Senator Asks for Reversal of Change Fee Increases

Photograph of Charles Schumer ©istockphoto.com by GYI NSEA.

A United States senator is asking airlines to reverse the increases of reservation change fees recently implemented by United Airlines, US Airways, Delta Air Lines and American Airlines, according to an article posted by Nancy Trejos of USA Today.

Charles Schumer — a Democrat from New York — claims that the increase in reservation change fees from $150.00 to $200.00 renders it difficult for families on budgets to travel, arguing that they often buy tickets which are not refundable well in advance to secure the best prices even though they may be forced to change their itineraries due to unforeseen events.

According to the Bureau of Transportation Statistics of the Department of Transportation, the 15 largest airlines in the United States earned $2.6 billion in reservation change fees in 2012 — an increase of 7.3 percent from 2011.

While his heart may be in the right place, I am going to have to respectfully disagree with Schumer.

First, the airlines are not charities. They are corporations accountable to their stakeholders to ensure that they are profitable. Too many years have elapsed where the airlines have lost billions of dollars — to the point where some of them have even asked for and accepted bailout money from the United States government, while others had to choose between going out of business or merging with another airline.

Second, there are the laws of supply and demand. There are fewer airlines operating fewer flights today than ten or 15 years ago. The reality is that ancillary fees are what are raking in the profits for airlines — and capitalism in a democracy allows for-profit companies to to do whatever they can to earn as much money as possible. The ancillary fees are working, all right: if you add what airlines earned in 2012 in baggage fees to the reservation change fees, the figure jumps to greater than six billion dollars — and the airlines want more. Greedy? Very likely — but if passengers pay those fees and the resulting increases…well…that is capitalism at work whether we like it or not, which leads me to the third thought:

I do not believe in general that government should interfere with the free market. Consumer groups and frequent fliers have informally warned the United States government that the approvals of the mergers of airlines in recent years would lead to an era where fewer airlines with less competition would translate into increased costs for passengers — and that seems to be happening, as evidenced by the aforementioned recent increases in reservation change fees.

If families cannot afford the increases in change fees, then they may not be able to pay for airline tickets to be passengers on flights. I am not sure what percentage of airline passengers comprise of families — but if the percentage is significant enough to the airlines and they stop flying because of the increases in reservation change fees, you can bet that the airlines will most likely decrease them; conversely, if the percentage is insignificant, then no amount of senators or congressmen will convince the airlines to reverse the fee increases.

May I suggest to the senator from New York that perhaps he should fight for the cost of living in general to be decreased instead? I would think that the increases in food costs and fuel costs are only two of the expenses which are more important to families in the United States than the increase of reservation change fees by airlines.

I realize that my point of view of how capitalism works may be oversimplified, so I invite you to please elaborate further or correct me where I am wrong — especially if you are experienced and knowledgeable with economics.

Please do not misunderstand me — as with Schumer, I am against the increase in reservation change fees in general as well. However, I do not believe that government intervention is the answer. Besides, no corporation in any industry — whether we are discussing airlines or other businesses — will lower prices and decrease fees simply because they were asked to do so while they are profiting handsomely from them.

To repeat myself: unless the recent increases in reservation change fees ultimately hurts the bottom line more than enhances it, do not look for a decrease in those fees anytime soon…

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Comments (Showing 10 of 10)

  • LesBesTes at 10:17am May 21, 2013

    I don’t like the change fee increases, but also agree with you that the government shouldn’t be in the business of regulating them. I, for one, am voting with my feet. Southwest is going to be getting more of my business on routes where I can fly them. And I’ll be on the lookout for opportunities to fly Alaska, JetBlue, or Virgin American, where the fees aren’t as high. And if enough flyers do this, then Delta, American, USAirways, and United will probably respond by lowering their change fees. And if enough flyers don’t, then those companies will make more money and consumers will just continue to have to make the choice that works for them.

  • duniawala at 10:48am May 21, 2013

    I disagree with your arguments. If the airlines can get bailout money from us taxpayers, they can definitely reduce the change fees. It costs the airline pennies to make the change and then charge a couple of hundred dollars? It’s akin to loan sharking. Capitalism is fine but a line should be drawn between reasonable profit and pure greed.

