The House Transportation and Infrastructure Committee recently passed a markup of “The Airfare Transparency Act of 2014” out of committee. (That means it is ready to go before the entire House to be voted on to become law.)
This legislation that repeals a contentious regulation that was carefully taken through the rulemaking process, supported by in-depth economic studies and that has already been litigated through District Court and appealed to the Supreme Court, was hurried through the committee process with no discussion, no comments, no hearings, no consumer input and no industry debate.
This is an evil bill that will enshrine bait-and-switch advertising (banned by both the FTC and DOT) into law. It will make knowing the full cost of airline travel more difficult to determine. HELP US STOP THIS IN THE SENATE BY SIGNING THIS PETITION ON CHANGE.ORG.
The first that consumers heard about the markup was at 3 p.m. two days before the markup was scheduled, 19 hours before the committee was going to vote to dismantle one of the most important consumer protections that had been put in place only about two years earlier.
The airline lobbyists have managed to pull the wool over the eyes of normally consumer-friendly Democratic members of the House Transportation and Infrastructure Committee and now have their sights set on a companion bill to be introduced in the Senate Commerce Committee.
Every member and every staffer should ask themselves why the airlines are supporting this bill. What problem are they trying to solve? Clearly, transparency of airline transportation pricing for consumers is not the goal. Perhaps exposure of taxes may be the goal. However, that can be accomplished by the airlines under the current regulations. There is no need for any legislative fix, let alone this legislation that will only serve to legalize bait-and-switch advertising.
Here are the fictions upon which the airlines base their lobbying.
Fiction: Airlines are subjected to hidden taxes and fees unlike other industries
Fact: Airlines are subjected to the exact same rules on publication of taxes that any other industry in the United States faces.
When airlines argue that all other industries provide a basic cost for their product and that then additional taxes and fees are added to the price at the end of the transaction, they are attempting to equate federal tax levies with state and local taxes and fees.
In the District Court Case SPIRIT AIRLINES, INC., et al., Petitioners,
SOUTHWEST AIRLINES CO., Intervenor, v. UNITED STATES DEPARTMENT OF TRANSPORTATION, Southwest Airlines opened their Statement of the Case with the following:
The Nearly Universal Practice Of Advertising Retail Prices Exclusive Of Applicable Taxes
The common practice throughout the U.S. economy is for the prices of
goods and services to be quoted exclusive of applicable taxes. For example,
grocery stores advertise canned vegetables without including the applicable sales tax in the quoted price, liquor stores list the retail price of a six-pack of beer without incorporating the taxes to be paid at the checkout register, and the prices of televisions, computers, cell-phones, Blackberry’s, iPhones and other electronics are advertised without inclusion of applicable sales tax. It is understood that a sales tax is due in addition to the “sticker price.” Consequently, in normal commercial transactions, consumers expect that taxes will be added to the total amount they will pay and are not surprised when they are added on.
Airlines are not subject to state taxes and fees — NONE. Part of the airline deregulation act that created the current US airline industry exempted airlines from state and local taxes and fees.
This airline argument is not based on federal excise tax reality.
There is no other industry that is taxed at the federal level with federal excise taxes that advertises its prices to the public without those taxes and fees included in the price presented to the public. The only time where last-minute taxes and fees are added to prices are where states and localities impose additional taxes and fees. Airlines do not face such taxation.
Other products having significant federal excise taxes included in their pricing prior to state and local taxation are gasoline, aviation fuel, cigarettes, spirits, tires, trucks, etc. These taxes are usually included in the price of the item — not listed separately like sales taxes usually are. To minimize tax accounting complications, the excise tax is usually imposed on quantities like gallons of fuel, gallons of wine or drinking alcohol, packets of cigarettes, etc., and are usually paid initially by the manufacturer or retailer.
Unlike state and local taxes that can vary substantially, aviation excise taxes and fees are required to be uniform throughout the United States by the U.S. Constitution (Article 1, Section 8), therefore their imposition is not subject to geographic borders as are state and local taxes. Plus, in the case of aviation, these taxes and fees, unlike state and local taxes, are earmarked for specific aviation system maintenance such as air traffic control and airport construction.
Fiction: Providing consumers the full cost of travel is misleading
Fact: Providing clear, transparent, up-front prices is never misleading. Plus, the current regulation allows full disclosure of taxes and fees. All airlines do not choose to make such disclosures.
Here the airlines’ claim can only be taken seriously if the sole purpose of advertising prices to consumers was to highlight taxes and fees that are part of the total price. This has never been the object of pricing in the USA when it comes to federal taxes that are part of the overall prices.
