NOTHING FAIR ABOUT AIRFARES
By Joe Brancatelli
June 9, 2010 -- Here's a simple question: How much will your next flight cost? Here's a simple answer: The airlines don't want you to know.
Here's a frightening solution: A well-meaning government agency is getting metaphysical in its attempt to get you an honest answer to your simple question. What could possibly go wrong?
Buried deep within 84 pages of government-speak known as NPRM (that's "notice of proposed rule making" for the rest of us), the Department of Transportation last week decided that it was time to call the nation's airlines on their latest pricing trick. Depending on which airline executive is spouting the jargon, the new fare game goes by any number of names: unbundling, ancillary revenue, a la carte pricing, pizza pricing, opt in/opt out, and even the Dell strategy.
But the goal is always the same: Seduce potential flyers with a low-ball advertised price, then force them to wade through a maddening list of ups, extras, surcharges, government-mandated taxes, and airline-imposed mandatory fees. It's how an advertised $99 fare somehow becomes a $400 flight without you knowing about it—and without you having a chance to compare whether another airline promoting the same $99 fare would only charge you $250 or $300 when all is said and done.
Confused already? Me too. And I know what I'm talking about.
So let's roll back the clock a bit, back to those supposedly happy days when airlines were tightly regulated, everyone dressed in their Sunday best when they flew, and flight attendants were called stewardesses. Except for the stewardess part, our brief foray into history will explain how we got to today's reality, when fares are merely a suggestion and the price you actually pay requires a degree in metaphysics and the intervention of a government regulator.
When Congress deregulated commercial aviation in 1978, it specifically exempted airlines from state and local oversight. Only the federal government could regulate the airlines. So that explains why the Department of Transportation is acting as the flyer's proxy. It's the DOT's job to make sure airline passengers aren't cheated or deceived when they buy tickets.
Since even before deregulation, the DOT has attempted to maintain a level playing field for fare advertising. By and large, the agency did a decent job. And airlines, to their credit, largely played by the rules. Even as air travel stopped being a wear-your-Sunday-best outing and devolved into a make-it-cheap, mass-over-class commodity, the airlines and the DOT generally managed to make the cost of flying relatively transparent.
But as startup airlines increasingly drove down the price of flying, the so-called legacy carriers (those that existed at the time of the deregulation) felt the pressure to compete on price. And guess what? They couldn't. So they began fiddling with fares, and the fiddles became full-on price manipulation.
Consider the state of things in the early days of the deregulated era. When you purchased your ticket, you were "guaranteed" that it included the price of the transportation; all government fees and taxes (which represent about 25 percent of the total cost); the right to choose a seat assignment in advance; a full meal, beverages, and snacks; at least two checked bags; a couple of carry-ons; and the assurance that you'd get to board the plane in a price-insensitive way within your class of service.
But as airfares fell and new-wave carriers substituted new passenger amenities for old (Southwest has never had seat assignments, JetBlue offers free at-seat TV, but never served meals), the concept of an all-inclusive fare became problematic. Then legacy carriers began to "unbundle" prices by eliminating free checked baggage; offering snacks instead of meals, then eliminating free food (and sometimes free beverages) altogether; charging extra for so-called "premium" coach seat assignments; selling early-boarding privileges; charging huge penalties for changing or canceling reservations; and, most recently, mandatory (but undisclosed) "day of travel" and "fuel" surcharges atop the advertised fare. The ultimate change may be the one proposed earlier this spring by Spirit Airlines, which claims it will soon begin to charge customers more if they board a flight with more than a single carry-on bag.
The result: an open market where airlines compete ferociously across a dozen or more categories of "service" that were once rolled into the basic fare. What was once a fixed-price environment became an a la carte market where every airline charged differently for the same services. Airlines claimed it was "pizza pricing" (you pay more for each topping on the basic pie) or a "Dell strategy," named after how the computer maker sells basic PCs, then permits the buyer to customize the purchase with optional extras.
But unlike computers or pizza, air travelers have been confused (some say deceived) by the pricing bazaar. "Consumers are not always made aware of the extra charges that a carrier may impose on them for additional services," the Transportation Department said last week about the current pricing regimen.
How does the Transportation Department propose to bring order back to airline pricing? In its notice last week, it announced several commonsense new regulations: Airlines would no longer be allowed to advertise (or display on its website) "one-way" fares if the stated price could only be purchased as part of a roundtrip itinerary. Airlines would also be required to show all mandatory upcharges as part of the "full fare." Also barred: so-called "opt-outs," a practice where airlines force online customers to actively uncheck a box to deactivate a fee for an optional service.
And then the DOT swerved into the metaphysics of airfares. To combat fare unbundling, the agency is considering "requiring that two prices be provided in certain airfare advertising—the full fare, including all mandatory charges, as well as the full fare plus the cost of baggage charges that traditionally have been included in the price of a ticket."
Moreover, the DOT said, it wonders if it should even limit the "second price" just to bag fees. "Should the Department require carriers to include in the second price all services…such as obtaining seat assignments in advance? Why or why not?"
The proposed regulations for the advertisement and display of a bundled price for all mandatory charges will become official before the end of the year. But the DOT's metaphysical musings on the need for a "second price" that includes the cost of things travelers once assumed would be included in the fare is sure to be controversial. At the moment, the agency is just requesting "comments." But when a government agency requests comments, it's usually asking for input on the specifics of the rule, not whether it should adopt a rule in the first place.
"I understand what the Department is going for," one agency watcher told me this week. "I even agree with them. Travelers clearly feel victimized because they come to a ticket price with an assumption about what it includes. And when they are hit with extra charges, the DOT hears about it. But airlines are going to scream bloody murder when they realize what the DOT is suggesting. And there'll be plenty of knee-jerk claims of overreaching by an all-consuming federal bureaucracy."
The Fine Print…
Among the other regulatory changes likely to become effective before the end of the year: higher reimbursement—as much as $1,300 for passengers denied passage on a flight for which they hold a ticket and the right to cancel or change a reservation without charge within 24 hours of making the booking. And one followup to the "passenger's rights" regulations imposed late in April by the DOT: Airlines claimed that allowing passengers to disembark planes stuck on runways for more than three hours would result in many more canceled flights. According to FlightStats.com, however, there was virtually no change in the cancellation rate during May, the first full month that the new rules were in force.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2010 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2010 by Joe Brancatelli. All rights reserved.