JetBlue’s Brilliant Change Fees and the End of Changeable Tickets Altogether

Lucky notes that JetBlue has increased their ticket change fees — but will waive those fees for elites (cough, Mosaic is their Animal Farm elite program).

And those fees will vary based on how far in advance you book your tickets and on the price of those tickets.

Change/Cancel Fee Amounts – Effective May 17, 2013
Changes and cancellations made 60 days or more prior to departure date:

$75 per person fee
Changes and cancellations made within 60 days of departure date:

$75 per person fee for fares under $100
$100 per person fee for fares between $100 – $149
$150 per person fee for fares $150 or more
*Note: Customers who booked their reservation prior to May 17, 2013 will be allowed one change or cancellation at the previous fee structure – $100/per person or $50/per person for fares under $100.

The structure actually does make some sense, but I bristle at how Lucky thinks about change fees.

As a consumer this has been extremely aggravating to watch, because change fees in no way reflect the cost of providing that service. We might not like paying for checked bags, but at the end of the day we can rationalize the fact that checking bags costs the airline money.

I actually think the exact opposite.

We pay for checked bags in large measure because of the 7.5% federal excise tax on airline tickets. Anything you can get out from under the ‘ticket price’ isn’t subject to that tax.

There are many ancillary fees that are about pricing a limited resource that used to be given away for free. There are only so many exit row seats on a plane, so charging for those since people like them better makes sense.

But offering checked luggage comes with substantial fixed costs but very low marginal costs (some incremental fuel due to weight, but the number of baggage handlers don’t change much based on how many bags you check).

Checked bags ‘cost the airline money’ but don’t really at the margin which is why I’d expect (absent the tax distortion) checked bags to be more likely bundled into ticket price than most other things in the future. And of course American bundles them with their Choice fares now, and many airlines bundle them with co-branded credit card signups.

Meanwhile change fees do reflect ‘a cost of providing that service’ at least as travel dates approach — which is why JetBlue’s fee structure makes so much sense.

If I book a ticket 11 months out, and change it, the airline loses more or less nothing but I have a hefty change fee. They still have every opportunity to re-sell the seat.

But if I cancel my reservation the day of travel that’s a seat which may go empty, that the airline could otherwise have sold sometime between when I made the purchase 11 months earlier and the date of travel. A high change fee certainly seems appropriate (the ‘cost of providing the service’ is the real possibility of ‘revenue foregone’).

Now I remember when change fees were $25, $50, and then $75. With that frame, $150 seemed ridiculous and $200 ludicrous.

On the other hand I’ve often wondered why restricted, non-refundable airline tickets are changeable at all? I’ve certainly seen international fares published that allow no changes, and that cancelling offers no residual value. We buy plenty of things that we cannot return, that are use it or lose it.

Those often are at least transferable, and for which there’s at least a grey market in resale, while ‘security’ rules only allow us to travel under our own names and so tickets become non-transferable.

Ironically, when JetBlue first launched their travel credits were 100% transferrable. The change fee was $25, so if you cancelled a ticket you lost only $25 in value and anyone could use that remaining value. (A dozen years ago as well, SAS tickets were transferrable for a $25 fee — you could change the name on a ticket to someone else’s — provided that you signed a form that the tickets were for personal rather than business use.)

At a US major airline standard of $200 change fees on domestic tickets, that might as well make many tickets totally non-changeable and thus just throwaways if unused for me, at least when I’m buying one-way tickets.

If there was an economic reason for airlines to offer non-refundable tickets with residual value, the $200 change fee does away with a good bit of that. There might be some point at which the change fee is so high that it hurts the airline.

