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GAO: Consumers Need Better Information on Airline-Imposed Fees

July 14, 2010 By: George Dooley

The influential General Accountability Office (GAO) has entered the battle over airline ancillary fees with a recommendation that the U.S. Department of Transportation (DOT) require airlines to consistently disclose optional fees and notify passengers of any refundable government fees.

A new GAO report on airline fees notes that airlines have imposed a variety of fees on a range of optional services, such as checked and carry-on bags, meals, blankets, early boarding, and seat selection, and is concerned with the availability of information in distribution channels. The new GAO report says airlines will not voluntarily disclose fees unless compelled to do so.

“According to airline officials, the fees are based on a combination of factors, including the cost of providing the service, competition, and consumer demand," the GAO report says. "The fees have supplemented airline revenues, providing at least $3 billion in 2009--a small but growing amount of total revenues. However, 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 DOT does not currently require disclosure of airline-imposed optional fees, apart from those for checked bags, but recently issued a Notice of Proposed Rulemaking (NPRM) considering different forms of disclosure of such fees. “Meanwhile, a system is being tested to fully disclose all of the fees to consumers searching for fares, but airlines are not likely to disclose them unless compelled to do so,” GAO notes.

The taxability of airline fees is also a major concern for the GAO who notes that airlines' increasing reliance on fees reduces the proportion of their total revenue that is taxed to fund the Federal Aviation Administration (FAA). Action by Congress may be required.

Since DOT guidance requires airlines to report separately only revenues from baggage fees and reservation change and cancellation fees, GAO was unable to estimate potential collections from other untaxed fees, the GAO says.

The GAO also reports that since airlines first imposed checked baggage fees, the number of checked bags per passenger has declined, contributing to a decline in the rate of mishandled bags. "Despite the introduction of fees, airlines have not substantially changed their baggage service or compensation methods," GAO says. "Checked baggage fees have also led to greater amounts of carry-on baggage, resulting in greater competition for limited overhead storage space."

The GAO also notes that, according to IRS, aviation excise taxes on unused nonrefundable tickets are not refundable, but if an airline refunds the ticket, a proportionate amount of tax may be refunded. "In contrast, consumers with unused nonrefundable tickets with expired or lost value are entitled to a full refund of the September 11th Security Fee, but few consumers request a refund because airlines are not required to inform consumers of this," GAO noted.

If Congress wants to tax currently untaxed airline fees, it would need to amend the Internal Revenue Code, the GAO says, recommending that DOT require airlines to consistently disclose optional fees and notify passengers of any refundable government fees.



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