    Also, the airlines lost billions due to their bad management and service. Oil prices may be one, but they also added fuel surcharge to compensate for it. So that argument is a wash. So should we reward them with unlimited fees?

    Finally, we the taxpayers subsidize the airline industry in billions of dollars. Are the airlines paying back for the FAA, air controllers, airports etc. Even if they pay landing fees they build them in to the price of the tickets. Not out of their profits.

  • craz at 12:07pm May 21, 2013

    Id rather have the Fees and be rid of Schumer

  • puddinhead at 12:09pm May 21, 2013

    Charge the airlines a change fee if they change their flight plans because of mechanical delays, crew changes, etc. That will help cover the costs of the FAA, ATC, airports, etc.

  • NapaPatTours at 12:54pm May 21, 2013

    If you don’t want to pay a change fee, buy a fully refudable, fully changeable fare. The advantage of a discount fare is… Wait for it… THE DISCOUNT!

  • starflyer at 5:30pm May 21, 2013

    Maybe the senator should have endorsed more competition (and lower change fees) by discouraging airline mergers.

  • CalFlyer at 9:43am May 22, 2013

    Most consumers have a compass in their stomach that tells them what feels right or wrong. Meal order options that are priced in line of the cost of the meal feel fair. Fuel surcharges that are higher than the total fuel consumed feel wrong. Change fees that are completely disconnected from the cost of transacting the change feel wrong as well. In an oligopolistic environment there are limited market forces pushing airlines to correct such arbitrary sources of profit (there is no perfect competition in air traffic). The government may indeed want to redefine the rules of the game if they are getting out of whack.

  • wonderbret at 9:47am May 22, 2013

    @duniawala – I respectfully disagree with your argument. To start, the whole point of the bailouts was to ensure viability and continuity in business operations (and its associated employment of many hard workers) while avoiding further bailouts. The bailouts weren’t given to make the airlines more customer friendly per se, but instead keep them employing people and, I would argue, keep domestic airlines in a position of global influence.
    Secondly, the line you define between “reasonable profil and pure greed” is a tough pill to swallow. Unltimatly there are plenty of airlines to choose from – competition will pretty much solve this one for us. If people dislike it that much they will fly Southwest et al.
    As for the airlines losing a ton of money – they sure did, all of them did. While Southwest had (past tense) a great fuel hedging strategy, and DAL has now taken positions in fuel production facilities (as opposed to commodity futures contracts and the like), none of them are exactly raking in the money. If there was a consistent and profitable management strategy out there I can assure you that all of the stakeholders would be happy to force a change.
    Finally, the price of the ticket and their profits are one in the same. It all gets netted out in the end. I’m not defending the airlines on this – I find the fees annoying. But as @NapaPatTours said – if you don’t like the fees, buy a full fare tickets.

  • Lax_Traveler at 12:35pm May 22, 2013

    Already mentioned is the notion that the change fee is generally not aligned with the true cost the carrier incurs to process the change (except instances where complex reissues require manual recalculation.) The reality is that this fee is just another element of the ala carte pricing trend so prevalent today. Since these add-on costs are optional and can be avoided (by buying refundable tickets, travel insurance, or not changing in the first place), it stands to reason that fares in general would be higher if the fees didn’t exist. Those low fares are conditionally available to those willing to assume the risk of incurring the change fee. By discouraging changes the carriers are avoiding a cost that could be material absent the fees.

  • justhere at 9:37pm May 22, 2013

    For those of you equating the change fee to the actual cost of changing a ticket, you are missing the point. Change fees aren’t structured around actual costs of changing a ticket. They are really a penalty to discourage people from changing tickets. If there is little or no penalty to changing a non-flexible ticket then the airline is cannibalizing its flexible fares. There would be no reason to buy fully flexible if the penalty cost tied to non-flexible was too low. Whether $150 or $200 is the right amount, I have no idea. Airlines can only go so high before they either lose business or it just becomes cheaper to buy a new ticket. They are trying to find the right price point to discourage too many changes while at the same time make money from those that do need to change.

    I don’t necessarily agree or disagree with change fees. Just pointing out that the cost of a change fee is more related to the opportunity cost of changing a ticket rather than the actual cost.

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