The Southwest Statement of Case continued:
Consistent with the nearly universal practice throughout U.S. commerce,
airlines historically have been allowed to state most government taxes and fees separately from advertised airfares, provided that the existence and amount of the government-mandated charges are clearly stated so that consumers can easily calculate the total fare.
And, the Department of Transportation (DOT) regulation and the FAQs published by DOT that this proposed legislation is designed to replace clearly allows airlines to publish a break-out of the total cost of travel including mandatory taxes, fees and surcharges.
This clear statement that taxes and fees can be advertised together with the full airfare in advertisements is underscored in the DOT response to Spirit Airlines, et. al. and Southwest Airlines claims.
(Page 12) The new rule expressly authorizes airlines to communicate additional information, such as the portion of that total price that constitutes government taxes and fees, so long as the additional communication is done in a manner that does not inhibit the customer’s ability to discern the total price. The airlines’ suggestion that the rule somehow precludes them from communicating relevant information to consumers is therefore without merit.
Fiction: Advertising the base airfare on one website page and then adding information about taxes on an additional web page, fees on yet another page or a pop-up, and the full airfare on yet another page makes airline advertising less confusing.
Fact: Publishing the full-fare is transparent and eliminates deceptive and misleading low-airfare come-ons, and forces the airlines to present full up-front pricing .
On the day prior to the imposition of DOT’s full fare advertising rule, the Boston Globe had advertisements that proclaimed $65* from Boston to London. The absolute lowest price for which the ticket noted in the advertisement could be purchased was $751.
This was a glaring example of what was wrong with the prior system and how it had been twisted into a bait-and-switch scheme by airlines to provide misleading and deceptive information under the guise of full transparency.
Just as required by the current proposed Airfare Transparency Act of 2014, at the bottom of that newspaper ad, fine print noted as marked by the asterisk that the price was based on one-half of a roundtrip ticket and did not include mandatory taxes, fees and surcharges. Granted the full price was nowhere to be found in the 2010 advertisement and that the new legislation requires airlines to include airline mandates surcharges, the effect is the same — a misleading and deceptive price headlining the ad that cannot be purchased for anything near the advertised price.
Consider, also, how this new rule would affect domestic fares on airlines such as Spirit or Allegiant, known for advertising rock-bottom airfares, since they make such a significant amount of money from their extra fees. A $19 airfare on a domestic one-stop flight would actually cost closer to $50 when taxes and fees (TSA Security Fees of $11.20 plus Passenger Facilities Charges — depending on how many and which airports are involved — of up to $18) are calculated. That is not a paltry 20 percent difference touted by the airlines, but a 121 percent price increase.
Note: These taxes and fees are foisted on the airlines willy-nilly. They are directly tied to funding services that provide security and fund airport construction and improvements.
Even worse is the handling of Internet advertising by airlines under the proposed Airfares Transparency Act of 2014 — the bill as written would allow airlines to provide a lowball (and meaningless) “airfare” on one page, with a link to taxes and another link or pop-up to fees and finally a revelation of the full-fare complete with taxes and fees. (And who knows what information airlines will require to be entered on their websites between each of these steps.)
This is almost the textbook definition of disgraced bait-and-switch advertising where merchants get customers into the story with unrealistically low prices, only to inform buyers that the item they came for is no longer available. Merchants (and airlines) are banking on the fact that once consumers have invested time in a buying process, they will not abandon the purchase.
Plus, this practice, if legalized, would make comparison shopping almost impossible for consumers and would allow airlines to mislead and deceive passengers.
The bottom line:
1. There is no need for this law. The current DOT consumer-friendly rule allows passengers to know the full cost of airline travel, including taxes and fees.
2. The current rule allows airlines to clearly break out taxes and fees within their advertisements, on ticket itinerary pages and on receipts. The only limitation is that the airfare, taxes and fees that make up the full airfare not be more prominent than the final cost of travel. (I don’t know if you noticed, but the word “travel” is “less-prominent” than every other word in this paragraph.)
3. No consumers have complained about being told the full cost of travel.
4. Airlines are not subjected to state and local taxes like other consumer products.
5. The current Airfare Transparency Act of 2014 proposes to upend more than 200 years of excise tax advertising in the US.
6. The current Airfare Transparency Act of 2014 will provide airlines a path to additional drip pricing, and deceptive and misleading advertising.
7. If airlines really want to be treated the same as other industries, they should be subjected to state consumer protection and advertising laws, class-action lawsuits and state and local taxation just like every other industry across the United States.
8. Finally, if Congress detests these taxes and fee so much, they are the very institution that can eliminate them.