The Pros and Cons of Fully Refundable Airfare
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Have you ever hesitated on an amazing airfare deal because you weren’t sure about the dates? Today, TPG Contributor William Morse looks at refundable airfare, and explains when it might make sense to pay a premium for flexibility.
According to the US Department of Transportation and data collected by The Bureau of Transportation Statistics, domestic airlines collected a whopping $2.98 billion dollars in cancellation and change fees in 2014. Three of the four largest domestic carriers — Delta, United and American (including US Airways) — collected over $2.5 billion. The chart below shows the amounts collected by several airlines in each quarter of 2015 (values represent US dollars in thousands):
What I find most interesting is that Southwest — the world’s second-largest airline by passenger volume behind Delta — ranks near the bottom of this list due to its highly generous change and cancellation policy. Delta carried 129,430,000 passengers in 2014, compared to 129,087,000 passengers for Southwest. However, Delta collected over $875 million in cancellation and change fees, while Southwest collected only about $8 million. While Delta only flew roughly 340,000 more passengers, it charged $867,183,000 more in cancellation and change fees. Somebody is doing something right and somebody is doing something wrong; I’m just not sure which is which.
Refundable vs. Non-Refundable Fares
With fees on canceling and changing airfare nipping at $3 billion in 2014, I wanted to look at one of the simplest ways of avoiding them: refundable tickets. These fares are known for being (much) more expensive than their non-refundable counterparts, but that premium varies according to which airline, route and date you fly. However, they could offer a viable solution to uncertain travel plans in some cases.
First, keep in mind that the US Department of Transportation requires airlines to hold your ticket or reservation at the quoted fare for 24 hours, so long as you’re booking at least seven days in advance. This means that even if you purchased a non-refundable ticket, you still have 24 hours to cancel and receive a refund from the airline. These policies do vary from one carrier to another, so it’s worth checking with your airline to be certain of the rules.
To investigate the usefulness of fully refundable fares, I checked prices on 5 domestic airlines and compared them to the non-refundable alternatives. Here’s what I found for nonstop, round-trip flights from Los Angeles (LAX) to New York (JFK) for September 16-22:
|Airline||Coach Non-Refundable||Coach Refundable||Business/First Non-Refundable||Business/First Refundable|
As far as refundable fares go, JetBlue was the clear winner in this case. Not only were its refundable fares the least expensive, but also they had the lowest premiums over non-refundable fares (about 52% for coach and 47% for business/first). By comparison, Virgin had an astounding markup of about 321% for a refundable fare, and most of the other carriers weren’t far behind. American’s business/first products have the most drastic percentage difference, but take a look at Virgin — a refundable business/first round-trip ticket from LA to NYC will set you back almost five grand.
I didn’t include Southwest on the list above because the airline doesn’t fly nonstop along that route, and doesn’t have a formal business class. However, in case you were wondering, prices were $326 for non-refundable and $1,285 for refundable fares.
I also checked some international flights and added a few foreign carriers to the mix. I used the same dates to search for a nonstop, round-trip flight between San Francisco and Tokyo.
|Airline||Coach Non-refundable||Coach Refundable||Business/First Non-Refundable||Business/First Refundable|
If I’m looking for a non-refundable coach seat, I’m most likely going with Delta. However, the price difference for a refundable ticket is massive, at $4,458 more, or three times the cost of a United refundable seat. If you’re looking to fly in business class, American has the lowest price for refundable fares, while JAL will ask you to shell out a cool $12,772. Despite that incredibly high fare, Delta has the greatest percentage swing, with a refundable ticket costing 145% more than a non-refundable ticket in business class.
Why buy a refundable fare?
With refundable fares generally pricing out somewhere between two and four times the cost of non-refundable fares, you might wonder who is buying them and why. Despite the high cost, refundable fares remain attractive to certain travelers:
1. Businesses — Many companies still prefer to purchase unrestricted airfare for greater flexibility when travel is booked in advance. Meetings and priorities change (sometimes at the last minute), and it’s worth the added cost for employees to be able to make changes and cancellations without hassle. Also, as part of their agreements with airlines, some larger companies agree to only purchase unrestricted airfare in exchange for a discount.
