This is an outline of basic consumer objections to the current bill, Airfares Transparency Act of 2014 (HR4156), that emerged from the House Transportation Committee with no comments, no discussion and no hearings.
There is no need for this bill and significant economic and consumer-protection harms that will come from passage of such a bill. Plus, the bill is based on two major prevarications. Here’s the scoop and a petition already with 35,000 names that will help consumers fight back.
The bill attempts to turn back the recent DOT Full-Fare Rule, which requires the full cost of travel including airfare plus mandatory taxes, fees and surcharges be included in the advertised price. If enacted, it comes with dramatic unintended consequences.
This rule was enacted by DOT after the unbundling of airfares that has taken place since 2008. That is when major U.S. airlines deconstructed airfares into separate elements and began charging fees for services that were once included in the overall airfare such as baggage fees, seat-reservation fees, speaking-to-a-human being fees, checking-in-at-the-airport fees, Internet convenience fees, etc. With the advent of this plethora of fees DOT determined that it needed to begin enforcement of a regulation, already on the books since 1984.
This federal regulation has gone through an extensive rulemaking process and through an extended comment period. The airlines contested this bill by challenging the DOT in the Federal Court of Appeals and after losing there, the airlines appealed to the Supreme Court and were refused a hearing. This is a regulation that has been carefully constructed and has moved steadily through the regulatory process and then through the judicial process.
Airline industry arguments against the rule have not prevailed throughout this process. Now, the airline industry is attempting to legislate a return to advertising rules in effect prior to 2012 that allow the advertising of low-ball airfares as low as $1 and $9. They also seek to advertise international airfares without taxes and fees, which are substantial and are out of the control of American citizens or U.S. legislators.
Prevarication #1: The purpose of this bill exposure of airline taxes.
According to the airline industry, the bill is an attempt to shine a light on aviation taxation. If so, it is not necessary. The DOT specifically, in the regulation and in follow-on FAQs, stated that taxes and fees may be broken out as long as they are not as prominent as the total cost of travel. Claims of the airlines that they only want to shine a light on excessive taxation are bogus.
Airline actions where they have the full capability of publicizing taxes indicate that airlines are choosing not to do so. Obviously, making airline taxes and fees more transparent is not the object of this bill.
• The current regulation that this bill seeks to overturn allows airlines to publish all government taxes and fees in advertisements as long as they are not displayed as prominently as the full fare. They have chosen not to do so.
• Airlines can publish all government taxes and fees on ticket itineraries in whatever format they choose. They have chosen not to do so.
• Airlines can publish all government taxes and fees on boarding passes that passengers print at home together with the weather report, advertisements and the occasional handy Soduko game that end up tacked on the boarding pass. Airlines have simply chosen not to do so.
The truth: Clearly the airline objective is not to highlight taxation. Airlines can do that now under the current DOT full-fare regulation.
Prevarication #2: Airlines want to be treated like everyone else when it comes to disclosure of taxes.
If we compare airlines to other modes of transportation with which they often compete, such as bus and train travel, we find that Amtrak fares are advertised on a full-fare basis and that bus fares are also publicized on a full-fare basis.
Airlines are already held to the same standards as those modes of transportation.
When airlines provide other examples of hotels and car rental companies, they are mixing apples and oranges in their examples. Both the hotel and the rental car industries only add state and local taxes to their advertising prices.
Airlines are not subjected to state and local taxes.
Other industries that are subjected to federal taxation embed those taxes in their pricing.
Gasoline is sold for the full price advertised at stations without adding on taxes. In most cases, based on a survey of gasoline pumps in Massachusetts and New Hampshire, the taxes are not even displayed on the gas pumps. Those taxes are fully embedded in the cost of the gasoline at the pump.
Alcohol, cigarettes, tires and trucks are other industries that have significant federal taxes embedded in their prices. Those taxes are not broken, nor are any other federal taxes that Travelers United is aware of.
The truth: Airlines want to be treated differently than all other industries.
• Airlines want to break out taxes and fees that other federally-taxed industries do not.
• Airlines want to break out taxes and fees as though they are state and local taxes to which they are not subjected.
• Mixing federal taxes with state and local taxes will be more confusing for consumers, not more transparent.
Unintended consequence #1: The result of this bill will be to enshrine drip pricing in law, a form of bait-and-switch advertising.
For decades, the FTC has been working to curb the practice of drip pricing. According to the FTC, “Drip pricing is a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process.”
This kind of pricing has been considered by the FTC and DOT as misleading and deceptive for decades. However, the airline industry has embraced it enthusiastically since airlines began unbundling airfares back in 2008. This deconstruction of fees and the proliferation of fees resulted in a decrease in consumers ability to comparison shop and led to stricter enforcement of DOT rules on pricing — the Full-Fare Advertising rule, reinstituted in January 2012.
This bill, as written, will clearly define drip pricing as legal for airlines, despite the decades-old concerns of regulators about drip pricing and bait-and-switch advertising.
Here is the exact wording from the bill (HR4156) as it applied to Internet price disclosure:
… with respect to an advertisement or solicitation for passenger air transportation that appears on the Internet Web site, the information described in paragraphs (1)(A) and (1)(B) may be disclosed through a link or pop-up, as such terms may be defined by the Secretary, that displays the information in a manner that is easily accessible and viewable by the consumer.
This is a roadmap to drip pricing — airfare on one page, taxes on another page, fees on a third page, perhaps ancillary fees on yet another page or pop-up, more ancillary fees on a following pop-up, with the final price only revealed deep into the buying process.
Through the process, airlines will collect additional information from the passengers that will add time to the pricing process and allow the airlines to add to their databases of passenger information even if the purchase is not completed on the airline website.
Another result is that, ironically, taxes and fees become more difficult to see because they will be hidden behind a pop-up or a link.
Unintended consequence #2. Consumers’ ability to comparison shop prices across airlines will be more difficult.
When consumers only have partial prices, it makes comparison shopping across airlines more difficult. Currently, consumers can easily compare airfares plus mandatory taxes and fees. That provides a modicum of competition. Consumer price comparison continues to remain handicapped by the nondisclosure of ancillary fee pricing by the airlines for major items that were formerly included within airfares such as baggage and seat reservation fees and other fees.