Cancellation & Change Fees: Should they become an industry standard?

Posted on August 1, 2001 by LCT Staff - Also by this author

Business travelers are the backbone of the entire travel industry. They are the customers paying US Airways $2,249 for a round trip from Philadelphia to Los Angeles (one week advance notice without a Saturday stay as opposed to about $400 with a 21-day advance notice). They are the guests that attend conferences and tradeshows and fill luxury hotels from Monday to Thursday night. They are the travelers forced to pay for an extra night at those same hotels when their meeting unexpectedly ends a day early.

These premium travelers are the same clients who ride in the backseats of chauffeured vehicles in cities around the world. They come from a culture that dictates changes in travel itineraries mean additional costs. There are strong arguments to make the case that reasonable change and cancellation fees should become standard operating procedure in the limousine industry.

The Case for Add-On Fees

The first argument for implementing cancellation and change fees in the limousine industry is for simple fairness. A busy New Jersey dispatcher estimates that almost 40 percent of all corporate travel reservations are changed. It costs real money for a company to manage these changes. Reservations must often be completely re-entered. This is significantly increasing a company’s cost per reservation.

In many small companies where one person is handling both reservations and dispatch, time spent processing changes reduces the time given to callers inquiring about future service. Additionally, schedules must be reworked, and office staff must often contact drivers for schedule changes. Extra vehicles must be made available. On-call drivers must be lined up. And the danger of reduced service levels is always looming in the background. Finally, well-paid dispatchers must devote so much of their time to facilitating changes that they are unable to focus on the strategic planning aspect of their job.

Ed Wood, president of First Class Limousine in Nashua, N.H. introduced change and cancellation fees 10 months ago for the above reasons. He says that there have been few complaints from his customers. Wood has more than 25 years of experience in the limousine business, and his 22-vehicle company handles mostly corporate work. “We have a flat $10 charge for any changed reservation, and we add $20 for any same -day reservations,” he says. We believe these are fair and reasonable charges.”

Wood believes the key is understanding your costs. “It is very expensive to run a high-end corporate limousine service,” he says. “Beyond the obvious expenses such as car payments, insurance and fuel, there are huge expenses related to employees and the benefits they receive. I find that many limousine operators have no clue as to what it truly costs them to put a vehicle on the road. If they understood, then I believe these fees would be a standard practice in the industry.”

Wood says that the fees have amounted to$200-$300 per week. “It represents less than half of one person’s work week, and I know if you added up the time, the fees are completely justified.” Another ancillary benefit, according to Wood, is that clients tend to be more careful when making reservations with the fees in mind.

Tom Mulcahy of Delaware Cars in Chicago agrees with Wood. “We charge full fare less gratuity when a client cancels with less than two hours notice. We are very close to implementing the change fees also. Clients call with multiple changes to a reservation, and it takes time to make those changes.”

Another major reason to assess change and cancellation fees is that they are an accepted aspect of corporate travel. Runzheimer International, the Wisconsin-based corporate travel think tank, estimates that business travelers cost their companies between $791 (small cities) and $925 (big cities) per day. Clearly some of these costs are attributed to add-on and premium charges. Travelers understand and generally accept these fees. Here is a quick look at related vendors and their change and cancellation policies.

Commercial Airlines

The major airlines have recently imposed an across-the-board $100 fee for changing flight reservations. Previously, most airlines charged $75. This fee applies regardless of the amount of notice given to the airline. The airlines will allow a traveler to show up at the airport on their scheduled day of travel and attempt to fly stand-by on an earlier scheduled flight. However, the traveler has no guarantee that they will have a seat on the earlier flight. Note: travelers are not permitted to fly stand-by the day before their scheduled flight.

The airlines also infuriate their customers by requiring them to pay any difference in fare from the time they made the reservation to the time they made the change. For example, on September 1, I booked a seat on US Airways for a roundtrip flight from Philadelphia to Chicago. It was scheduled to depart on Sept. 21 and was returning on Sept. 24. The sale fare that I received was $299. On August 19, I called US Airways and rescheduled the trip for a departure on September 19, and with a return on the 23rd. I paid the $100 change fee, plus I was charged an extra $149 because that is now the non-sale fare ($448) for the Philadelphia-Chicago trip.

