During the depths of the “great recession” in 2008, US airlines experienced the double whammy of fewer travelers and soaring jet-fuel prices, resulting in billions of dollars in losses. The airlines responded to this economic crisis by aggressively unbundling their product and charging fees for core services like checked bags and seat selection that were previously included in base airfares.
The attraction to the growth of ancillary fees is that the airlines can say publicly they are containing air fare increases (and the corresponding federal taxes that supports aviation infrastructure) yet still increase net revenues and ultimately raise the price of air transportation for the average passenger. No one faults the carriers for finding new ways to sustain profitability. Indeed, these ancillary fees, which generated US$22.6 billion in revenue for the global industry in 2011, have helped mend the airlines’ balance sheets. Yet, they have also created a great deal of frustration for the flying public who too often feel they have been charged hidden, unexpected or poorly-disclosed fees.
Fortunately, the US Department of Transportation (DOT) has recognized that this new market reality can indeed be frustrating and even misleading, particularly when consumers attempt to comparison shop for the full, “all-in” cost (fares+taxes+fees) of air travel. That’s why in April 2011, the DOT issued a new set of consumer protection rules designed to bring greater transparency to the disclosure of fees, taxes, and the total cost of purchasing air travel. These rules include requirements that:
• Airlines prominently disclose fees (e.g., baggage) on their websites. Incredibly, prior to this rule there was no requirement whatsoever that airlines disclose these fees.
• Airlines and ticket agents include all mandatory fees and government taxes in advertised fare prices.
• Airlines and ticket agents allow customers to cancel reservations, without penalty, at least 24 hours after making a flight reservation.
• Ban post-purchase fare and fee increases (unless due to government-imposed taxes or fees) after a ticket is sold.
Shortly after these common sense, pro-consumer rules were issued, Spirit Airlines and Allegiant, supported by Southwest Airlines, filed suit in federal court challenging the DOT’s authority to regulate all-in airfare price advertising, 24-hour refunds, and the prohibition of post purchase fare and fee increases.
In a major win for the DOT and consumers, the US Court of Appeals in Washington, DC, issued a decision in July 2012 rejecting the airlines’ arguments and allowing the rules to stand. In a strongly-worded decision, the court pointed out that the DOT had sound reasons to require all-in price advertising because, in its absence, consumers could easily be confused.
Based on common sense and over three decades of experience and complaints, the DOT concluded that it was deceitful and misleading when the most prominent price listed by an airline is anything other than the total, final price of air travel.
This decision, affirming the DOT’s right to regulate the advertising of fees and fares, sets a tremendously important precedent for consumers, many of whom still do not have access to ancillary fee information in a transparent and purchasable format. In other words, consumers still can’t always easily comparison shop for the “total, final price of air travel.”
Given that the DOT’s rules were recently upheld, one might ask: how can this be?
The reason is that more than 50% of consumers purchase their travel today through online travel agencies like Expedia and Orbitz, or via travel agents, all of whom utilize global distribution systems (GDSs), the underlying technology which allows for efficient comparison shopping across hundreds of airlines with a mouse click or a phone call.
Unfortunately, since unbundling, the airlines have refused to share ancillary fee information with GDSs in a dynamic and purchasable format. As a result, when consumers utilize an online travel site or call their travel agent, they are not getting the true all-in cost of their travel. So rather than having everything – base fares, fees, and taxes – all presented in one easy to compare format, consumers are forced to engage in a cumbersome and time consuming dance among multiple websites to understand what fees they may have to pay for any given itinerary. This is made worse by the fact that fees listed on airlines’ websites are presented mostly in ranges and are not updated for months at a time.
Put simply, this process is frustrating for consumers who are no longer able to easily comparison shop for the total cost of their air travel.
This reality would seem to be directly at odds with the DOT’s own stated goal for its recent airline consumer protection rules to “protect consumers from hidden and deceptive fees and to allow consumers to price shop for air transportation in an effective manner.”
That’s why it’s time for consumers to demand that the DOT finally take action and issue a new rule requiring the airlines to share ancillary fee information in all the channels through which they sell airfares. Such a rule would finally restore consumers’ ability to truly comparison shop for the all-in cost of their air travel.
Fortunately, momentum is growing for this common sense reform that would build on the DOT’s existing airline consumer protection rules. At a hearing in August, the topic of ancillary fees was discussed in detail by the DOT’s Advisory Committee for Aviation Consumer Protection, which was created by Congress to make recommendations for establishing additional aviation consumer protection programs.
The DOT has been on the right track in protecting consumers from deceptive and misleading marketing practices around the disclosure and sale of airline fees that have arisen due to unbundling. But more needs to be done to fully restore a functioning and consumer friendly market for comparing the true all-in total cost of air travel.
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