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Delta's CEO reveals why the airline industry is nixing the change fees that once produced 3% of revenues — and how happier travelers could make up the difference

Business Insider logo Business Insider 9/23/2020 dslotnick@businessinsider.com (David Slotnick)
a man wearing a suit and tie: "We need to take that revenue stream out and reinvest the savings into more reliable streams, to travel that customers can count on, that they should expect from Delta," CEO Ed Bastian said of change fees. Steve Marcus/Reuters © Steve Marcus/Reuters "We need to take that revenue stream out and reinvest the savings into more reliable streams, to travel that customers can count on, that they should expect from Delta," CEO Ed Bastian said of change fees. Steve Marcus/Reuters
  • In late-August, Delta, American, and United all announced that they were permanently getting rid of change fees on domestic flights.
  • Airlines had already suspended the fees during the coronavirus pandemic to try and entice travelers back onto planes.
  • However, Delta CEO Ed Bastian said Tuesday that change fees — worth up to 3% of Delta's revenue — were not a reliable revenue stream, and that the airline can make that money back with a more consistent fare structure.
  • Visit Business Insider's homepage for more stories.
 

For all the ways the coronavirus pandemic has made flying tougher — chief among them the risk of contagion — those willing to hop aboard have seen a few advantages. Like, for example, the demise of the change fee.

Delta, American, and United all announced in late-August that they would permanently do away with the punitive fees on travelers who want to tweak their plans for domestic and some regional flights. Rival airline Southwest has marketed its lack of change fees for years.

The move makes sense now, while travel demand is badly suppressed: Airlines will do just about anything they can think of to coax consumers back onto their planes. But getting rid of change fees was an inevitability even before COVID-19 struck, Delta CEO Ed Bastian said on Tuesday. The pandemic just sped up the timeline.

Cutting "change fees was something we were already on the path to doing," Bastian said, speaking to investors at a webinar hosted by Neuberger Berman.

"So while we suspended it during the pandemic," he added, "we understood long-term, it wasn't a portion of our business that we should reliably count on."


Video: Delta takes a 'mortgage' out on frequent flier SkyMiles for $6.5B (Fox Business)

Part of that is because most the money that airlines earn from change fees — 2-3% of Delta's annual revenue, according to Bastian — comes from price-agnostic business travelers whose plans change.

But businesses tend to curtail nonessential travel spending during any downturn or crisis, not just a global disaster like the pandemic. That makes this revenue stream an unpredictable one — one that Bastian doesn't want his airline to rely on. 

"We need to take that revenue stream out and reinvest the savings into more reliable streams, to travel that customers can count on, that they should expect from Delta."

Of course, airlines depend on those business travelers' fares, but Bastian suggested that changing consumer behavior after the pandemic could render change fees obsolete anyway.

"People are deciding to travel short term because they're not quite ready to make longterm plans," he said. Although current passengers are largely leisure travelers, Bastian said earlier on Tuesday that 80% of the airline's corporate account holders have some people flying right now.

Customers will likely continue to value the flexibility and transparency without the fees in the future, he predicted, enough so that the airline will make up for the revenue loss with just ticket sales. He did not, however, say how Delta might adjust its fare structure to make up for the absence of change fees, and whether it means prices will go up.

"I think that we will more than make it up by that investment back into a reliable fare structure that people know they can count on," he said.

"We want our customers to have expectations of reliability in what they're going to get from Delta, whether it's the product, the service level, the on-time record, or the fare structure," Bastian added. "And we need to continue to make progress. By taking change fees off, that's another step along that way."

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