United Raises Change Fee from $100 to $150

I know I recently wrote about the wonders of ancillary revenue, but I think it's important to note that not all attempts at creating this kind of value are going to work. One airline is trying to put that theory to the test . . . United has raised its change fee from $100 to $150, and I'm not so sure this is going to work out well for them.

It's far easier for an airline to bump up existing fees than to actually be creative and come up with something new to help generate more revenue. And that is why I imagine United is doing this. In the past, airlines have raised change fees with impunity since there generally aren't many other options for the customer who needs to change his itinerary. At some point, my guess is that fees will hit a tipping point that will push customers to fly on other carriers.

How high can traditional airlines go when Southwest charges nothing? At what point will the low-cost carriers end up swaying travelers with their low (or non-existent) fees? I'm sure United predicts that a fee hike won't impact consumer behavior that much. Even if it does have an impact, the airline could still see the number of passengers paying change fees cut by a third before it would be a money-losing proposition. But looking at this change from such a narrow perspective can be dangerous because it doesn't consider big picture changes over time. At some point, the airline will go too far and there will be a slow exodus away to better options. The question that nobody knows how to answer is . . . what is that point?

As the economy turns down, airlines may find unmanaged business travelers start moving more toward airlines that don't penalize so harshly for needing some flexibility. For example, let's say that you need to go from L.A. to Baltimore on June 20 and return June 30, but that may change. The lowest fare on United is $473, and Southwest is up at $539. Maybe in this instance you still buy that United ticket with the $100 change fee and take your chances. But at some point, this fee will become too high and you'll start looking elsewhere.

Now I don't think this change in particular will cause a sweeping defection to another carrier, but it's like removing one more piece from a game of Jenga. At some point, it's going to topple, but you just don't know when.