Up in the Air II: Why Airlines now Charge for Same Day Standby

I try to fly only on a single airline so as to be treated less like an anonymous bovine by a company that somewhat values my business. But I got stuck the other day flying an airline on which I have no elite status, and thereby discovered that some airlines no longer allow free “same day standby” for the average Joe or Josephine. In the past, someone whose first leg flight landed early and was thereby able to grab an earlier connecting flight was whisked aboard without question or charge.

No charge standbys reflected the longstanding airline industry principle that there is nothing worse than an empty seat on a plane as it takes off (Again I recommend to RBCers the book Hard Landing, which explains how dilligently all the airlines worked to avoid the curse of empty seats up in the air). An empty airline seat is an unusual commodity: Its value increases over time as departure approaches but the moment the plane takes off, it becomes valueless.

I was puzzled by this airline wanting to charge me to move to an earlier connection, given that moving me into an empty seat of a plane that is about to depart opens up my seat on a later flight, which gains the airline more time to sell it to another customer (or to allow a bumped passenger to have a seat thus avoiding the “we are in an oversold situation” auction). It seemed they were refusing to give away something that was about to become valueless for the chance of making money later. Rather than be irritated, I decided to do some reading to figure out why the airline had reversed the long standing, seemingly rational industry practice of granting free same day standbys.

What changed I think is the Internet, fare transparency, and the sophistication of travelers. When airline routes and fares were only available in encyclopedia-sized books, even experienced travel agents had a hard time figuring out the cheapest routings. The early days of the Internet made it simpler, but transparency was available mainly for people willing to invest an enormous amount of time. Today, both aggregator sites as well as those of individual airlines make very clear the fare rate differences at different times of a day. A fair number of travelers figured out that they could buy seats later in the day than they really wanted to travel — which are usually cheaper — and then show up earlier and get a free same day standby ticket. They had to gamble a bit that they would get their desired seat, but the price differences between morning and afternoon flights were often large enough to make it appealing.

The airlines started charging for same day standby tickets not to stop people like me who happen to show up early, but to force the gamblers to hedge their bets further by booking the flights they actually intend to take.

Author: Keith Humphreys

Keith Humphreys is the Esther Ting Memorial Professor of Psychiatry at Stanford University and an Honorary Professor of Psychiatry at Kings College Lonon. His research, teaching and writing have focused on addictive disorders, self-help organizations (e.g., breast cancer support groups, Alcoholics Anonymous), evaluation research methods, and public policy related to health care, mental illness, veterans, drugs, crime and correctional systems. Professor Humphreys' over 300 scholarly articles, monographs and books have been cited over ten thousand times by scientific colleagues. He is a regular contributor to Washington Post and has also written for the New York Times, Wall Street Journal, Washington Monthly, San Francisco Chronicle, The Guardian (UK), The Telegraph (UK), Times Higher Education (UK), Crossbow (UK) and other media outlets.

20 thoughts on “Up in the Air II: Why Airlines now Charge for Same Day Standby”

  1. You could probably get that confirmed/denied by asking on a frequent flyer forum. I hear that those people are maniacs.

    I assumed the change had come just because the airlines are trying to turn everything they give away into something they sell — if it's worth something to the passenger, charge them for it. I'm surprised they don't sell boarding priority (but maybe people would buy that and not buy seat upgrades). Your theory is more interesting.

  2. AA has started selling an upgrade when you check in that gives you access to the first few rows. It is the same as selling boarding priority.

  3. Your explanation makes sense when it comes to the people who might plan itineraries that way. (For myself, I had no idea there ever was the chance to change flights without a fee, though in a general way I have been aware that empty seats are devil-spawn. Many years of last-minute USAir flight cancellations taught me they'd rather screw the passengers they had than fly too many empty seats.)

    However, for people like you and me there might be a more parsimonious explanation: simply that they charge because they can. This is a business dedicated to the proposition that the lowest fare that pops up on a screen is what gets the initial booking. They've done everything they can to make that as low as they can. At the same time they've compensated by charging separately for anything and everything they can, plausibly or not. Luggage, food, pre-assigned seats, better seats, canceling, rebooking, you name it.

    Okay, so against all expectations your first-leg flight gets in early. You go over to the counter, wait in line, get to the agent, ask about that earlier connecting flight. You're told it'll be an extra 35 bucks, 50 bucks, 100 bucks, or whatever. Do you pay? By the time that decision point rolls around you're 80% committed; you've already invested waiting time and talking time, and in your mind's eye you're on that flight. It really would take somebody extraordinary (or maybe extraordinarily cheap) to say, at that point, "no, I'll hang around this cattleyard another two hours, thanks very much."

    I'd suggest that they charge because they can. They know we're almost surely going to do it anyway and they can get a few more bucks out of us. How much they charge depends on their reading of what it's worth to us not to back down when we're at the counter. I sympathize with the theoretical view that knowledge of their needs can be powerful, but they're the ones who own our bodies when we're in transit. And they have a fundamental and very deep understanding of that fact.

