By Doug Cameron
Millions of passengers have yet to return to flying since the
pandemic started, but cash-strapped airlines are showing they are
ready to compete fiercely for those who do travel.
With demand stuck at roughly one-third of prepandemic levels,
the industry faces a lean post-Labor Day season. This year, most of
the travel linked to business conventions and family holiday
gatherings just won't happen, airline executives said.
Airlines, though, appear poised to fight for the business that
is out there. United Airlines Holdings Inc.'s pledge last week to
end change fees on most tickets was quickly matched by American
Airlines Group Inc., Delta Air Lines Inc, Alaska Air Group Inc. and
Hawaiian Holdings Inc.
Relaxing domestic ticket-change fees will cost airlines hundreds
of millions of dollars in lost revenue when passenger bookings
start to improve, but it is a loss aimed at winning back customers.
Meanwhile, competition is intensifying as airlines restore or
expand flights on a limited number of popular routes.
"It does seem like airlines are trying to take a little bit of
their neighbors' business," said Andrew Watterson, chief commercial
officer at Southwest Airlines Co.
United Chief Executive Scott Kirby said he doesn't expect demand
to reach 50% of prepandemic levels until a vaccine or treatment
becomes widely available, and the industry expects it could be
three or four years before 2019 passenger levels are regained.
Chicago-based United said Friday that it planned to fly 46% of
its schedule in October compared with the same month last year. It
is restoring service on 50 routes and limiting flying on quieter
days by reducing frequencies, targeting customers seeking weekend
getaways.
Among the flights being restored by the industry include those
to Mexico and the Florida beach markets as well as destinations
including Colorado that offer outdoor pursuits. Southwest is adding
flights for the first time to Miami and Palm Springs, Calif., with
American targeting passengers headed to Florida and Mexico.
However, flying is being reduced to dozens of other cities as the
industry shrinks.
United's move to kill change fees -- at a time when demand,
flying schedules and passenger behavior are in such flux -- is a
sign that airlines are taking competitive risks sooner than many
investors expected, Stifel airline analyst Joe DeNardi said.
U.S. carriers are still burning around $6 billion in cash each
month, according to trade group Airlines for America, and have
responded by furloughing staff, retiring old planes and deferring
new aircraft deliveries. Industry employment has fallen by over
one-fifth to 400,000 since the start of the year, the Labor
Department said Friday.
By itself, the loss of revenue from relaxing the fees is
limited, and airlines have some relief from fuel prices, which are
down about 40% from a year ago. Still, items like change fees,
baggage charges and loyalty programs have been largely immune from
competitive pressures in recent years as carriers kept charges
broadly similar, Mr. DeNardi said. Many network airlines added
charges for things that were once free -- including seat
assignments and bags -- matching the approach of fast-growing
low-cost rivals such as Spirit Airlines Inc.
Mr. Kirby said removing the fees permanently was the top request
in customer surveys about what would encourage them to fly again.
United collected $625 million in change and cancellation fees last
year, or $3.82 per passenger, compared with $819 million at
American and $830 million at Delta. Revenue from bag fees had been
running at about twice that level.
Mr. Watterson said that absent the sales from change fees, U.S.
carriers may have to raise fares to cover the loss, equivalent to
around 4% of their operating revenue. U.S. domestic fares have been
erratic, up 4.5% from a year earlier in the seven days to Aug. 24
but down in four of the six preceding weeks.
The timing of United's move puzzled Mr. Watterson and executives
at other low-cost carriers as airlines are already waiving the fees
through the end of the year. U.S. airlines raked in $2.8 billion
from them last year, according to Transportation Department data,
and analysts estimate more than half came from domestic tickets.
The existing freeze on these fees meant airlines were already
operating without the added revenue.
U.S. airlines' change and cancellation fees have crept up over
the past decade to an average of $200 per ticket from around $25
when first introduced at the end of the last recession. While
wildly unpopular with fliers, executives said they helped segment
leisure travelers from the business fliers who generate twice as
much profit per passenger.
The fees have long been waived by airlines for big corporate
travel accounts, even before the pandemic, but most domestic
business travel is booked in coach and was subject to the charges,
said Southwest, which never charged change fees or extra for bags.
The airline has made a big push in recent years to attract more
business passengers.
Passengers will still have to pay any difference between ticket
prices if they change tickets, and refunds often come in the form
of credits, which has left some frequent fliers unimpressed.
"I don't have time to chase them down for the value of that
ticket later on," said Bianca Thrasher-Starobin, a 41-year-old
Atlanta-based lobbyist and small-business consultant. "I don't fly
that airline regularly. They bank on that."
The big carriers will continue to levy change fees on
international tickets when the current moratoriums expire, and
exempted their cheapest tickets -- often branded as basic economy
-- from the moves. These will continue to be nonrefundable.
Ultra low-cost carriers such as Spirit and Frontier Airlines do
incorporate change fees, usually as add-ons to their lowest fares
that passengers can purchase to allow them to change or cancel
flights.
American went a step further than United and used its
announcement on canceled fees to announce changes to its basic
economy product, with passengers now able to pay for an upgrade
from the cheapest ticket.
Vasu Raja, American's chief revenue officer, said the absence of
so-called road warriors is providing airlines with an opportunity
to flaunt basic economy tickets to fliers with little or no
loyalty. He said 60% of its passengers right now have no loyalty
status with any airline frequent-flier program or branded credit
card. So loosening restrictions on its own stripped-down basic
economy fares makes sense to lure and retain customers as future
fliers, he said.
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
September 07, 2020 09:14 ET (13:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
United Airlines (NASDAQ:UAL)
Historical Stock Chart
From Feb 2024 to Mar 2024
United Airlines (NASDAQ:UAL)
Historical Stock Chart
From Mar 2023 to Mar 2024