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Many airlines sell tickets with fare rules that include a “cancellation penalty” if the ticket were to be cancelled prior to departure. It seems to me that this mostly applies to the economy class fare option (example), and the cancellation penalty may be waived if the ticket is cancelled within, say, 24 hours of purchase (example).

According to this Travel SE answer, most people would prefer a no-show over cancelling their ticket if that entails paying a fee. The answer also mentions that the fee exists due to “convoluted revenue optimization systems”.

I thought that this cancellation fee functions as kind of a “service fee” in order to pay for processing the cancellation request. However, from my layman’s perspective, the fee does not make any sense. I think an airline should provide its customers with an incentive to cancel their tickets as soon as they decide they are not going to travel, instead of them choosing to simply not show up. This would enable the airline to resell the seat and potentially save up on other costs such as by preparing less meals. Moreover, this will decrease the number of no-shows in general, which could reduce the need for overbooking.

So, what is the point of such fees?

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    As pointed out by Relaxed in the comments, it is customary on Stack Exchange to wait for 24 hours before marking an answer as "accepted", so that more people get a chance to write answers. People tend to skip over questions that already have an accepted answer. Consider un-accepting my answer for now by clicking the green checkmark again. – TooTea Aug 19 at 13:28
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    This is a duplicate, I answered this before. I'm on an iPad, where you cannot find duplicates; maybe someone can do it? – Aganju Aug 20 at 0:30
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    @3B1BSupporter It does not. Please check my Edit. – hb20007 Aug 20 at 7:27
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    @Aganju This is not a duplicate. I went through your answers. It seems you are talking about your answer to the question travel.stackexchange.com/questions/154755/… As I explained in the edit to my question, that does not answer my question at all. – hb20007 Aug 20 at 7:34
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A cancellation implies a refund, and the fee eats into that.

It's really that simple. The only reason to bother cancelling a ticket is that you want you money back. (Possibly only the airport charges and not the nominal fare, but for many low-cost carriers the former is a significant if not major part of the total.)

The airlines in general don't want to have to give you your money back. The purpose of the cancellation fee is to discourage you from doing that. The fee will eat your entire refund for the cheap tickets and make you think twice about cancelling the more expensive ones. A no-show is a great thing for the airline, as they get to keep all of the money but save on the fuel and passenger processing costs. (Plus, if there are any standby passengers, the airline gets paid twice for a single seat.)

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    @hb20007 Some airlines in the world practise overbooking (selling more tickets than there are seats on the plane). Some of the passengers will then be "on standby", so they won't get a seat assigned on check-in, but only at the boarding gate if someone with an assigned seat doesn't show up. If everyone shows up, the airline has to refund or rebook the standby passengers. – TooTea Aug 19 at 10:46
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    This answers misses many things. – Relaxed Aug 19 at 11:32
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    @Relaxed I'm sure it does, but I don't have time to write a doctoral dissertation on this topic. I will gladly delete the answer if a better one shows up. – TooTea Aug 19 at 11:47
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    Fair enough but I would urge the OP not to accept it prematurely. In particular, you're not addressing the revenue optimization/price discrimination issues at all. – Relaxed Aug 19 at 12:32
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    @hb20007 They're actually counting on this. Most flights are overbooked intentionally by the airline because they know X number of people are likely to not show up. That's why sometimes, while waiting to board, you'll hear an announcement that the flight is overbooked and that they need some passengers to take incentives to change flights. – user91988 Aug 19 at 18:14
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Imagine a world where there were no change fees, and no cancellation fees. If you bought a ticket and then changed your mind, you could just cancel or change it. In this world, tickets would not be cheaper if you bought them in advance. After all, I could buy a ticket for a year from now then change it the day I was going to fly, and the airline would have to accommodate me. They wouldn't get a benefit from my making firm plans in advance, so they wouldn't motivate me with money to make my plans in advance. You probably wouldn't like this world, because all plane tickets would cost about what "I need to fly this week" plane tickets cost today, which is about 5x what you pay if you plan far enough in advance.

Now, imagine the same world with no change fees or cancellations, but with no refunds either. You buy a ticket, use it or not, we don't care, but it's paid for. A bit like putting a subway token in a turnstile but then not going through. You wouldn't like this world either: plans do change and people don't want to lose all the money they paid for a plane ticket. Travel insurance exists, but doesn't cover everything.

So, ok, the airline is going to charge you some money to change or cancel your plans. There are two ways to establish that charge. One is "what does it cost them" which is a few pennies in IT stuff and then possibly thousands in switching to a bigger plane for the route or whatever. That's too much of a lottery for passengers to take on. A sort of average charge of a few hundred might be fairer. But the other approach is "what will deter this behaviour?" If changes cost hundreds, you won't book until you're really very sure you going to do it. (Example: I book hotel rooms for events I might or might not attend, since they book up fast and can be cancelled no charge. I don't buy the plane tickets until I know for sure I'm going.)

