Friday, 13 December 2013

AA is (still) lying. DOT is (still) out for donuts.

On Monday, the Advisory Committee for Aviation Consumer Protection (ACACP) of the U.S. Department of Transportation (DOT) will take up a request from a coalition of consumer and privacy advocates (including me) for specific actions by the DOT -- as part of its authority and responsibility for enforcement of Federal laws forbidding false advertising and deceptive practices by air carriers and their agents -- to protect the privacy of personal information obtained by airlines, travel agencies, and computerized reservation systems.

This is an important (small) step, but one that shouldn't be necessary. Pressure from grassroots consumer organizations, and from ACACP, is only needed because of DOT's foot-dragging and avoidance of meaningful enforcement activities -- even while DOT zealously guards its turf against state and local consumer protection agencies, who would be eager to take airlines to task for fraud if they were not pre-empted from doing so by the Federal "Airline Deregulation Act".

Airlines couldn't get away with their current systematically fraudulent advertising practices without both preemption of all enforcement authority other than that of the DOT, and DOT's own laissez-faire, caveat emptor, hands-off approach to enforcement.

Case in point: This week's action in the DOT enforcement docket regarding American Airlines.

The bankruptcy courts and the Antitrust Division of the U.S. Department of Justice have each approved the acquisition of AA by the former U.S. Airways. So the new airline operating under the AA code isn't bankrupt any more, and can't lie about its bankruptcy the way it's been doing for the last few years.

But AA under new management is still telling the same old lies about its fares as the old AA -- and some new and possibly worse ones.

One of the pervasive and deceptive airline practices in which AA has joined (along with deceiving customers about which airlines actually operate particular flights) is the labeling of what the DOT euphemistically calls "carrier-imposed charges" as "taxes".

These charges are not taxes. They are imposed and retained by airlines, not mandated by, or passed on to, any government. They should properly be described as part of the "fare".

Other fare components are described as "fuel surcharges", even when they have no particular relationship to the cost of fuel.

Labeling these portions of the fare as "taxes" misleads the public about how much tax airlines and air travellers pay, and how much governments subsidize airlines. This also makes consumers assume these charges are unavoidable and uniform for all airlines, and thus discourages comparison shopping even when these charges vary widely from airline to airline.

This is unquestionably illegal, and these practices have been allowed to become the industry standard only because the DOT has been imposing no meaningful sanctions.

In February 2013, Assoc. Prof. Ben Edelman of the Harvard Business School forced the DOT's hand. With the assistance of some of his students, Prof. Edelman meticulously documented the systematic mischaracterization of airfare components as "taxes" by AA and several other airlines.

After Prof. Edelman's letter reporting the results of his research to the DOT in its capacity as the law enforcement agency responsible for policing violations of the law was ignored for a year, he filed formal complaints requesting the DOT to investigate and impose sanctions on the airlines, including ordering them to refund to customers the fares they had falsely described as "taxes".

AA (and the other airlines) tried to claim that the false statements were inadvertent and inconsequential (tell that to someone who has to pay $400 in airfare misrepresented as taxes or government fees to redeem her miles for a "free" ticket!), and that all that was needed was more training of AA call center personnel -- as if they weren't already reading the call center scripts and providing the fare/tax breakdown numbers in the manner in which they are trained and in which AA's internal systems are set up to provide that information to call center staff.

After three rounds of written back-and-forth between Prof. Edelman and AA, the DOT issued a consent order (the equivalent in a civil enforcement matter of a plea bargain in a criminal case) on Wednesday, 11 December 2013.

AA admitted that it had violated the law against engaging in fraudulent and deceptive practices, and agreed to pay an administrative fine of of US$60,000. That's obviously a pittance compared to the amounts that AA has been collecting in the guise of "taxes" and government-imposed fees, but actually keeping for itself.

AA also agreed to, and the DOT issued, a cease-and-desist order: "We order American Airlines, Inc., and its successors and assignees, to cease and desist from similar violations."

The DOT's press release claims that DOT's "Aviation Enforcement Office investigated how American described to potential passengers the taxes and carrier surcharges that it collected." There is no evidence in the consent order or any of the other documents in the docket that DOT actually did any such thing. All of the "investigation" was done by Prof. Edelman and his associates.

But it gets worse -- much worse.

On 12 December 2013, the day after the issuance by DOT of the consent order dismissing his complaint, Prof. Edelman filed a new complaint documenting that AA is still misrepresenting carrier-imposed charges (fare components) as taxes or government-imposed fees, and in even more flagrant and deceptive ways than those he had originally complained about.

Either AA had resumed its illegal activities before the ink was dry on the cease-and-desist order, or -- much more likely -- AA had never brought its practices into compliance with the law in the first place.

The labeling of part of the fare as tax is, of course, at its worst and most deceptive when the entirety of the fare is mislabeled as "tax", so that the ticket can be described as "free". This is actually a common practice with tickets issued in exchange for frequent-flyer credits, and this is the subject of Prof. Edelman's latest follow-up complaint against AA.

Travellers understand that governments may impose taxes even on free tickets, so they blame the government for the high price of a "free" frequent-flyer ticket. Little do they know -- nor can they usually tell from the incomplete and inaccurate statements on airline Web sites and in confirmation messages and invoices -- that most of what they are paying to redeem their points for a "free" ticket is going to the airline, not the government.

These airline charges (fare components) mislabeled as taxes routinely amount to hundreds of U.S. dollars on a long-haul international ticket, and can be as much as half of what a ticket would have cost without redeeming frequent flyer mileage credits. Yet airlines persist in labeling a frequent flyer mileage redemption ticket like this as "free" rather as a "half-price" ticket. And frequent flyers pay millions of dollars to airlines for tickets they are told are "free".

This reflects badly on AA, of course, which we now know lied to the government as well as to its customers. But it reflects equally badly on the DOT's Office of Aviation Enforcement and Proceedings, in two respects:

  1. DOT never made any attempt to investigate whether AA had complied with the DOT order, but accepted without question AA's unverified claim to have changed its behavior; and
  2. This trust by the DOT in airlines -- even when one of them was found by DOT to have engaged in systematic fraud -- was so much the norm that AA was willing to agree to the consent order, knowing it wasn't in compliance, but also knowing it could count on DOT not to police its (non)compliance.

No, I'm not shocked. This is absolutely typical of DOT's lax policing of consumer fraud by the airlines and other entities under DOT's exclusive jurisdiction. But I am deeply offended.

I say again what I've said publicly many times before:

  1. Congress needs to end exclusive DOT jurisdiction over interstate common carriers, and give concurrent jurisdiction over airline consumer protection to the FTC and the states; and
  2. The new Secretary of Transportation needs to clean house at the Office of Aviation Enforcement and Proceedings, give that office more resources, and put people in charge who are committed to protecting the public against fraud rather than ideologically committed to protecting the airlines against government regulation.

All airline ticket buyers are in Prof. Edelman's debt. But if DOT's fraud squad was doing its job, Prof. Edelman wouldn't have had to do the work of the police for them.

Link | Posted by Edward on Friday, 13 December 2013, 19:01 ( 7:01 PM) | TrackBack (0)
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