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Airline Fees Reach Crisis Point

July 16, 2010 By: George Dooley

Few issues impact travel agents and their ability to serve their clients as does the proliferation of ancillary airline fees. The agents' ability to price the costs of a ticket is affected as is their credibility with clients. Agents need technology and transparency to be effective.

This week’s Congressional hearing by the House Transportation and Infrastructure Subcommittee on Aviation on ancillary fees helped clarify the issues and drew battle lines for a conflict that isn’t going away.

Chaired by Rep. Jerry Costello (D-IL), the hearings drew testimony from Spirit Airlines, a leading low cost carrier (LCC) who believes ancillary fees are justifiable, and Southwest Airlines, a powerhouse and profitable performer who does not charge ancillary fees for services (except for third bags and unaccompanied minors).

ASTA, the Interactive Travel Services Association (ITSA) and the Consumer Travel Alliance (CTA) were represented, as was the Department of Transportation (DOT) and the General Accountability Office (GAO). Virtually all argued for greater transparency and took the consumers viewpoint that airlines must make clear what fees are being charged.

Even the GAO, preoccupied with revenue issues, argued that without DOT action that the airlines would do nothing unless compelled. ”Information about the fees is not fully disclosed through all ticket distribution channels used by consumers, making it difficult for them to compare the total cost of flights offered by different carriers,” the GAO said.

ITSA, ASTA and the CTA were represented by Kyle Moore, Sabre’s vice president for product marketing. The three groups supported prompt and full disclosure of information about all of the new fees applicable to air travel. Sabre also said it was ready to introduce new technology tools to assist travelers to select services and determine costs.

Costello’s sub committee argued that as airlines "unbundle" their fares, consumers need to have immediate, easy and understandable access to all of the new fees. Airlines should make those promptly available to the public through every travel distributor.

The subcommittee, which included an appearance by full Transportation and Infrastructure Committee Chairman James Oberstar (D-MN), heard the GAO report that estimated that since 2007, the use of fees for such things as checked bags, in-flight meals and boarding priorities has grown significantly, totaling an estimated $7.8 billion in revenue in 2009 - $2.7 billion from baggage fees alone.

The tax issue is critical. Congress asked the GAO to examine the proliferation in fees and their effects on consumers and the Aviation Trust Fund noting that only some fees are subject to the 7.5 percent airline ticket tax. The tax helps fund the Federal Aviation Administration (FAA) and there is concern that airline fees are weakening the revenues for the overall aviation system.

The committee estimates that airlines are presenting consumers with more than 100 fee options, and expressed concern that fees are not transparent enough to be fully understood by the flying public. Better disclosure of the entire cost of an airline ticket, including fees, was urged.

“Beyond the fairness issues of consumers feeling nickel and dimed by arbitrary airline fees, I am very concerned that excessive airline fees are hurting our ability to operate the FAA and fund important system-wide initiatives, such as NextGen,” said Costello.

The Business Travel Coalition’s chairman Kevin Mitchell also weighed in. Among Mitchell’s key points: “To be painfully honest, major network airlines often have a strong incentive to mislead consumers. They remain at a 30 percent to 35 percent cost disadvantage against low-cost carriers (LCCs), and as such, cannot offer the kind of across-the-board low fares the LCCs do. There is a motivation present to obfuscate the true all-in price by hiding fees and especially resisting efforts to have fees and fares made available in a comparative display for travel agents via the global distribution systems (GDSs).”

Some airlines would like to force GDSs and travel agencies to pay for access to their unbundled services, Mitchell argued, “…an audacious play to shift the costs of merchandising and distributing their products and services onto the backs of consumers who are already paying for these business activities in the prices of their tickets.”

Both CTA and BTC testimony was based on consumer or industry surveys. The CTA, for example, reported that hidden fees charged by airlines on popular routes can increase the base cost of an airline ticket by an average of 54 percent for a typical traveler with two checked bags and extra legroom, or by an average of 26 percent for a comparable one-bag traveler.

The pivotal role will be played by the DOT who has taken a pro-consumer stance on many issues such as airline tarmac delays. The DOT has issued a notice of proposed rulemaking on ancillary fees and has invited industry and consumer comment.

The BTC believes the DOT’s proposals warrant support from any person or organization that is interested in protecting the rights of the traveler and encouraging industry competition. “This is not, as some might paint it, a question of regulation or re-regulation of the airline industry. It is instead a question of whether DOT should use the statutory authority it has long had to better protect consumers from unfair and deceptive practices in the face of a growing and confusing proliferation of unbundled fees and to thereby encourage fair competition.”  

What can travel agents do? One suggestion is to let ASTA, the CTA or BTC and the other associations know what you think and what the reaction of their clients is. Also agents can use the DOT’s online tools to comment— Everyone wants a strong, profitable airline industry that delivers service quality at reasonable prices. But is unbundling of services and fee proliferation the way to go? Must consumers ‘fly-blind’ when they travel?


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