Investing in airlines has never made sense. As Warren Buffet once said “if a far-sighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” Buffet never liked airline stocks, but did see a possible entry point after years of consolidation to make an investment in Delta which he followed through on. That’s now a distant memory as Berkshire recently cashed out their holding following the pandemic. It’s for this reason that you haven’t, and won’t, see startups getting into the airline business; it’s too competitive and capital intensive with meager margins to make the business attractive to growth stage investors. But you are seeing aviation tech on the fringes of the industry attract VC money. Jetblue Technology Ventures, for example, has made numerous investments in the travel sector.
Recently, United, followed by Delta, American and Alaska Airlines announced they are “permanently” abandoning change fees. These fees have long been a sticking point for consumers who had to shell out on average $200 to change a non-refundable ticket.
While this may appear good for consumers, make no mistake, this is a PR play more than anything else. It reminds me a lot of the turf wars the cell phone providers went through over the last 5 years around the shift to unlimited data. Airlines have notoriously challenging unit economics and they’ve got to make up this lost revenue somewhere else. I would expect fares to increase to offset the removal of change fees and wouldn’t be surprised if a Covid-19 cleaning charge is added to all tickets sold in the months ahead. The industry added an additional security fee to tickets sold in the wake of September 11th for example.
To be sure, this is definitely not a truly “permanent” change. When business picks back up, the airlines will just as quickly rescind this benefit.
In the meantime, be prepared for more upsells and other misc fees to take its place.