Tuesday, 26 May 2015

Senators and travel companies question airlines' pricing practices

It seems odd to me that the movement for "net neutrality" has led to demands for the US government to protect consumers against discriminatory and/or predatory practices by requiring Internet service providers (ISPs) to operate as common carriers of data packets, at the same time that traditional common carriers of people and goods, starting with airlines, are trying to get the government to release them from their longstanding obligations to act as common carriers -- and are taking action to repudiate or ignore those obligations, without waiting for changes in the law.

As discussed below, members of Congress have begun to take an interest in some aspects of this issue, and airlines' plans are running into opposition from competing sectors of the travel industry. But a larger consumer movement is needed to get the US government to maintain and enforce the longstanding and still necessary consumer-protection rules that require airlines licensed as such by the US government to continue to act as common carriers.

What does this mean, why does it matter to travellers, and what is being, or can be, done about it?

Current US Federal law, and a plethora of bilateral and multilateral international aviation treaties, require airlines to operate as common carriers. If they don't want to do so, they can operate as private charter services or air taxis. But private charter operators and air taxis don't get the preferential treatment afforded common carrier airlines.

By definition, a common carrier must offer its services to all would-be customers, in accordance with a published tariff. Even where the word "published" doesn't appear in laws or treaties, a tariff is by definition, publicly available. A secret pricelist, or a secret algorithm for determining prices, is not a tariff as that term is defined in common law and in airlines' own rules.

By definition, a tariff is a schedule of fares, not a database of prices placed on tickets or seats. A fare, by definition, is a price and an associated set of rules, such as the routing that must be followed and the booking class in which reservations must be made for the fare to apply.

To determine the price of transportation on a common carrier, one does not need to ask the carrier or obtain an individualized "offer". By definition, a common carrier offers its services to all comers at the price of any fare in its tariff, for any reservation satisfying the rules of that fare. The tariff is a legally binding offer to any would-be customer. It used to be routine, in fact, for travel agents to determine the price of a ticket by consulting the published tariff to determine the applicable fare, without ever asking the airline.

The legal requirement for each common carrier to publish, and to sell tickets only in accordance with, a tariff, was enacted and has been retained (even when the government no longer fixes or approves the tariff) to serve fundamental consumer protection goals of ensuring transparency (and thus enabling comparison shopping, an issue to which I'll return) and preventing discriminatory or predatory price-gouging (especially of vulnerable travellers).

Despite all this, the airline members of the International Air Transport Association (IATA) have adopted a joint roadmap for a transition from tariff-based pricing to personalized pricing. Personalized pricing would necessarily require consultation between the customer and the airline to obtain a personalized ticket price offer, whereas today the customer only needs to consult the published tariff to determine the price of a ticket for a specific set of reservations..

Last year, over objections from consumer advocates including me and many of my readers, the US Department of Transportation gave IATA the go-ahead to proceed with development of the query-response data communication system that will be needed to support the replacement of tariff pricing with personalized pricing. But the DOT declined to rule on whether it will authorize IATA members or other airlines to actually implement personalized pricing, since the query-response system contemplated by IATA could in theory (although this isn't IATA's intent) be used merely to communicate prices that were still determined according to a tariff (and which could still be determined by anyone from the tariff, independently, without consulting the airline).

Congress had no direct role in the DOT's decision-making. But less than two weeks after the DOT announced its decision regarding IATA Resolution 787, Senator Jay Rockefeller, then Chairman of the Senate Commerce and Transportation Committee, sent a letter of inquiry to the largest USA-based airlines regarding their practices for collecting, using, and sharing personal information about travellers.

There was no overt connection between Sen. Rockefeller's letter and IATA's proposal for personalized pricing. And "privacy", while an important issue, isn't by itself a sufficient conceptual framework for analyzing many of the harms to consumers from personalized pricing. Nevertheless, Sen. Rockefeller's questions were an important sign of Congressional interest in the potential for misuse -- whether through discriminatory and/or predatory pricing or otherwise -- of the personal information airlines have, or can obtain from other sources, about us and our travels.

Sen. Rockefeller had already indicated that he would not run for re-election, and his term expired in January 2015. It's not clear how any of the airlines responded to his inquiry.

The issue was picked up again recently, however, this time by a larger group of Senators (although all members of what is now the minority party), with what may be a more appropriate target (the DOT), and with a focus on questions more narrowly related to personalized pricing.

Late last month, six US Senators including the ranking minority member of the Commerce and Transportation Committee sent a letter to the DOT asking pretty much exactly the right questions, if not necessarily focusing omn exactly the right remedy:

Although under [IATA] Resolution 787, consumers will still have the option to decline to provide personal information to the airlines and shop anonymously, we remain concerned that Resolution 787 does not contain adequate measures to prevent airfare vendors from penalizing consumers by charging higher prices for those who choose not to share their information. We are concerned that airlines could penalize consumers who do not provide personal information, as well as could engage in discriminatory pricing practices with customers who do share their information.

The Senators' letter makes no mention of new legislation. In my opinion, none is needed. The Senators' letter properly treats this as an issue of Congressional oversight of the DOT's (non-)enforcement of existing law. That oversight should focus -- as I told members of the staff of one of the Senators who signed the letter, when they asked me to meet with them while I was in Washington earlier this month -- on the DOT's failure to recognize the significance of the legal requirement for airlines, like other common carriers, to adhere to published tariffs.