  4. A key point of my post is that we need a better explanation than "they do it because they want money" or "because they can", because *it costs the airline to engage in this practice*. To make an analogy, as a passenger you are essentially offering to trade a piece of fruit that is not yet ripe to a grocer in exchange for a piece of fruit that is about to turn rotten and lose all value. In the days before the Internet when all pricing became transparent, an airline that did not take the deal would be non-competitive with other airlines who did. This is why we need an explanation for the change in practice.

    In my informal research on this I did indeed visit FlyerTalk etc., where you can find advice on the ticket buying strategy the airlines now are trying to defeat. Not only can you with many airline websites see that later-in-the-day prices are less, but you can also see how many seats are left for sale on earlier-in-the-day flights, which gives the gambler even more useful information. If you are leaving in a week and there is a half full plane at 8am for $1000 that you want to take, it is virtually no risk to book a 4pm flight to the same place at $800 and show up at 8am asking for a same day standby.

  5. A key point of my post is that we need a better explanation than “they do it because they want money” or “because they can”, because *it costs the airline to engage in this practice*.

    I agree that you were trying to make that point, but I'm not satisfied that it is made. To do that you'd have to plausibly compare the amount of money that it's costing them vs. the amount that they pick up for the reasons Altoid describes. It seems hard to estimate those numbers.

  6. Looking at the fee from the point of view of a single transaction — you want to stand by; the airline will or will not charge — avoiding the “cheap gambler” strategy is the only explanation.

    However, airlines started to implement this fee as soon as their “load factors” (the average number of seats sold per flight) improved through more passengers and capacity cuts.

    When an airline has, on average across all flights for the year, 2 people standing by for 3 empty seats, it makes little sense to charge, except for the occasional “fare gambler.” (But people who do that and yet are not frequent flyers are not terribly common. If they're that cheap and have that much free time, they probably fly on a low-cost carrier anyway.)

    But when an airline has 3 infrequent flyers standing by for 2 empty seats, it makes sense to create an auction, and put the people most willing to pay extra in those seats.

  7. Does the consolidation of airlines play any role here? If a particular airline is monopolizing a particular route, they'll carry a particular passenger no matter when he eventually flies.

  8. Hi Allen K.

    Granted, I don't have the airline inside data I would need to do a formal proof, so what I have offered must remain a hypothesis. However, there is an evidentiary bar the "because they can" explanation needs to get over and doesn't IMHO: In decades of brutal competition with zillions of brilliant people trying to make a buck in the airline business, no one ever figured out until now that it was better to yet plane seats go empty some of the time in exchange for a same day standby fee.

  9. I like the "stimie the cheap gambler" explanation, and I think Bird is onto something important — the procedure an airline might pursue is probably different under different load factor scenarios, especially in a scarce revenue environment. What airlines need to figure out how to maintain is the discipline to hold load factors at high levels.

    A nice new site with displays of flight alternatives is http://www.hipmunk.com

  10. "If a particular airline is monopolizing a particular route," — such routes would likely be pretty thin markets anyway, lightly traveled spokes filled mostly with connect traffic.

  11. Looked at in isolation it seems to be irrational. But the big picture is that you make your cheap fares as inflexible as possible in order to force people to either a) buy flexibility up front in the form of more expensive and less restrictive fares or b) pay fees when they subsequently need or want the flexibility they didn't pay for with their fare. Airlines clearly believe this is a revenue maximising approach. The cost of letting you have that empty about to be lost forever seat is letting you off this hook that they've created in order to maximise revenue overall.

  12. Keith, I'm not discounting what you say about discouraging the gamblers, but in this context I think Bird's got a key point. The higher the load factor, the less that empty seat costs the airline. If they have a pile of semi-ripe plums and only one or two about to go bad, an offer to take an over-ripe one off their hands in return for yet another semi-ripe one means less than it does if half of what they've got is about to go bad.

    I also think the analogy, while good for the single event described, is imperfect going forward, because it creates an empty seat in the original flight, and depending on a lot of factors, a seat that might be harder to fill than the one that *is* being filled. The new empty seat is a potential cost for the airline too. So while filling an empty seat in the earlier flight can be a clear benefit to the airline, creating one in the later flight is likely not. (And I think it's conceivable that there could be circumstances where the value of having a seat open until the gate closes is greater than the marginal cost of flying an empty one.) The marginal cost of that one unfilled seat, in other words, isn't the only cost to be considered.

    Again, load factor seems to be the crucial element. I'm no statistician, but it seems to me that the higher the load factor, the more probable it is that some anonymous someone will want the empty seat(s).