Then on top of that you have to think about the system-gamers. You fly once or twice a year. But there are people who fly every week. And they want to get upgraded, they want maximum status miles, they want to be home half an hour earlier than they would normally be, and all kinds of things that aren't an option for you or don't matter for you. They invest time and energy into gaming systems. They book three flights from A to B on the same day, so they can decide on the day which one they want and that's cheaper than buying a last minute ticket on the day. They do "nested returns" and "hidden cities" and a ton of things you'd never do. The fees have to be robust against that kind of nonsense too.

So what this adds up to is that fees must exist, mostly to control your behaviour and make your plans firmer, so that they can plan their staff and equipment usage properly. Sometimes it seems like they would do better if they didn't charge you that fee -- but that's because you haven't thought about how to game that if you fly that route every single week.

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    +1 Turns out I'm a "system-gamer" doing that nonsense. But for me, there's a huge difference between getting home at 0:15 or 3:15, every single Saturday. The earlier flight sells out first, but then I don't know if I'll make it, so the later one is a backup option… :-) – TooTea Aug 19 at 15:33
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    I think you missed the point of the question. the OP was not asking why didn't airlines reimbursed cancellations. The OP was asking why don't airlines encourage customers to signal that they will not fly a non-reimbursement-already-paid ticket – gota Aug 19 at 18:39
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    While we're thinking about alternate realities, how about a world where when I buy a ticket, it's actually mine, like any other commodity. If I decide I'm not going to use it myself, I can sell it, or trade it for something else, or donate it to charity, or whatever. Now, I'm not really an economic liberal or any type of libertarian, but it puzzles me that people who fall into those categories object to the transaction which, on the surface, seems to be the most liberal. (Of course, I can see why airline owners might not like the idea. But presumably that's not a majority.) – rici Aug 19 at 21:07
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    I don't understand the connection between the question and this answer. The questioner does not talk about "no cancellation fees" at all. – guest Aug 20 at 8:59
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    Quite apart from some of the other points already made in comment on this answer, I think it’s also logically flawed. Charging for fare difference addresses the first point re short notice changes, but even if it didn’t, fares would not be what “i need to fly this week” tickets cost today: if every seat was sold for that price the airlines would be making a helluva lot more profit; take today’s premium for such “fly this week” tickets and spread it across all the other seats, and you’ll find the averaged price is much closer to today’s discounted rates. That’s where it would settle. – eggyal Aug 21 at 2:36
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I think you're obfuscating things by switching from the penalty terminology to the service fee terminology. It is definitely a penalty.

The airlines (like any business) would like to have a predictable revenue stream. If you buy your ticket way ahead of time, you're rewarded for helping them achieve a more predictable revenue stream: You get a better price. If you buy your ticket at the last minute, you don't get this reward.

Similarly, if you cancel or change your ticket, you're working against that predictable revenue stream, so you're punished with a fee. If you go ahead and travel with the ticket you bought (or you simply don't show up for your flight), you're not punished, because you didn't negatively affect the revenue stream.

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    Interestingly, in English contract law at least, penalty clauses are generally unenforceable. Would be interesting to see someone try arguing that point in court against these charges... – eggyal Aug 21 at 2:39
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    This misses all cases where the penalty is higher than the original price of the ticket, and thus there is an absolute disincentive for cancellation. It would do nothing to the revenue stream to just cancel that ticket, free of charge, without a refund. The seat could then be sold again, at current rates. - But it will not, because a no-show is cheaper for the customer. – I'm with Monica Aug 21 at 15:09
  • @I'mwithMonica "The seat could then be sold again, at current rates". That's a situation the airline would want to avoid. First, they may not find anybody to buy that ticket. Second, selling a ticket costs the airline money they don't get back, and those costs can be quite substantial. For instance, credit card fees. Expedia et al don't work for free, either. Even their own Web site costs them money. A cancellation means, either paying twice the costs, or having an empty seat (i.e., zero revenue) and still having to pay the cost of sale. – Kevin Keane Aug 22 at 5:20
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    @KevinKeane think you missed the "without a refund" bit. – Rawling Aug 22 at 10:18
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Besides all the other excellent answers, yet another consideration. Cancellations can be used for nefarious purposes. Two that come to mind is credit card fraud and money laundering.

These things can be resolved, but dealing with it would cost the airline very substantial amounts of money. So they'd rather not deal with it in the first place, or at least limit the number of cancellations. Making only expensive (and thus most profitable) tickets refundable is one way airlines can limit the damage.

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  • How can cancelling a flight ticket be used for credit card fraud or money laundering? – hb20007 Aug 22 at 8:44
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    This was more of a general statement; any time a refund is involved, criminals can come up with ways to exploit it. One way I could think of is to pay for a ticket with dirty cash right at the airport, and then cancel and refund. Point isn't that this would be a bulletproof scheme (it isn't) but that somebody may still try it and cause headaches for the airline. And also, that a more experienced criminal may well come up with a similar but better scheme. – Kevin Keane Aug 22 at 8:56

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