THE FOG OF AIRLINE FEES
By Joe Brancatelli
May 29, 2014 --The Department of Transportation (DOT) is taking another stab at helping travelers figure out exactly how much it costs to fly from Point A to Point B and everyone is applauding the effort: business flyers, vacationers, consumer groups, corporate travel buyers and newspaper editorial writers.
Everyone except the airlines themselves and their trade group, which is throwing a hissy fit because full, transparent disclosure of prices may cost a few bucks and interfere with their attempts to fool most of the people most of the time.
Ever since domestic airlines began seriously "unbundling" airfares nearly a decade ago and charging for everything from checked bags to seat assignments, the DOT has fought a rear-guard regulatory action to prohibit carriers from turning a la carte pricing into a shell game. The agency hasn't barred airlines from hitting travelers with fees for early boarding or carry-on bags or even a blanket or soft drinks, but it has strived mightily to stop carriers from lying about the true cost of flying.
For their part, airlines have responded by jacking up old fees, inventing new ones, battling to the Supreme Court (and losing) in its attempts to advertise prices without mandatory taxes, and even changing the name of its lobbying group, the Air Transport Association, to the Orwellian and vaguely creepy Airlines For America (A4A). And until the DOT dropped the new package of price-disclosure regulations earlier this month, A4A was trying to flog Congress into passing the Transparent Airfares Act, which would make prices more opaque by permitting airlines to hide mandatory fees and taxes.
The new regulations proposed by the Transportation Department are surprisingly tame. All they require is that airlines disclose the cost of certain "ancillary" charges (specifically, first checked bag, second checked bag, one carry-on item, and advance seat selection) when they advertise fares and display prices on their proprietary websites. The airlines would also be required to make the pricing information available to third-party ticket sellers and require those parties to also show those add-on charges.
"Not having ready access to ancillary service fee information can be a critical disadvantage," for flyers, the DOT said in its defense of the new regulations. "If the consumer remains unaware of the additional fees, he or she may make a suboptimal purchasing decision."
Of course, a "suboptimal" purchase is exactly what the airlines want when you shop. As discussed in a recent column, carriers have separated all manner of services from the all-inclusive "airfare" that was the norm before the 1978 deregulation of the commercial-airline industry.
The upcharges have come so fast, and risen so high, that checked-bag and ticket-change fees alone accounted for nearly $6 billion in revenue in 2013. And that's roughly equal to half the industry's operating profit in 2013. Better yet, that ancillary revenue stream is tax free since only base airfares are taxed by the federal government and airline tickets are exempt from state and local taxes.
The airlines know a good thing when they see it and their goal is to add more fees wherever possible. "I don't think anyone ever envisioned that ancillary revenue would be as significant as it is today," United chief financial officer John Rainey told an investor conference last week.
The new DOT regulations--which would go into effect around the end of the year--are at least the third try at keeping travelers informed about the actual cost of flying when surcharges are piled onto the base airfare. DOT first addressed the issue in 2010 and beefed up disclosure rules a year later.
Have those regulation been effective? Given the success airlines have had switching to an unbundled pricing model, the regulations certainly have not hurt the industry no matter what its trade organization claims. U.S. carriers are now solidly profitable for the first time in nearly two decades and everyone from The Economist to Bloomberg are celebrating the resurgence. Most airline shares are trading at or near record highs, too.
But if the previous DOT regulations have done no harm to the airline industry, they have been less successful in helping travelers understand what it costs to fly. One example: the DOT's insistence that carriers clearly disclose the fees on their websites.
Click the "changed bag rules and optional services" link on the United Airlines home page and you're brought to page that carries more than 1,200 words of boilerplate and links to 64 more pages of information. The cost of a checked bag? You can't even find out unless you enter your name and frequent flyer account number into a form or choose a secondary tab and specify a route, departure date, cabin of service and your frequent flier status.
The "updated baggage & optional service fees" link on the American Airlines home page brings worse news. Click it and you can find your baggage charge on the linked page--but only if you have the fortitude to sift through 13 charts, nearly 4,000 words and more than 90 secondary links. And that doesn't even include information for charges on US Airways, American's newly merged partner in the American Airlines Group. (NASDAQ: AAL)
The blizzard of fees and the regulatory attempts to offer travelers cost clarity is having another effect: The two airlines that charge the fewest fees are under intense pressure to conform to the new normal in the airline business.
The nation's most consistently profitable airline, Southwest continues to bundle two free checked bags in all fares and doesn't charge ticket-change fees. But all you hear from analysts at the quarterly earnings meetings is complaints about how much revenue Southwest is "leaving on the table" by sticking to the model that has generated 41 consecutive years of profit and the industry's most generous returns to shareholders. Meanwhile, JetBlue has apparently caved to a la carte fever. It signaled in its earnings call last month that it will most likely abandon its policy of offering one free checked bag to every JetBlue customer.
Of course that's nothing compared to what happens at Spirit Airlines. Its charges more types of fees (some optional, others not) than any other U.S. carrier. In 2012, it even instituted a $2 fee on fliers because Spirit Airlines executives don't like that the Transportation Department is trying to make airline prices more transparent.
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 © 2014 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2014 by Joe Brancatelli. All rights reserved.