Watch Out, Travelers: New Airline Policies Spread Easily

When one carrier sees success, others want some as well.

Mar 10, 2014 at 3:30PM

In 2008, American Airlines (NASDAQ:AAL) became the first major U.S.-based airline to institute a charge for the first checked bag. Seen as a money-grabbing outrage at the time, the policy quickly spread through the industry to the point where paying for the first checked bag is usually now the rule, not the exception.

As airlines seek to become even more profitable, they are individually launching new policies. But based upon history, travelers and investors should not be surprised if financially successful policies spread rapidly across the industry.

Frequent flier changes
Early last year, Delta Air Lines (NYSE:DAL) instituted a new requirement to be part of its Medallion program. No longer would penny-pinching, mile-collecting passengers be allowed to enter even the lowest level of the program. The airline now requires a minimum spending level for each Medallion level with the lowest level (Silver) requiring $2,500 in annual spending. United Continental (NYSE:UAL) soon copied the policy by instituting a minimum spending requirement, also $2,500 annually, to be part of its lowest-level Premier program (again, Silver).

Delta continues to push the envelope when it comes to frequent flier programs becoming the first among the major legacy carriers to move to a system where dollars spent determine miles earned rather than the actual number of miles flown. Taking effect on Jan. 1, 2015, Delta customers will earn between five and 11 miles per dollar spent.

This style is already the norm at Southwest Airlines (NYSE:LUV) and JetBlue Airways (NASDAQ:JBLU) but Delta's move marks its first approach into major U.S. global airlines. We may have to wait and see how the policy works out for Delta but if its does, adoption by United Continental and American Airlines may not be far behind.

Carry-on changes
United Continental recently ruffled feathers among travelers when it announced its intention to crack down on oversized carry-on bags. Until now, customers, for the most part, have been able to carry on bags as long as the bag is not grossly oversized and can still physically fit in the overhead bin.

But United's latest policy change calls for a test whereby if the bag cannot fit in the defined size container at check-in, it will have to be checked. By launching this policy, two main outcomes are available: Passengers pack smaller, lighter carry-on bags reducing the airline's fuel costs, or the airline collects more in checked bag fees from forced checking of oversized carry-ons.

For its own part, United Continental says its merely enforcing an existing policy and that passengers have been complaining of oversized carry-on bags taking up space and bogging down passenger boarding. Regardless, the benefits to United seem clear and with some passengers actually in favor of the changes, tighter enforcement of carry-on sizes has a high chance of finding its way to other airlines.

Policy sharing
Major airlines operate business models that share a larger degree of similarity with their peers. With this in mind, it should be no surprise that airline policies can move throughout the industry if one airline finds a policy successful. Travelers and investors should keep potential policy changes in mind when planning ahead for a flight or long-term investment.

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Alexander MacLennan owns shares of American Airlines Group, Inc. and Delta Air Lines and has the following options: long January 2015 $22 calls on Delta Air Lines, long January 2015 $25 calls on Delta Air Lines, long January 2015 $30 calls on Delta Air Lines, long January 2015 $17 calls on American Airlines Group, Inc., long January 2015 $32 calls on American Airlines Group, Inc., long May 2014 $31 calls on American Airlines Group, Inc., long May 2014 $40 calls on American Airlines Group, Inc. This article is not an endorsement to buy or sell any security and does not constitute professional investment advice. Always do your own due diligence before buying or selling any security. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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