Did you ever wonder how much money the airlines keep each year from tickets that are bought and then not used?
With income tax time ahead, I’ve been rummaging through drawers for records, which explains why I just came across a slip of paper reminding me of an airline ticket to Seattle that I canceled in late 2010.
Because I didn’t need to rebook that trip, I had forgotten about the ticket. Under standard fare rules, it lost all value in December, a year after purchase.
So that unused ticket added $285.80 to the total $174.7 billion in revenue that airlines in the United States raised in 2010. But in the end, I saved money by not rebooking. Under rules for these cheaper, nonrefundable fares, rebooking would have cost an extra $150 to cover the penalty fee for changing a reservation, as well as any difference between the original fare and the one the airline was later charging.
Ever wonder how much money the airlines keep each year from tickets like mine that are bought and then not used?
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Ralph Nader does. Last month, Nader wrote to the major airlines asking them to “reveal how much you have kept from these unused, nonrefundable tickets” in recent years.
Nader accused the airlines of practicing “money confiscation.” Somewhat less harshly, he suggested that disclosing the totals would “have an added benefit to nudge your customers into being more time-sensitive” about ticket expiration dates.
Now, if it were possible to hear people rolling their eyes on the telephone, I would say that was the typical reaction I got from the industry to this suggestion. No one I spoke to offered even a quotable guess about how much money was left on the table each year by customers who let nonrefundable tickets expire unused.
Nader didn’t have an estimate either. He also told me that the airlines were “obviously going to stonewall me” on the matter, and he was right. In a reply Friday to Nader, David A. Berg, the general counsel for Airlines for America, the airline industry trade group, said that Nader was unreasonable in asking airlines to publicly disclose “confidential and commercially sensitive information.”
Berg said that after government-required fare controls disappeared with airline deregulation in 1978, consumers gained a wide range of price options with the increase in competition. He noted that average fares have risen only about 40 percent since 1980, while “the Consumer Price Index grew 165 percent over the same time period.”
Airline refund policies, Berg told Nader, “were very similar to other retail shopping outlets, from clothes to computers, and are neither deceptive nor unfair.”
By the way, the Transportation Department is proposing a rule, also opposed by the industry, requiring airlines to report revenue from fees in greater detail, over and above the current requirements for disclosing quarterly revenue from checked bag and reservation change fees. Still, there has been no move to seek disclosure of revenue from expired nonrefundable tickets.
Reservation change fees for those tickets alone added an extra $2.3 billion to domestic airline revenue in 2010, according to the Transportation Department’s Bureau of Transportation Statistics. For the first three quarters of 2011, that revenue was $1.8 billion, up from $1.7 billion in the same period in 2010. By comparison, in 2007, the year before airlines began assiduously charging extra fees for checked bags and other services, that revenue was just $915.2 million.
Until around 2000, few business travelers used nonrefundable fares. That’s because the airlines, in trying to dissuade business travelers from buying the far cheaper nonrefundable fares, required a Saturday night stay for those tickets. But as the Internet made fare comparison easier, airlines began dropping the Saturday night rule, and business travelers overwhelmingly switched from expensive fully refundable fares.
Incidentally, Southwest Airlines, which recently announced its 39th consecutive year of profitability, does not charge penalty fees for changing a reservation. Instead, Southwest puts the money from a canceled ticket into a customer’s account, where it can be used within a year toward a new ticket.
Nader said he now does most of his domestic flying on Southwest and doesn’t miss the hassle of keeping track of unused tickets.
“You know, you’d change schedules and throw it in a drawer, and pretty soon, bingo, the year is up and the ticket is worthless,” he said.
Still, Nader said he was worried that Southwest’s fare structure could become more complicated as the airline continued to grow and looked for other revenue sources.
“I’m keeping an eye on Southwest so they don’t start mimicking the others,” he said.