I got a clear sense that the Senators who sent this letter want it to be a first step in Congressional oversight on this issue, not a one-off gesture of fleeting concern. That's more likely, of course, if they hear from their constituents that you care about airline price transparency, and that you believe that personalized pricing should remain illegal in order to protect consumers against price gouging and discrimination.

Meanwhile, notwithstanding the open question of whether the DOT will eventually approve replacement of tariffs with personalized prices (or even has the authority to do so, unless Congress changes the law), airlines have continued to move in that direction.

Delta and some other airlines have replaced tariff-like tables of how many frequent-flyer mileage credits are required for awards with a system of personalized award-ticket "pricing" in which the airline won't tell you how many miles any award will require until you are logged in to your individual frequent flyer account.

Tariff requirements apply to tickets that are "sold", but not to "free" tickets. Frequent-flyer credits are not money, can be annulled at whim by the airline, and have no cash value. So as long as the only charges are for taxes and government-imposed fees, airlines can be as arbitrary (or devious) and opaque as they like about how many miles an award will require. This makes award tickets an ideal, and for now a legal, test bed for airlines' experimentation with personalized pricing and refinement of the price-personalization algorithms that will later be applied to paid tickets.

On another front, several airlines have begun restricting access to their databases of fares (I can no longer call these "tariffs", since they are no longer publicly accessible) by disfavored intermediaries. The targets of these information "blackouts" have typically been companies that provide price-comparison services and/or that redistribute fare data so that consumers can, albeit indirectly, obtain more information than airlines make available directly.

For example, Delta is preventing ExpertFlyer.com -- a fee-based subscription service that sells consumers access to some of the information made available by airlines to travel agencies through computerized reservation systems -- from distributing any information about Delta flights or fares.

This opacity hurts consumers, but it also hurts other travel companies. Airlines ultimately provide the transportation, but a variety of intermediaries -- travel agencies, price comparison Web sites, and computerized reservation systems used by online and offline travel agencies -- compete with airlines as providers of price information.

For an airline to discontinue tariff-based pricing or -- what amounts to the same thing -- to purport to have a "tariff" but no longer to make it public or freely redistributable, is a direct threat to the business model of any company that competes with airlines as a provider of price information. If the only way to determine the price of a ticket is to ask the airline (or to ask each airline separately), and the airlines claim the right to give different prices depending on who is asking, then airlines have complete control of intermediaries' prices.

As I've noted before, this is mostly a dispute between travel companies over which of them "owns the customer" and over how to divide the profits of price personalization. None of these companies have consumers' interests at heart.

Last week, in the latest episode in this infighting, a lobbying coalition of travel technology companies and airline ticket price comparison Web site operators released a report they had commissioned, analyzing the cost to consumers of reduced consumer access to airline ticket price information. It's useful, although incomplete, as an economic analysis of the cost of price opacity.

But what should be done about this problem? Naturally, the companies that sponsored this study want the government to guarantee each of their companies the same access to airline ticket price information as is available to any other company. None of them, however, seem to want to talk about consumers' right of access to this information.

On a conference call for reporters the day this study was released, I pointed out that the traditional way of ensuring price transparency for common carriers is the requirement for them to adhere to a published tariff. I asked if the sponsors of this study of the cost of price opacity support continuation of the tariff requirement. Specifically:

  1. Does the Travel Technology Association (or any of its members who care to comment, if the association has no comment), support continuation of the statutory and regulatory obligation of airlines to (a) publish and (b) adhere to a tariff -- the traditional mode of enforcement of price transparency for common carriers?
  2. Has the Travel Technology Association (or any of its members) made or considered making complaints to the DOT that the practices described in today's report violate an airline's obligation to adhere to a published tariff?

There was a long, long silence before the spokesperson moderating the call said, "We'll have to get back to you on that". I e-mailed them my questions, but a week later, when I followed up, I was told that there was still no response to my questions.

Finally, in the latest and perhaps the most outrageous to date of airlines' attempts to exempt themselves from common carrier law, American Airlines has filed an answer to a formal complaint made to the DOT by an airline ticket purchaser (who was, AA admits, overcharged), in which AA argues that it is not required to provide either a ticket or any breakdown of the fare paid.

Were AA's argument to prevail, ticket purchasers would have no documentation of the terms of their contract with the airline, and in some cases no evidence that they have a contract at all. They would be unable to tell if the fare is in accordance with the tariff, if there is a tariff at all. And without a fare breakdown by segment, they would have no way to determine the refund or exchange value of a partially used ticket. AA refers to the separate DOT rules regarding what has to be included in "e-ticket confirmations", if such are sent. But while there is a requirement for the airline to provide a "ticket", there is no requirement to provide an "e-ticket confirmation" at all.

AA's claim that the plain language of the applicable Federal regulations is meaningless, and that the airline doesn't need to provide a ticket purchaser with any ticket or fare calculation at all, is an outrageous attack on consumers' rights which the DOT should reject. I'll be filing comments in response to AA's "answer", and I encourage you to do likewise. Look for a follow-up article with my comments as a template you can use for your own comments.

Link | Posted by Edward on Tuesday, 26 May 2015, 17:16 ( 5:16 PM) | TrackBack (0)
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