Wednesday, 9 March 2016

Are airline fees related to airline costs?

Deregulation of domestic U.S. airline ticket prices wasn't supposed to give airlines permisison to lie, cheat, and steal, but the failure of the U.S. Department of Transportation (DOT) to police the deregulated airfare marketplace for fraud and decption has often allowed it to work that way.

On all domestic routes (since the passage of the Airline Deregulation Act in 1978) and on a growing number of international routes governed by so-called "Open Skies" agreements between the U.S. and other countries, airlines are allowed to charge whatever fare they like. But each airline wants to make its fares look lower than its competitors, without actually reducing the total price that passengers pay.

One of the major strategies that airlines have adopted to accomplish this deception is to separate out ever-growing and misleadingly described "fees" and "surcharges" from the "base fare" used by computerized reservation systems to rank and prioritize fares. You can see how difficult this makes it for travel agents, much less consumers, to find the lowest fares, if you view fares in "base fare" order through a service such as

The most eggregious of these ostensably cost-related "surcharge" scams was exposed when the price of jet fuel (kerosene) crashed, but the fees falsely described as "fuel surcharges" stayed level or continued to increase.

The DOT has rapped the wrists of a few airlines for undisclosed or falsely labeled "fuel surcharges", but the only major consequence has been the removal of the "fuel" label on the surcharges. Airlines continue to charge mandatory "surcharges", sometimes constituting 90% of the total fare, while no longer giving any indication that these surcharges are related to fuel costs or to any other particular category of costs, much less to increases in those costs over any defined baseline. Separating out part of the fare in this way as a mandatory "surcharge" serves no purpose except to "game" CRS fare displays, mislead travel agents and consumers, and frustrate price comparisons.

What about fees that aren't mandatory? Airlines are free to offer optional services, of course. But if they want to impose additional fees for "extra" services, those fees should have some relationship to the actual cost of those services. Otherwise, airlines could use these fees to gouge certain categories of passengers, while making base fares look misleadingly lower than what passengers typically end up having to pay for the services they expect to be included in the base fare.

Inflight meals cost extra now on many flights, as do blankets and pillows. I'm waiting for the lawsuit from someone who suffers from hypothermia because the airline won't give them a blanket unless they pay -- perhaps someone who would be willing to pay, but who only has cash on an airline that only takes credit or debit cards for inflight services. I feel sorry for the flight attendants who have been given the extra duty of collecting these extra fees, and policing the cabin to make sure that nobody receives any amenities they didn't pay for.

Share your experiences in the comments: What's the most outandishly inappropriate or disproportional airline fee you've ever encountered?

How far might this go, if governments don't police what's happening? They haven't tried this yet in the USA, but some European and Asian airlines charge an "airport check-in fee" of as much as GBP45 (US$68) per person in the case of the notoriously consumer-hostile (and "cheap" in all the most derogatory senses of that worse) Ryanair. You can sometimes avoid these fees by checking in online, but not always, as I experienced when Ryanair's Web site went down while I was in the middle of a transaction. In any case, fees this high clearly have no actual relationship to the cost of checking in one person, much less the per-person cost to check in a family or other group travelling together. The same goes for many other fees for "optional" services.

What can be done about the tidal wave of unfair airline fees unrelated to the costs of the services for which they are purportedly charged? Airlines may wish that they could charge whatever they want, but even in markets in which fares have been deregulated, U.S. law still prohibits "unfair and deceptive practices". The problem has been in getting the reluctant Department of Transportation (DOT) to exercise its authority to determine which fees are unfair or deceptively-labeled.

Today Senators Ed Markey and Richard Blumenthal have introduced a bill to address this problem, the Forbid Airlines from Imposing Ridiculous Fees Act. The "FAIR Fees Act" wouldn't change the existing obligations of airlines, or the authority of the DOT to impose sanctions for unfair and deceptive airline practices. But the FAIR Fees Act would force the hand of the DOT by requiring the agency to issue regulations (1) prohibiting airlines from imposing cancellation or change fees, checked baggage fees, or any other fees related to passenger transportation on scheduled flights that are "unreasonable or disproportional to the costs incurred by the air carrier," and (2) "establishing standards for assessing whether such fees are reasonable and proportional to the costs incurred by the air carrier".

There's an important precedent for this sort of DOT action to control unreasonable and excessive airline fees, even in deregulated markets. In 2013, the DOT promulgated regulations requiring airlines either to allow reservations to be held for 24 hours without payment, or to allow ticket purchases to be cancelled without penalty and payments to be refunded in full within 24 hours. In effect, the 24-hour rule prohibits airlines from charging any fees for cancellation of reservations or ticket purchases within 24 hours of the initial booking or purchase. Airline costs for cancellation within 24 hours are minimal, and this rule is essential for meaningful comparison shopping (since ticket prices and availability aren't fixed until the purchase is complete) or fairness.

If the DOT already has, and has successfully exercised, the authoity to detemine that any fee at all for cancellation within 24 hours is unfair, it certainly has the power to require that other airline fees at least be fairly related to actual airline costs.

It will be interesting to see how airlines try to justify their fees if this bill is enacted. Most likely they will try to cook their books to show that these fees are proportionate to (distorted) accounts of costs and benefits, depite having been boasting to their stockholders about how high the profit margins are on these fees.

Airlines have costs for baggage handling, but they also have substantial, although less obvious, costs that result from fees that induce passengers to carry more of their lugggage on to avoid checked-baggage fees. More carry-on bags translate directly into slower emplaning and deplaning, delays while carry-on bags that don't fit in the cabin are gate-checked and loaded, slower turnaround times at the gate on each flight, and less efficient utilization of expensive aircraft and gates. For an airline, gate hold time is money -- a lot of money. Objects falling from overhead bins -- often because thiose bins are overloaded becuase passengers are trying to avoid checked-baggage fees -- are the most common cause of in-flight injury to pasengers and crew, and consequent airline liability.

Airlines will undoubtedly try to claim that they lose money every time someone cancels or changes their reservations. But that's nonsense: Airlines can and do predict, usually pretty accurately, how many ticketed and confirmed passengers on each flight will cancel, change, or no-show. Airlines can and do overbook accordingly. Airlines were able to adjust their predictive models when the 24-hour rule went into affect, and would be able to do the same with other changes in cancellation or change fees. Moreover, a seat that opens up at the last minute due to a cancellation or change may be saleable at a last-minute "walkup" fare that is several times higher than the advance-puchase fare that had been paid by the original passenger.

The "FAIR Fees Act" would direct the DOT to consider "any net benefit or cost to the air carrier from the change or cancellation, taking into consideration" these and other costs and benefits that airlines might prefer not to discuss. If the bill passes, I and other consumer advocates will be watching the ensuing rulemaking closely, to make sure DOT keeps the airlines honest.

In the meantime, urge your Senators to join as co-sponsors of the FAIR Fees Act.

Link | Posted by Edward on Wednesday, 9 March 2016, 12:50 (12:50 PM) | TrackBack (0)

Reposted by Travelers United:

Posted by: Edward Hasbrouck, 10 March 2016, 08:50 ( 8:50 AM)
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