Airfare 'options' aim to woo travelers with flexibility
By Chicago Tribune
Published: Thursday, Oct. 18, 2012, 12:01 a.m.
Fliers today can find it difficult to keep their options open while trying to get good seats and locking in a good price, especially with airfares changing often and planes more crowded. Nobody wants to buy a $600 nonrefundable ticket, have their plans fall through and not be able to use it — or be forced to pay exorbitant fees to change flights.
That's precisely the problem several companies aim to fix by selling, or planning to sell, “options” on airline tickets.
United Airlines offers price lock-in options, while at least three other non-airline companies are starting options services for airfares.
“It could be a value. It's kind of like an insurance policy,” said George Hobica, president and founder of AirfareWatchdog.com, a fare alert website.
Airfare options work similarly to a stock option. The seller of the option charges a fee to hold your flight reservation at a certain fare, but you're not obligated to buy a ticket. If your travel plans change, you can simply let the option expire and you've lost only the fee, not the full cost of the plane ticket.
“If you've ever coordinated one of those ski trips or golf vacations with a group of friends, you know you can be the sucker who puts down the $500 for the flight and nobody goes,” said Heidi Brown, co-founder of BitBend, a fare lock-in startup in Chicago.
A fare option might work like this: You pay $9 to lock in ticket at a set fare for three days while you get your spouse or friends to commit to a getaway — or wait for your boss to approve vacation time.
Typically, the longer you hold the fare, the more the option costs. You don't get your fee back, regardless of whether you make the purchase or let the option expire.
For option sellers, it's a delicate balance of pricing options low enough to entice consumers, but high enough to make money, considering they may not make the final sale. There's also the risk for the option sellers that a fare could go up while a consumer decides, which means, depending on their arrangement with the airline, they'd have to pay the difference in ticket prices.
Years ago, airlines would take reservations and hold a fare for free. Like checked bags and onboard meals, that freebie went away. Now carriers and online travel agencies have instant ticketing, with 24-hour cancellation periods, which is federal law.
“It's mainly for people with mushy plans — they don't know if they want to go at all or exactly what day — and they want to lock in a price,” said Rick Seaney, an air travel analyst and co-founder of FareCompare.com. “I think it's a niche business. A certain type of person might do it.”
While it might be a niche product, fare options companies argue it's valuable because plane reservations are often nonrefundable, unlike reservations for hotels, car rentals and restaurants. Buying an option is an alternative to buying a refundable ticket, which can cost twice as much as a nonrefundable ticket, or paying flight change fees, often $150 per ticket.
“It's basically a discount program on refundable tickets,” Seaney said.
And you can decide not to take the trip for any reason, which makes it different from traditional travel insurance.
Some industry watchers are not convinced there's a mass market in options.
For example, Hobica wonders why other airlines in the hyper-competitive industry have not copied the idea if it is a money-maker. And the 24-hour cancellation rule helps in many situations where a fare option would be useful, Hobica said.
“I've never used it,” he said, “and I don't think I would use it.”
Another hurdle for the smaller companies is building trust.
“If you're a whole new brand, an unknown brand, I think it's a tougher sell,” Seaney said, adding that people might not be willing to give their credit card numbers to an unfamiliar company.
“Will it have mass adoption? It doesn't feel like it would,” Seaney said. “But for a certain number of people, it would be somewhat useful. It just depends on your situation.”
What follows is a sampling of services that offer, or plan to soon offer, options on airfares:
• United Airlines FareLock: The best-known option service — and the only one that's fully functional — is FareLock by Chicago-based United Airlines. It adopted the service from Continental after the airlines merged in 2010; the combined airline began offering FareLock in March.
United's Farelock, only available if you book certain United or United Express flights at United.com, allows you to hold your itinerary and price for either 72 hours or seven days for a fee. You purchase FareLock, if available, on the “review trip itinerary” page after you've selected flights online. The service locks in a fare in a certain section of the cabin, not a specific seat.
• OptionIt: OptionIt, operated by Chicago-based Smart Options, currently sells “reserve now, decide later” options on sporting event tickets and travel packages. It plans to offer options on airline tickets, too, company officials say.
• BitBend: BitBend's co-founders, husband-and-wife team Rob and Heidi Brown, have financial backgrounds, said Heidi Brown, chief marketing officer. It, too, plans to place a hold — or what it calls a bend — on airfares for a number of days or weeks while consumers finalize travel plans. BitBend.com plans to promote on social media the good fares it finds and suggest people buy options to lock in a price before it disappears.
• SteadyFare: SteadyFare is also in beta testing, offering flight options from three airports — JFK in New York, Los Angeles and San Francisco — to 17 destinations.
Perhaps the biggest drawback for some consumers is that they cannot choose flight times or the airline, although the company plans to add that feature, said Jack Connor, a SteadyFare co-founder.
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