Delta Air Lines has abruptly stopped charging extra for booking seats offline, a decision that’s likely to send shockwaves through an industry that has quietly based its business model on fees.
“It is much simpler for our customers to not have to worry if they will pay a fee for ticketing with Delta,” Glen Hauenstein, Delta’s incoming president, said in a prepared statement.
Delta can afford to be generous. It chalked up $4.5 billion in net income in 2015, up 29 percent from a year before. And just yesterday, it reported a $1 billion net income for the first quarter of 2016.
Phone reservation fees are among the most unpopular charges in the travel industry. A recent survey by MileCards found 49 percent of travelers “hated” them. This surprise announcement suddenly undermines one of the basic tenets of the 21st century airline industry — that all fees are good. If other airlines follow Delta’s lead, it could bring a little sanity back to the air travel experience.
Why Delta did it
Charisse Evans, Delta’s vice president for reservation sales and customer care, says lifting the fee — $25 per ticket when purchased over the phone through reservation sales and $35 per ticket when purchased at airports and other ticket office locations — was made “based on engaging with our customers and employees every day.”
Although Delta would not disclose how much money it collected from these particular reservation fees, it’s no secret that more airline reservations are being made online than by phone or in person. It’s likely the airline began to understand the fee repelled more customers than it drove revenues.
Like all airlines, Delta is required by the Transportation Department to report a general number for reservation cancellation and change fees. Those suggest the airline is a leader in collecting these types of surcharges. For the first three quarters of 2015, the latest available numbers, show Delta earned a cool $683 million, making it the number one airline. The previous year, Delta was also number one, with $670 million collected from passengers.
Delta began experimenting with reservation fees back in 1999, when it imposed a $2 surcharge for any booking not made through its website. In 2005, it added a fee for tickets purchased by phone or at the airport. The charges steadily rose from $5 to $25 in 2012 (for reservations call sales) and $10 to $35 four years ago (for airport bookings). The fees were in line with other moves made by airlines at about the same time. Back then, airlines argued the fees were necessary because it cost more to staff a call center or an airport ticket counter.
Asked how Delta would pay for call center employees and phone agents without the fees, an airline spokesman said abandoning the charges was simply a business decision, “based on our continuing effort to make it easier for our customers to do business with Delta.”
“We want our customers to have the flexibility to choose and customize their experience based on their preferences,” said Brian Kruse, a Delta spokesman. “Now customers can purchase a ticket over the phone by calling our reservations professionals, in person, on delta.com and through the Fly Delta app without having to factor in a fee.”
Industry observers were puzzled by Delta’s decision.
“It’s rare to see airlines walk away from a fee,” says Brian Karimzad, director of MileCards.com, “But this is the kind of fee that does nothing to enhance Delta’s ability to sell more expensive tickets. Taking that friction out of booking might even help sell more tickets.”
Charles Leocha, president of the Washington-based advocacy group Travelers United, said he was “baffled” by the move.
“It’s great for consumers,” he says. “It’s one less fee they have to worry about. But it also goes to show how arbitrary and capricious these airline fees are. One minute they’re charging you $30 extra, the next minute they’re not.”
But Delta’s change raises even bigger questions for the airline industry. Reservation fees were a cornerstone in the airline fee pyramid structure, alongside change fees and other unwelcome ancillary charges. If enough airlines follow Delta, it could lead to other disliked fees being removed from the menu, such as extra charges for luggage or seat reservations.
Then again, if none of Delta’s competitors follow suit, there’s always a chance it could resume charging fees for phone and ticket agent reservations .
“We are always reviewing our policies and procedures,” says Cruse.