Airlines had been raking in billions in fees. What will they do now?
This post contains references to products from one or more of our advertisers. We may receive compensation when you click on links to those products. Terms apply to the offers listed on this page. For an explanation of our Advertising Policy, visit this page.
The airline industry is going to look different after the coronavirus pandemic. It’s already morphing in response to an unprecedented drop in demand, meaning changes are coming that will alter the way Americans fly.
One bit of welcome news for travelers: those change and cancellation fees that have proven especially unpopular with customers over the years may not stick around.
“I personally don’t see these coming back,” Jay Sorensen, president of IdeaWorksCompany, an airline revenue consultancy, said in an email. “If airlines press on that issue, consumers will turn off the bookings spigot.”
The industry’s reliance on fees has never been higher. U.S. airlines collected a combined $5.8 billion in checked bag fees in 2019, according to the Bureau of Transportation Statistics. Significantly fewer people flying means that revenue stream — just like traditional revenue from airfares — has likely all but dried up in recent months.
With coronavirus, however, airlines have had to rethink nearly everything about their business models — everything from schedules to those seemingly ubiquitous fees.
Many airlines have already issued broad policies waiving cancellation and rebooking fees during the pandemic, in an effort to boost consumer confidence and generate some customer goodwill. Sorensen said the change and cancellation fees are generally not as lucrative as more traditional “ancillary revenue” sources like checked-bag fees, but that they still represent a meaningful income stream for carriers in tough times.
But not everyone is convinced they’ll go away.
“They will likely have to stay suspended until there’s a vaccine, herd immunity, or treatment. But after that, I would expect them to return, possibly sooner at a lower level,” he said in an email.
Meanwhile, airlines are facing significant revenue shortfalls, leading to rapid changes in the way many carriers do business.
With passenger traffic down 90% or more from last year, carriers are, of course, selling fewer tickets. They’re also collecting far less money in fees.
That’s almost certain to be a novel issue for the revenue management teams at most U.S. airlines after their record haul in 2019. Sorensen said the loss of income from fees presents a real problem for airlines as they struggle to stay aloft.
“There is nothing that will make up the revenue shortfall. Airlines are going to have a completely challenging year. I don’t think the objective is to find lots of revenue, but rather to find a combination of policies that will get people flying again,” he said. “You might see some airlines experimenting with fee boosts, as we did with American on the transatlantic. I think airlines overall will be very timid. However, I don’t see airlines waiving a la carte fees.”
If anything, Sorensen predicted, airlines may introduce new ancillary fees in an effort to bolster their finances once people start flying more regularly again.
He said passengers should prepare themselves for the possibility of paying for carry-on bags, even with non-basic economy tickets on legacy airlines like American, Delta and United.
“Lots of carry-on bags are a disaster for the boarding and deplaning process in terms of time and passengers congesting the aisle. Time is precious as airlines need more of it to disinfect aircraft,” he said. “The solution is to ban roll-on bags, and other carry-ons, in the manner of Spirit and Allegiant. I’ve flown those airlines and find the process amazingly unencumbered. I believe the majors could then bring back carry-ons, but charge a fee.”
Snyder seemed to agree that broader carry-on bag fees are a possibility.
“The airlines have shown in previous crises that they are willing to slap together a revenue-generating idea without thinking it through fully,” he said. “If they think that they have a fee that will raise money fast, they’d consider it. Then they’ll deal with the fall-out down the line.”
Whatever changes are eventually implemented, the coronavirus-related struggle for airlines is likely to persist, especially if demand for travel remains low for an extended period.
In that case, Sorensen said, no new fees or policy changes will make up the shortfall on airlines’ balance sheets. “The only option I see is significant losses,” he said, suggesting a bleak remainder of the year for the industry. “If a carrier believes they will break even before the end of 2020, I think that’s a mistake.”
Featured Photo by Spencer Platt/Getty Images.
WELCOME OFFER: 60,000 Points
TPG'S BONUS VALUATION*: $1,200
CARD HIGHLIGHTS: 2X points on all travel and dining, points transferrable to over a dozen travel partners
*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.
- Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $750 toward travel when you redeem through Chase Ultimate Rewards®
- 2X points on travel and dining at restaurants worldwide & 1 point per dollar spent on all other purchases.
- Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards. For example, 60,000 points are worth $750 toward travel
- Get unlimited deliveries with a $0 delivery fee and reduced service fees on orders over $12 for a minimum of one year on qualifying food purchases with DashPass, DoorDash's subscription service. Activate by 12/31/21.
- Earn 5X points on Lyft rides through March 2022. That’s 3X points in addition to the 2X points you already earn on travel.