2. Other travelers with unpredictable schedules — People with certain life circumstances may benefit from having refundable airfare, especially when purchasing at the last minute. You might have to plan travel around the events with uncertain dates or the needs of a sick relative, for example. While it comes at a cost, refundable airfare gives flexibility to those who need it most.
3. Award Travel Enthusiasts — Refundable fares generally earn bonus redeemable miles and elite-qualifying miles. While the bonus is hardly worth the added cost in general, it’s not a bad strategy for reaching elite status toward the end of the year, or for earning miles toward a specific award if the price difference isn’t too high.
4. Anyone looking for an upgrade without status — A refundable, unrestricted ticket (also known as Y-class) can put you at the front of the line for an upgrade. And several carriers (including Delta and United) even offer instant upgrades when you purchase a full-fare ticket, assuming upgrade space is available.
Are award flights refundable?
The answer to this varies greatly on a number of circumstances, including the airline and your status level. The general answer is yes, but most likely with a fee. For example, consider the last line of United’s chart below. If you have Premier Platinum status or above, then you have nothing to worry about. Otherwise, changing or canceling your trip and getting your miles back requires a fee of up to $200.
American lets you change your flight and dates in many cases with no fee, but if you want to cancel and redeposit those miles, you’ll be looking at a $150 fee. Again, elite status can help, as that fee is waived for AAdvantage Executive Platinum members.
Delta charges an award ticket redeposit fee of $150, which is waived for Diamond and Platinum Medallion members. Award tickets not canceled at least 72 hours prior to the originating flight departure time are nonrefundable; however, Delta representatives have been known to grant exceptions.
Once again, Southwest offers the most flexible policy — you can cancel awards without penalty, and the points will be redeposited into your account. For more information, check out Nick Ewen’s Comprehensive Guide to Canceling Award Tickets.
What about travel insurance?
If you bought a refundable flight, then you most likely don’t need travel insurance. If you have a non-refundable ticket, in most scenarios trip or travel insurance won’t cover you for a change in plans unless you’ve purchased cancel-for-any-reason (CFAR) insurance, which is usually sold by a third-party insurer. CFAR insurance can offer great peace of mind when booking an extravagant trip or going to a place of political unrest, but generally speaking isn’t worthwhile if you’re just booking a flight.
Some travel rewards credit cards offer trip cancellation coverage, including the Chase Sapphire Preferred card, which offers up to $10,000 in the event that your travel is canceled or delayed. However, this coverage is very limited, and most likely won’t benefit you except in cases of injury, sickness, severe weather and a handful of other circumstances (like jury duty). It’s a nice perk, but it likely won’t protect you against paying fees if you need to cancel or change your flight.
I booked a non-refundable ticket and need a refund!
Your first strategy should be to consult the little-known Rule 260 (involuntary refund) in each airline’s contract of carriage. The rule roughly says that if an airline refuses to carry you for any reason, or if your flight is canceled, delayed or rescheduled, you can apply for a full refund even on a non-refundable ticket. Each carrier has requirements that must be met to qualify for an involuntary refund. However, many of them are quite flexible. If any of your flights have been rescheduled (even if your departure has changed by only a few minutes), you may be eligible for a full refund.
If Rule 260 doesn’t apply, the first thing I would suggest is to call the airline and explain your situation. If you have a good excuse for changing your ticket, especially one that’s outside of your control, you may find a sympathetic agent who is willing to let you off the hook. As TPG often says, it never hurts to ask!
As we’ve seen, airlines — especially the big three domestic carriers — make a hefty sum off of cancellation fees. Other than buying refundable tickets, earning high-level elite status or going out of pocket on CFAR insurance, there’s not much we can do to avoid them. Airlines will sell a seat for whatever people are willing to pay for it, and an unrestricted airfare will always go for a premium.