Charter Air Travel

High-profile corporate travelers have escaped the difficulties of commercial air travel by using private charters. Excel Aire of New York City uses a variety of aircraft, including the popular Lear 55, which rents for $2,350 per hour. The company will allow a “no charge” cancellation with two days notice, but will charge full minimum rates for a same day cancellation. Helicopter Flight Services, also in New York City, will charge you $650 for a ride from midtown to JFK Airport. The company will impose a $100 fee for a same-day cancellation and the full $650 for a “no show.”

Luxury Hotels

Luxury hotels such as the Ritz-Carlton, Four Seasons, and W Hotel chains do everything possible to cater to their well-heeled guests. Hotels will normally permit a guest to cancel their reservation up to noon on the day of arrival (sometimes later) without penalty. Once you have checked in, the hotels require 24 hours advance notice for your departure date. Failure to notify the hotel of an early departure will cause the traveler to incur fees that typically range from $75 to a full night’s room rental.

Four-Star Restaurants

The River Cafe in Brooklyn has an extraordinary view of Manhattan. To make a reservation, you must leave a major credit card. Pull a “no show” on your reservation, and you will be charged a cancellation fee of $25 per person. Cancellation fees are still fairly uncommon in the restaurant industry. However, according to Zagat’s 2001 New York Restaurant Guide, credit card guarantees have become standard at finer restaurants. According to Zagat, the restaurants are successfully fighting to eliminate the troublesome diner who makes multiple reservations before choosing the establishment that he or she actually wants to dine at. This is similar to a corporate traveler who books multiple return pick-ups.

The Case Against Add-On Fees A CEO of a top limousine company put it succinctly: “Are you nuts?” he shouted. “We are in the middle of one of the most difficult times since the early ’90s. We are lucky to have our corporate clients. We have already added a fuel surcharge. We can’t possibly hit them with change and cancellation fees.”

Dennis Adams, president of Celebrity Limousine in Malvern, Pa. believes that the changing nature of the business makes some change and cancellation fees unfair and impossible to collect.

“We have a two-hour cancellation policy. If you cancel service with less than two hours notice, we charge you full fare,” he says. “Our clients understand this. But charging extra for ASAP or same-day trips is something we just would not do. And really it is not fair. The limousine business has become much more of an ASAP business in the last 10 years. What we did, as a company, is have an extra chauffeur and our trainer ready to jump in a car at all times. We do about 10 to 15 last-minute trips every day. So, rather than punish the client for a last-minute trip, we changed our business model to accommodate the needs of our customers.”

Lynn Woods, senior writer for Business Travel News and travel editor for Expedia OnLine, says that she believes limousine companies cannot fairly impose change and cancellation fees because no other ground transportation provider does so. According to Woods, there are a number of options open to arriving travelers. These include:

1.Drive his or her own car from airport parking. 2.Pick up a rental car at the airport. 3.Use hotel shuttle service. 4.Use private shuttle service. 5.Take public transit/light rail from the terminal. 6.Take a taxicab. 7.Pre-arrange pickup with limousine service. 8.Hire limousine/sedan from designated on-site vendor. 9.Arrange pickup from family or colleague.

Woods says the nine methods of airport ground transportation have a common thread. “There are very few, if any, change or cancellation charges associated with ground transportation,” she explains. “I don’t believe you can look at limousine service in the same equation as other elements of luxury travel. It is still simply transportation to and from the airport.”

Woods closely monitors the auto rental industry and says that industry has even higher costs associated with travelers who make changes or fail to show up. “More than 25 percent of every automobile rental involves a no- show,” she says. “The industry considers it a major problem, and they would do handstands if they could impose more reasonable fees. It seems to me that if a traveler can cancel a rental car at the last minute if his trip is cancelled, he should be able to cancel his car service without penalty.”

The major car rental companies, Avis and Hertz, have limited penalties and fees associated with changes and cancellation. Most of the penalties are incurred when a premium vehicle such as a convertible, mini-van or SUV is reserved. Avis has a standard policy of unlimited no-fee changes with 48 hours notice. Less than 48 hours, Avis reserves the right to impose a $75 change fee. Hertz will not impose a cancellation fee on a standard vehicle. A no-show reservation will be automatically cancelled in the Hertz system. Hertz can impose a $100 cancellation fee when a premium vehicle is reserved. However, according to Woods, extra fees are rarely imposed on business travelers, who are often members of the rental company’s premium clubs such as Avis Preferred Service or Hertz No. 1 Club Gold.

Imposing the Fees Without Offending Customers

Billing your customers for change or cancellation fees is somewhat ... check out the August issue of LCT for more on this topic!

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