Of course the existence of residual value could itself have been a relic, and we’re entering a future where restricted tickets have no residual value at all.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Interesting analysis, Gary. Still, I don’t like this change fee policy for at least three reasons:

    1. I wonder if airlines really do suffer a loss when passengers make changes that trigger fees. True, some seats go out empty. But many are filled by standby passengers or others who switch into those seats for various reasons. And if the change means that the airline can sell the seat for a higher price than what the original passenger paid, the airline makes a nifty profit even without charging the fee.
    2. The logical extension of your reasoning is that hotels, restaurants, car rental agencies, etc. should charge change fees not just on prepaid deals (as hotels sometimes already do) or for the most swank establishments (as a few restaurants do), but all the time. After, all a room/table/vehicle MIGHT go unused for any of these businesses…though like the airlines the hotels and car rental businesses might also be able to charge substantially more.
    3. I guess a partial, possible rejoinder is that people can take their business elsewhere if they don’t like the fees. But increasingly, with the mergers, they can’t do so. We have something approaching an oligopoly, with all of the restrictions that means for freedom of choice and free markets operating as they theoretically should.

  2. the stupid thing about $200 flat change fees is that it neither takes into time nor original ticket cost into consideration. A cheapo LA to Vegas cost the same change fee as a $800 last minute transcon.

    JetBlue’s fee structure is definitely more than fair

  3. Wouldn’t change fees tired to the availability of seats across fare buckets at the time the change is made be a more reasonable, and easily implementable, solution?

    I know very little about the intricacies of revenue management, but it seems probable that it could be a winning solution, and would keep customers happy. It also seems less likely to result in resentment from pax.

  4. Airlines’ captive travel insurance companies will offer cheaper cancellation motivating a much larger percentage of the traveling kettles to buy insurance.

  5. “There might be some point at which the change fee is so high that it hurts the airline”

    And we reached that point years ago. If I have an optional domestic flight to take, say a long weekend leisure trip, I will only book it on SW. A decent fare on the majors requires that I book way in advance, and if my circumstances change, or a family member becomes ill, I risk losing most or all of the ticket price. Except on SW, where I have a full year to use that fare at a time that works for me.

    It’s different for business travel, or someone going to a funeral or wedding, but for leisure domestic travel I’m either flying SW, or I’m just not going. Instead of risking losing a substantial sum, I’m saving that money to spend on restaurants etc in Europe, and flying there on “free” award tickets gained thru cc sign up bonuses.

    I’m not booking at least 4 or 5 flights a year with non-SW airlines because of the change fees. And I’m sure lots of others are doing the same thing. SW must rejoice every time the other airlines raise their fees, it’s more business for them.

    As for Jet Blue charging a $100 change fee for a $100 ticket, even if changed as much as 59 days in advance,that’s just obscene. Having read their new policy, including a $75 fee for a change made many months in advance, I’m just not flying them at all. Ever…. !

  6. The problem I see is that the changeable fares are ridiculously expensive, often 100% more than the base fare. American is at least doing some reasonable changeable fares, but I continue to be loyal to Southwest for this reason.

  7. The raised change fees will also impact business travel even more. We tend to already fly Southwest even for business because the trips can and will change.

  8. Gary, an alternate point is that many airfares are NOT in the $200-300 range that would make these tickets throwaways with a $200 change fee. Here in Hooterville, I must first fly on AE to ORD or DFW. Then on from there. Those AE flights are outrageous, whether bought 10 months in advance or 2 days in advance. AA is making money on me if I need to change, and $200 is a small price for me to pay given the alternative of switching to a $600-$800 fare from Delta or United. In fact, by going to $200, AA is almost begging me to fork over $68 for Choice Essential. I pay it, because even if I change only 1/3 of the time, I’m still at breakeven given the $200 fee. It’s a no brainer now. It SUCKS, but still.

  9. Just as Mr Hanson above, my strategy to address this change fee situation is to book weekend getaways that are more than a month away on Southwest as soon as the plans are first made (along with a hotel points booking to secure a room). I will then monitor the majors for their fares leading up to the trip, and if they move positively and my pans firm up, I will switch over and take my southwest credit to be used for another trip. The same goes with hotel room rates, I will monitor until they reach my desired price in relation to firmness of plans.

