Airlines let passengers hedge against airfare increases, for a fee

airlinetrends.com | March 23, 2011

After the introduction of additional fees for luggage, extra legroom seats, and in-flight catering, to name a few, a new category of ancillary revenues seems to be taking hold. A growing number of airlines are offering passengers a paid option to increase or descrease their exposure to rising ticket and fuel prices. For example, U.S. low-cost carrier Allegiant wants passengers to consider a variable-price ticket, where the final fare could rise or fall based on the cost of fuel, while Vueling, Air France, KLM and Continental offer customers a paid option to ‘freeze’ their fare for up to 14 days when making a booking.

Allegiant ‘variable fuel fare’
Las Vegas-based low-cost carrier Allegiant has come up with a new way to share the pain of rising oil prices with passengers. It has filed a request with the U.S. Department of Transportation for permission to sell a new type of flexible ticket. The purchase price would be less than a normal ticket’s, but it could subsequently rise or fall (with the customer either paying more or getting money back) depending on oil-price flucutations between the purchase date and the flight date. The increase would have a maximum that would be clearly disclosed. Allegiant will continue to offer the ‘traditional’ fixed-price ticket as well.

Because many passengers book months ahead, it is difficult for Allegiant—which unlike most airlines doesn’t hedge its future fuel needs—to predict what the fuel price will be at the time of travel. Furthermore, the U.S. Department of Transportation has proposed a new consumer protection rule that will prevent airlines from increasing prices after purchases are made, and Allegiant is suggesting its variable fuel fare as an alternative. The airline says it doesn’t have any immediate plans for the new pricing option but that it is looking for an approval in case its wants to offer it in the future.

With the fluctuating airfare the passenger is basically betting on oil prices as Allegiant is passing some of its fuel risk to the consumer,  who gets a lower base fare in return. However, as  airlinetrends.com commented to CNN.com (“Vegas airline proposes rolling dice on fares”), few consumers may actually want to incorporate this kind of risk into their ticket, since hardly anyone can make an educated guess about the future development of oil prices. For some passengers though, it may be a way to start their Las Vegas trip in style.


Lock your fare
While Allegiant plans to provide passengers with an option to take a risk in return for a lower base fare, airlines such as Vueling, Air France, KLM and Continental recently began offering customers the option to reduce their risk to rising air fares and ‘lock in’ their ticket price instead — for a fee. With names such as ‘Farelock’ and ‘Time to Think’, these options enable passengers to hold reservations and freeze online ticket prices for a period ranging from 2 days to 2 weeks without having to purchase the ticket.

Says Tony Berry, distribution director for travel management firm HRG, “Essentially, [airlines] are unbundling the time limit from the fare.” […] “When travelers hold on to unticketed seats for long periods, it interferes with airlines’ yield management processes. As a result, airlines have been reducing ticketing time limits to force a ticket issue or re-pricing at a potentially higher fare. Time limits have always ranged but they used to be as much as 21 days.”

For example, Air France and KLM offer passengers a nonrefundable fee to hold a reservation at the same fare for up to 14 days. This ‘Time to Think’ fee is EUR10 on short- and medium-haul flights and EUR15 on long-haul. If passengers do not confirm within that period that they want the ticket, the reservation is deleted. Continental’s ‘FareLock’ gives passengers the option to choose between a 72-hour hold (fee starts at USD5) or a seven-day hold (from USD9). Fees will vary depending on itinerary and number of days to departure. Passengers can also choose an auto-ticketing option, which will automatically complete the transaction at the expiry of the chosen FareLock period.

Many airlines already offer a 24-hour flexible booking policy that allows reservation changes and cancellations with full refund without a fee within 24 hours of booking. The paid option, however, aims to provide passengers with greater flexibility when planning their trips and the ability to avoid drastic price increases or sold out flights. This ancillary service may for example appeal to business travellers who want an element of flexibility without buying a fully flexible ticket. The service can also be useful for leisure passengers who want to take advantage of a sale fare and need to confirm with other passengers before making the booking, as well as for those that want to hold a fare and shop around.