In a Weak Travel Market, Airlines are Fighting for Passengers

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Millions of passengers have yet to return to flight since the epidemic began, but cash-strapped airlines are showing they are ready to compete fiercely as they travel.

With demand stuck at about one-third of the pre-pandemic level, the industry faces a disappointing post-labor season. This year, most of the travel associated with business conferences and family holiday gatherings won’t happen very soon, airline officials said.

Though Airlines are ready to fight for existing business there. United Airlines Holdings Inc.‘s UAL 2.17% commitment, American Airlines Group Inc. AAL 1.87%, Delta Air Lines Inc. DAL 1.76%, Alaska Air Group Inc. ALK promised 1.06% and a quick ticket change fee. Hawaiian Holdings Inc. HA 1.99%.

Airlines will have to earn millions of dollars to bring back domestic ticket-change fees as passenger bookings begin to improve. But this is a loss as a goal to win customers. In the meantime, competition is increased as airlines restore or expand flights on a limited number of popular routes.

“It looks like the airlines are trying to get some share of their neighbors’ business,” said Andrew Waterson, a chief commercial officer of Southwest Airlines Co.

United chief executive Scott Kirby said he did not expect 50% pre-pandemic level demand to be reached until a vaccine or treatment became widely available. The industry expects it can take three to four years before 2019 passenger level recovery.

Chicago-based United said on Friday that it planned to fly 46% of its schedule in October compared to the same month last year. It is restoring service on 50 routes and reducing frequency by limiting flights to more quiet days, targeting customers who go on weekly vacations.

Flights recovered by this industry include Mexico and Florida beach markets as well as destinations including Colorado that follow outdoors. Southwest is adding flights to Miami and Palm Springs, California for the first time, with passengers targeting Americans traveling to Florida and Mexico. However, flights to dozens of other cities are being reduced as the industry shrinks.

At a time when demand, flight schedules, and passenger behavior are at an all-time high, United’s move will change, said Stiffel Airlines analyst Joe DeNardi.

U.S. carriers are still burning about $6 billion in cash each month, according to a trade group that has become American, and employees have responded by delaying the supply of new aircraft with old aircraft retiring. Employment in the industry has fallen by more than one-fifth since the beginning of the year to 400,000, the Labor Department said Friday.

By itself, the relaxation of fees has limited revenue reductions and airlines have seen some relief from fuel prices, which have fallen by almost 40% since a year ago. Nevertheless, items such as change fees, baggage charges, and loyalty programs have been largely responsible for the competitive pressures in recent years because carriers keep the charges largely the same, Mr. Denardi said. Many network airlines once added charges for things that were free—including seat assignments and bags—matching the approach of fast-growing low-cost competitors like Spirit Airlines Inc.

Mr. Kirby said the permanent removal of fees was the top request in the customer survey on what reasons they would be encouraged to fly again. United collected $625 million or $ 3.82 per passenger last year for change and cancellation fees, compared to the US $819 million and $830 million in Delta. Earnings from bag fees have almost doubled.

Mr. Watterson said the absence of sales from the change fee could force US carriers to raise fares to offset losses, equivalent to about 4% of their operating income. U.S. domestic rents were up 4.5% on August 24 from the first of seven days, but down from four in the previous six weeks.

At the time of United’s move, Mr. Watterson and other low-cost carrier executives were surprised because the airlines were already dropping fees by the end of the year. According to the Department of Transportation, U.S. airlines earned $2.8 billion from these last year, and analysts estimate that more than half came from domestic tickets. The freeze that exists in these fees means that airlines are already operating without added revenue.

The U.S. airline’s conversion and cancellation fee has risen from about $25 per ticket to an average of $200 per ticket when it was first launched at the end of the last recession over the past decade. While not widely popular with air passengers, officials said they have helped business passengers and leisure travelers who make double the profit per passenger.

The fees were waived long ago by airlines for large corporate travel accounts even before the epidemic. But most domestic business travels were booked by coaches and involved in the allegations, said southwest, which never charges change fees or extra charges for bags. The airline has made a big kickback in recent years to grip more business passengers.

Passengers still have to pay a difference in ticket prices when changing tickets. Though refunds often come in the form of credits, which does not affect some frequent travelers.

Big carriers will continue to charge change fees on international tickets once the current suspension expires and delivered their cheapest tickets—often branded as the primary economy—from the steps. These will sustain to be nonrefundable.

Very low-cost carriers such as Spirit and Frontier Airlines include conversion fees, usually as their lowest fare add-on that passengers can purchase to allow them to change or cancel flights.

Passengers are now able to pay for upgrades from cheaper tickets by American going one step further than United and announcing the cancellation of changes to the products of the canceled private economy.

American going one step further than the United and used its announcement on canceled fees to declare changes to its basic economy product. Passengers are now able to pay for an upgrade from the cheapest ticket.

Vasu Raja, chief revenue officer of the United States, said the absence of so-called road warriors was giving airlines the opportunity to fly basic economy tickets to flyers with little or no allegiance. He added 60% of its passengers now have no position of allegiance to any airline’s frequent flyer program or branded credit card. So the restrictions on raising its own stripped-down basic economy fares are understandable to entice and retain customers as future flyers.

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