    So if we have high load factors– which the airline business has worked very hard to achieve– we're looking at a situation where the marginal cost of the unfilled seat isn't as high as it used to be and is to some degree offset or matched by the new marginal cost of the later unfilled seat; while at the same time we can be relatively confident that there will be some demand for that unfilled seat. In addition, there's a behavior pattern of gambling, numbers unspecifiable, that costs us money and we want to deter it.

    Given all that, why not replace the de facto auction for unfilled seats, now won by the first bidders rather than the high ones, and institute a charge? Cash is a far more valuable currency for the airline than is the travelers' time (travelers' time is rather the raw material the airline wants to convert to bankable receipts).

    These are the kinds of things that lie behind a statement like "because they can." Airlines operate in a difficult environment, the difficulties of which they've tried to mitigate in part by lowering posted fares to attract business– the greater transparency you point to– and making up the difference by erecting barriers to passengers' flexibility once they've booked and by instituting new charges wherever they plausibly can. Those charges start once a passenger is in the system and is effectively captive. In this business model passengers tend to feel like "anonymous bovines" because they are, in fact, being treated like milch cows. The trick is to get them into the milking shed. Other businesses work in similar ways now, something akin to rent-seeking. Technology has helped make this possible by allowing businesses to parse their costs and processes ever more finely and locate new things to charge for, and given them the ability to collect the charges (think of how banks have worked out algorithms to stack checks and debits so as to maximize overdraft charges, for example).

    Whether it's economically rational to treat people this way is a question that does arise, but the model seems to be working for a great many companies in a wide range of businesses. My own rule about flying is that if I can drive somewhere in 10-12 hours, I'll do that rather than fly. Beyond that range I have to fly. I do it as seldom as I can, and like almost everyone else, I hate the experience now. But I still have to do it. And that's what they know.

    BTW, did you pay the fee or keep your original booking? And what were they charging?

  13. There is little or no complexity around standby fees: they exist because they can. Airlines are constantly searching for any possible source of additional revenue while simultaneously maximizing operational efficiency.

    Yes, there may be some marginal behavior change induced by these fees that accrues to the airline; however, it is very small and difficult (if not impossible) to model. And there is a real cost associated with changing passenger reservations and no cost savings from reduced load factors on later flights. Indeed, last-minute load changes (up or down) can incur real cost – and in this case, for both flights.

    Airlines have moved much more towards a “fly what you buy” model. It's simple and has real operational savings. And they can make passengers who want flexibility pay for it – either via change or standby fees, or higher fares – because passengers perceive value in flexibility.

    Edit

  14. European budget airlines (easyjet, ryanair, etc) routinely charge for boarding priority. Ryanair is discussing charging for the bathrooms.

  15. "Ryanair is discussing charging for the bathrooms."

    Five to one says that they provide salty foods on the cheap and free drinks. Anyone who's played RollerCoaster Tycoon should know the strategy I'm talking about.

  16. Hello Altoid:

    There is no doubt that you are right about load factor. Load factor, interestingly can be detected by sophisticated buyers in advance (by looking at the available seats on websites like aa.com), so a smart gambler would take this point into account.

    In my own case, the flight was buttoning up with empty seats, so it really was a dead loss for the airline. Even if they let me get on for free and couldn't sell my later seat, at worst they would have broken even.

    The proposed charge was $50 and I did not pay. Someone earlier said only an extraordinarily cheap person would resist paying, but that overlooks switching costs. In my case, changing planes would have meant rescheduling a taxi and getting a hold of a friend who was meeting me who was flying in from another city. That hassle alone would not have stopped me from boarding the earlier connection…that hassle + $50 did.

    Ultimately, a truly sophisticated anti-gambling system by the airline would not charge a flat fee, but a fee based on how much the passenger was gaining (i.e., charge more if someone with a $200 ticket was boarding a $300 flight early versus a $250)

  17. charge more if someone with a $200 ticket was boarding a $300 flight early versus a $250)

    I don't think this is particularly relevant to the airline's calculations or the fare structures, which are strongly related to time of booking. Any walk up fare is going to be quite high; a $200 fare on a given flight achieved by booking a couple of weeks in advance was probably a $200 fare on the earlier flight at that time (unless there was higher demand for the earlier flight and fewer seats at $200 were made available for it — airlines raise average fares on high demand flights (which are usually high demand flight times) not so much by raising all fares as by making fewer seats available at the lower fares — the low fare gate closes more quickly, as it were).

    Those who book early at $200 assist the airline by covering costs and leaving the airline with only a few remaining seats that it can then try to sell at a much higher fare.

    I also wonder how informative the "available seats" website charts actually are.

  18. Southwest's official explanation is that if they allowed this flexibility, no one would ever show up for the flight they actually booked, creating chaos. I must admit that this explanation makes some sense to me, though I have no idea how to test it.

  19. There are flights with empty seats? I've seen maybe two flying every week since March…. almost every flight I have been on has been overbooked. Once, I even got the very last seat on my flight.

Comments are closed.