This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Highest Fees in the Airline Business

CHARLOTTE, N.C. ( TheStreet) -- Change fees are high for domestic flights and even higher for international flights, reaching $750 in some cases. But airlines argue that the fees are reasonable, and the U.S. Transportation Department, which has the right to regulate the international fees, has apparently accepted that premise.

In April, the major carriers raised the fee to change a nonrefundable domestic ticket to $200 from $150. At the same time, the fee to change international tickets generally went to $300 from $250, with some variation by airline. At the high end, on some discounted first class international tickets, American (AAMRQ.PK) charges $750.

International fees are higher not only because international fares tend to be higher but also because international flying involves different dynamics than domestic flying, including less demand, fewer flights and more difficult operating requirements, said Henry Harteveldt, analyst for travel consultant Hudson Crossing.

For example, "some countries limit the number of flights that can be operated on any route by airlines from each country," Harteveldt said. "Also, longer distance flying obviously requires aircraft that can fly longer distances; these planes tend to be larger and more expensive." Except for a few markets such as New York-London, service is typically limited to just one or two flights a day.

As a result, "there may a huge opportunity cost to an airline when a passenger who books a discount fare wants to change a reservation, especially if that change is made at the last minute," Harteveldt said.

Like many, attorney and Vilas, N.C. consumer advocate Don Pevsner considers the high change fees to be "outrageous." He contends they provide an indication that airline deregulation has failed. "The rampant overreaching of the Airline Deregulation Act of 1978 cries-out for prompt Congressional re-regulation of gouges like the current airline ticket change penalties," Pevsner wrote in an essay. But he conceded that is unlikely.

In a 2012 complaint to the U.S. Department of Transportation, Pevsner argued that the $250 international change fees in effect at the time were unreasonable and that the agency had the right to reduce them. He said that while the 1978 act "removed federal jurisdiction over domestic airline rates, fares and charges," federal law still requires domestic and foreign air carriers to offer "reasonable prices, classifications, rules and practices related to foreign air transportation."

The DOT dismissed the complaint. In the 34 years since Congress approved deregulation, it has "declined to use this authority to strike down fare rules in foreign air transportation," the agency said in its response. Furthermore, it said, Pevsner "has not offered any specific evidence that the international change fees are unreasonable or demonstrated why we should deviate from our long-standing policy."

From the airlines' point of view, change fees are appropriate because if a person purchases a seat, that deprives the airline of the opportunity to sell the seat to someone else. If the buyer later decides to return the seat, that's fine, but it does not restore the time that may be required to sell this perishable product.

Speaking last month at a hearing of the Senate subcommittee on aviation, US Airways (LCC) CEO Doug Parker came under fire from Sen. Amy Klobuchar (D.--Minn. ) about the April change fee increases, which seemed to occur in unison at the four major hub carriers.

"These change fees are on non-refundable fares," Parker said. "We and other (airlines) provide non-refundable fares that are much lower than our refundable fares." With nonrefundable fares, he said, "Our customers agree to give us certainty that they will fly on a certain flight at a certain time." Airlines also sell more expensive, refundable tickets for passengers who want the flexibility to change their plans, he said.

The fee, Parker said, is intended to discourage changes rather than to boost revenue.

US Airways fees are now $200 for a domestic change and $300 for an international change. United's (UAL - Get Report) domestic change fee is $200: its international change fee is $250 to $300, depending on the destination. Delta's (DAL - Get Report) domestic change fee is $200, the international change fee ranges from $150 to $300.

American charges $200 for a domestic change and $150 to $750 to change an international ticket. The $750 charge applies on discounted first class trans-Atlantic fares such as a Dallas-Frankfurt round-trip with a base price of $11,159. All of the major airlines sell refundable tickets that would not require change fees.

Harteveldt said passengers "are willing to forfeit convenience and control by agreeing to fly on specific flights with lower prices." He said tickets should be viewed as contracts between the two parties. But, he added, "$300 is an awful lot of money. If it is for a vacation that has to be cancelled, it might be two or more people, it can become a very high number.

"What I'd like to see is for airlines to better present fare option, to say this fare is more flexible with lower change fees," Harteveldt said. "They may have (more flexible) fares, but they don't present it well on line. A lot of it is presented in 'mice type,' and I'm sure most people never read it."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
LCC $0.00 0.00%
DAL $41.12 0.00%
UAL $52.81 0.00%
AAPL $124.53 0.00%
FB $85.80 0.00%

Markets

DOW 17,596.35 -350.33 -1.95%
S&P 500 2,057.64 -43.85 -2.09%
NASDAQ 4,958.4680 -122.0370 -2.40%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs