easy to do.
I can think of one business model (Southwest Airlines), but it doesn't include selling business tickets at outrageous prices. Southwest's model is based on the concept of charging a FAIR price for each seat, not trying to see now much they can rip off someone who just has to get there.
However, that does not exclude a legacy business model where, a day before the flight, all tickets are $1000 each way (even though Southwest would never charge more than about $350). There certainly is some value in going across the country without stopping, and between some city pairs, the legacies do this where Southwest does not.
Capitalism requires that all airlines charge whatever the market will bear. So if a legacy can get $1000, great for them.
But, capitalism also works by preventing a single seller from setting an outrageous price for something. And, price is more than just the raw price, it is also the terms and conditions such as the change fee.
In today's market, we have a variety of airlines. Most charge change fees, one (Southwest) does not. Make a list of airlines, from most profitable to least profitable. Look at who (Southwest) has been most profitable for the most number of years. I understand that Jet Blue has a smaller change fee (like $25). Take a look at who is at the top of the list and what their change fee policies are. I think we will find that the most profitable airlines are those charging little or no change fee.
You ask why would a business traveler pay $500 for a refundable ticket when he could buy a nonrefundable ticket for $130 if the nonrefundable ticket came with no change fee? The answer is: He would not. So, by this logic, the legacy carrier has made an extra $500-$130 = $370. Great theory, and probably even works some of the time. What about the business traveler that says "that is a ripoff" and goes over and flies with Southwest? Now the legacy carrier has lost the $130 in business that it otherwise could have got. Southwest now "owns" the business traveler for this trip. If the business traveler's plans change, the natural tendancy is to use the $130 toward a new ticket. That business traveler might end up paying $500 at Southwest because of the last minute change. But, that $500 ticket now goes to Southwest, not the legacy carrier. Granted, the business traveler might bank his $130 and pay $500 on the legacy carrier for those supposed "extra comforts" of a legacy, but sooner or later (and, certainly within 1 year), the business traveler has to get back to Southwest to use up his $130, since it was changable without a fee, but not fully refundable.
I think the bottom line is that it is better to sell a ticket to a business traveler at a leisure traveller's price, than it is to NOT sell any ticket at all and see that sale go over to the competition. Further, while the business traveler MAY travel as scheduled at the low price, if plans change, the airline that made the low price sale is probably going to hold on to that traveller at get a higher price from him.
Business travelers that have a high frequency of change may stick with the legacies since they are consistently paying the higher price anyway. Business travelers with a low frequency of change are likely to move towards the Southwest business model, passing on the lower prices to their clients (thus, making them more competitive than their competitors) and paying the higher fares only when necessary.
If there really were some significant differentiating factors between the legacies and Southwest, there might be more merit to the argument that its worth it to pay extra on the legacies. But, a coach seat pretty much is a coach seat. Yes, United has E+, but Southwest has more open middle seats than United. For me, an open middle is E+++. When its Southwest vs. Frontier or Southwest vs. TED, there is no chance of first class upgrade, so the first class upgrade advantage goes away. If you are a heavy United mainline flyer, then putting up with TED now and then, to earn more chances at first class upgrade for most of your flights might make sense. But, if your travels are mostly TED routes, then earning first class upgrades is almost an insult, since more than likely they will expire worthless.
Bottom line -- which airline has been profitable for the last 34 years? I'd say that is the best business model.
If there really were some significant differentiating factors between the legacies and Southwest, there might be more merit to the argument that its worth it to pay extra on the legacies. But, a coach seat pretty much is a coach seat.
True, but a good number (majority?) of business travelers are not paying for their own tickets... and they want to go international on their vacations, using the FF miles/points they earn and get to keep. That won't happen with Southwest. I would say the biggest differentiator is whether you are paying for your own tickets or not, and if not, how "stingy" your company is about making you take the cheapest flights, versus taking your preferred flights.
Bottom line -- which airline has been profitable for the last 34 years? I'd say that is the best business model.
You know, I'm not arguing over who has the best model it's just that they're competing for different segments of the market. In the purse market Gucci and Walmart's generic purses are not generally vying for the same customer.
Now that's an extreme example and in the airlines business that's probably not as true, but the market is most definitely segmented according to the type of service a customer wants to see.
Frequent flier programs tend to try to win a customer permanently and make his demand for their product non-elastic or seem non-elastic. It significantly lowers competition they face with southwest.
I'm telling you, my friend is an accountant and generally price conscious but his company constantly books him tickets for what seems to be the highest fare available. In multi-million business deals $400 is sneezed at. Now not every business acts this way but it's certainly worth noting. And when they pay a high price you know the airline will take care of you. They'll rebook you, and interline you. SWA won't even if every flight of the day is cancelled. That's why businesses aren't keen on Jetblue after that debacle.
If I flew a lot and had a business and (and if Southwest would serve any of the NYC + Logan) I would fly them. It would be convenient for me. But generally my flying comes and goes in spurts so you can never know and I could never really be sure my SW rewards credits are safe from expiration. Plus I find the same deals on other airlines or within an alliance. I have never had to cancel or change a flight so the cancellation fee is generally not important. Thus I fly skyteam for the most part. I may not be the type of flier the legacies are targeting but in this case I fall within their market segment.
You know, I'm not arguing over who has the best model it's just that they're competing for different segments of the market. In the purse market Gucci and Walmart's generic purses are not generally vying for the same customer.
Now that's an extreme example and in the airlines business that's probably not as true, but the market is most definitely segmented according to the type of service a customer wants to see.
Frequent flier programs tend to try to win a customer permanently and make his demand for their product non-elastic or seem non-elastic. It significantly lowers competition they face with southwest.
I'm telling you, my friend is an accountant and generally price conscious but his company constantly books him tickets for what seems to be the highest fare available. In multi-million business deals $400 is sneezed at. Now not every business acts this way but it's certainly worth noting. And when they pay a high price you know the airline will take care of you. They'll rebook you, and interline you. SWA won't even if every flight of the day is cancelled. That's why businesses aren't keen on Jetblue after that debacle.
If I flew a lot and had a business and (and if Southwest would serve any of the NYC + Logan) I would fly them. It would be convenient for me. But generally my flying comes and goes in spurts so you can never know and I could never really be sure my SW rewards credits are safe from expiration. Plus I find the same deals on other airlines or within an alliance. I have never had to cancel or change a flight so the cancellation fee is generally not important. Thus I fly skyteam for the most part. I may not be the type of flier the legacies are targeting but in this case I fall within their market segment.
I definately do agree that there are different market segments. But, using your example, whether you bought your purse at Gucci or Wal-Mart, wouldn't you expect that either store would allow you to exchange the blue purse for the green purse, provided that you returned the blue purse unused? Some companies, in some situations do charge a "restocking fee," which is essentially the same as a "change fee." A restocking fee is generally charged when an item is returned and the package is opened. In the case of an airline ticket, if you haven't stepped on to the airplane, the ticket is as unused as the purse that still has the original tags on it. That is what really gets me.
I personally don't think that TED is any better than Southwest, but there definately is some value in E+. Frontier has the DirecTV for sale (or free if you have status). But, is it worth $100 change fee to watch DirecTV?
There can be no doubt that United offers value in that opportunity to upgrade to first. Between first and coach, there definately is value. If you can get up to first for free, well... That is where my "handle" comes from. Paying to upgrade to first... It depends on how much it costs and how long the flight is.
I'm all for companies that pay for their employees to fly on an airline that gives the employee more. I think the key "more" is more service and more comfort while on-board, but if the "more" is overseas travel, and the employee values that enough to suffer in coach, that is OK too.
