Even though he couldn’t use his airline ticket, Eric Smith refused to cancel his reservation on a United Airlines flight from Omaha to Baltimore.
The reason? Smith, a technician at an aerospace company in Montgomery Village, Md., ran a few numbers, with frustrating results.
His return ticket cost $134, plus baggage fees. But United’s change fee, which was recently raised from $150 to $200, would have completely zeroed out the value of his credit. So he booked a one-way return flight on Southwest Airlines for $152 – about the same as his original flight, including baggage fees – and never looked back.
“Why should I spend any of my precious time on hold to cancel the ticket when I get absolutely nothing out of it?” he says. “To do the airline a favor? Do you think they would do me any favors?”
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No one knows exactly how many passengers pull a no-show when their change fees exceed the value of their ticket credit, deliberately depriving an airline of its ability to resell their seats. But by almost all accounts, their numbers are rising, as airlines continue to raise the price of changing a nonrefundable airline ticket.
A United Airlines spokesman declined to comment on the subject of intentional no-shows in general, and Smith’s case in particular. But it’s hardly the only airline faced with customers who are angry about elevated change fees.
When Laura Attwood wanted to change her recent ticket on Alaska Airlines from Anchorage to Ketchikan to an earlier flight on the same day, the carrier told her that it would be happy to make the change as long as she paid a $100 fee. She refused, choosing instead to cash in miles for a new flight.
“In fact, I checked in and picked my seat on the flight I wasn’t going to make, and confirmed it,” says Attwood, who lives in Maple Bluff, Wis. “That way, they couldn’t resell my seat. I was so mad that I had to pay a change fee.”
An Alaska Airlines representative acknowledged that the airline experiences deliberate no-shows on some flights, although she wouldn’t say how many. Yet its change fees are far more reasonable than those of other airlines. Alaska charges $75 for an online change and $100 if it’s done through a call center. Effective Oct. 30, its call-center change fee jumps to $125. But any changes made two months before a flight don’t incur any fees.
“It’s an issue for us,” says Marianne Lindsey, a spokeswoman for the airline. “When we experience no-shows, it results in unused seats, which translates to lost revenue.”
The task of ensuring that these strategic absences aren’t felt in the bottom line falls to airlines’ sophisticated revenue-management programs, which are designed to oversell a flight based on a calculation that a certain number of passengers won’t show up.
“On certain fares, and on certain routes, there will be a higher number of no-shows,” says Warren Lieberman, president of the technology consulting firm Veritec Solutions and one of the pioneers in the field of airline revenue management. “If they’re selling tickets for $149, you can predict that more passengers will walk away from the fare, because the change fee is $200.”
But the programs handling airline seat inventory, which are called yield-management systems, don’t need to be reset when change fees increase. Rather, the algorithms are “self-adjusting” and will automatically tweak prices and seat availability to fit passengers’ behavior, says Lieberman. In other words, they already know that passengers like Attwood and Smith won’t make their flights.
Hari Subramanian, a director for Sabre, a travel technology company, says that it’s essential to use these systems to anticipate passenger behavior. “No one is going to come out and say, ‘This is what we’re willing to pay for a ticket,’ or ‘We won’t show up for the flight if you do that.’”
In the airline industry, this kind of high-tech soothsaying is known as passenger choice modeling. It collects data about passenger behavior, including fares, connections, time of day and the type of traveler, and uses complex mathematical formulas to help airlines determine how many seats they can sell, and at what price. The modeling helps an airline make money.
And airlines are making lots of money from change fees. The domestic airlines collected more than $2.5 billion in ticket-change fees in 2012, according to the U.S. Department of Transportation, up from $2.4 billion a year before.
But perhaps unwittingly, American carriers have also begun playing a cat-and-mouse game with their own customers, in which they raise fees, and passengers in turn try to sabotage the revenue-management systems by walking away from a ticket credit that has been partially or fully consumed by a change fee.
Subramanian says that passengers can avoid the game by making smarter booking choices. The preferred airline solution is to buy a fully refundable ticket. But those fares are typically priced for business travelers on an expense account and can be three to four times as expensive as a nonrefundable ticket.
He recommends looking for a so-called “flexible fare,” which some airlines offer – a special ticket that includes the benefit of waiving certain surcharges and would allow you to change your plans without having to pay a $200 fee.
The long-term solution, of course, is for both sides to practice a little restraint. Already, airlines such as Alaska and JetBlue have shown that there’s some middle ground, and their experience suggests that passengers are willing to accept some fees, as long as they’re reasonable. Southwest Airlines seems to confound even the experts by having no change fees at all.
And what if airlines and their customers can’t come to an understanding? It’s difficult to imagine change fees climbing any further without the government stepping in and saying, “Enough.”