    Ostensibly, I interfere with SWA’s inventory, but they secure a fair share of my domestic airfare spend as much as I loathe flying them. The new AA choice fares are intriguing, but still require additional spend unlike SWA fares and policy. De minimums fees coupled with active revenue seems more desirable to me than this punitive system, especially in an environment with SWA and tight capacity where few seats are going stale.

    Then again imma person that pays a premium for the customer service of AMEX, Nordstroms, Costco, and other customer friendly businesses.

  10. When nonrefundable fares were first introduced in the 1980’s, tickets were “use it or lose it”, but with exceptions (for example, ticket would be refunded with a doctor’s note that the customer could not travel). This was so heavily abused that airlines went to the “non-refundable but re-usable” model in the 1990’s (starting with $25 change fees, as Gary has noted, but quickly escalating at a rate that makes health care and college tuition inflation look very tame)-:.

  11. I understand a business trying to recoup their costs (agents on the phone line, ticket agents, etc. – all that costs $$$), plus most airlines ALSO charge you the difference in the fare. While I appreciate the analysis of this posting, I also have to take issue with the observation about an “empty seat”. I’m a business traveler and very seldom have I observed an “empty seat”. There are usually 20 people who can’t go “standby” so I take a little issue with that.

    Personally American used to have a great, economical policy, if you wanted to confirm an earlier flight on the same day it was just a $25 fee. That was great.

    But alas, all good things came to an end. To me, that illustrated how much that change really cost the airline, $25, not $100, $150 or greater, just $25, if even.

    Also, the point being missed here is that cargo is actually how the airline makes most of it’s money, not passengers, so just remember when you’re on the plane, it’s not your bag below, but the cargo hold carrying “who knows what, where” that’s actually paying for that ride.

  12. I couldn’t agree more with your analysis. It’s spot on and, with respect to baggage handling, I do suspect that charging for checked bags costs the airlines real money in terms of slower turns through slower boarding, and having to have staff available to gate check.

    I also cannot understand people’s visceral hatred of change fees. It’s part of the financial equation when you book a ticket – pay more for a changeable or less but take the risk. Any sensible traveller will have insurance that covers trip cancellation through emergency, and I self-insure for inconvenience. Having done 100,000 miles plus each of the last 6 years, I’ve only once had to change a flight which was not changeable.

  13. “I also cannot understand people’s visceral hatred of change fees.”

    It’s the old story that human beings are loss averse. We’d rather pay more on average for a sure thing than take the chance of a loss once in a while.

  14. NB, we’re livid because:
    – Somehow Southwest Airlines seems to manage okay with making award bookings 100% refundable and other flights changeable for just the fare difference
    – Nearly all hotels (excepting with prepaid stays) are somehow able to permit cancellation up to the day before for no fee
    – It seems increasingly rare, as Ken noted above, that there are empty seats.

    And the whole empty seat thing is ridiculous in and of itself. Aside from close-in cancellations… one of two things will happen if you cancel a reservation:
    1) There’s now an empty seat on the flight, but since no one booked it in the last [x] days, it’s unlikely it would’ve gotten sold anyway.
    2) There’s no empty seat on the flight, and in fact, the airline was able to sell it for far more than you paid for it (either with close-in award fees or simply the no-longer-applicable 7/14/21-day advance discounts)

    I would guess #2 is FAR more common than #1, so in essence, I presume airlines would do quite fine (as Southwest does) by NOT pissing off customers and driving them away.

    Personally, I’ve passed on booking many potential casual trips (e.g., personal, non-essential travel to visit a buddy or attend a cool concert) when I’m not 100% I can make it due to work stuff, whereas with less onerous cancellation policies, I wouldn’t think twice about it. In other words, airlines are losing a bunch of revenue from me because — even out of principal — I get really angry just throwing away money due to their greedy and/or stupidity.

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