Supreme court turns back airlines, upholds honest pricing

Last week, the Supreme Court declined to hear a case brought forward by a group of airlines challenging new Department of Transportation (DOT) rules requiring them to use the effective full price of airfares including all mandatory taxes, fees and surcharges. In other words, the airlines claimed damages from being told to tell the truth in pricing of air transportation.

This was step one in price transparency
Before this rule went into effect, airlines were actively advertising the cost of travel between Boston and London as $65 one way or $130 round trip! In reality, no one could purchase a roundtrip ticket between Boston and London for less than $752 at that time.

The $130 price advertised was for “airfare.” It left out other mandatory taxes and fees and, most significantly, the fuel surcharges that all added costs to the trip. However, the airlines felt that this was honest pricing. Airlines saw no case of misleading and deceptive pricing when travel was advertised for $130 and only could be purchased for $752.

Over the past three years, the Consumer Travel Alliance (CTA) worked closely with DOT to craft this truth in travel pricing rule prior to the rule being proposed and with comments filed after the rule was proposed. CTA teamed up with associations representing travel agents, central reservation systems, business travel organizations and hundreds of corporate travel managers to shepherd this rule through the rulemaking process and to answer objections raised by the airlines.

Worse, as the airlines fought the DOT requirement to tell the truth, all the way to the Supreme Court, they claimed in testimony before the Advisory Committee for Aviation Consumer Protections (ACACP) that following these basic rules of honesty cost them more than a billion dollars!

Consumers across the fruited plains are certainly sympathetic with the airlines when they claim that being truthful rather than deceptive and misleading costs the airlines money. I wonder what a study done by the same economists would calculate the costs to consumers of deceptive airline pricing.

The Supreme Court came down on the side of consumers, not unfair and deceptive pricing.

Step two: Transparency of optional ancillary fees

The next step is a DOT ruling that will mandate that airlines release all fees and surcharges so that consumers can compare the full cost of airline travel across airlines everywhere airlines choose to sell their tickets.

Basically, the Consumer Travel Alliance (CTA) has called on airlines who now must by regulations reveal all “mandatory taxes, surcharges and fees,” to begin disclosing other “optional fees” so that consumers can compare, apples-to-apples, the full cost of transportation across airlines.

An NPRM is soon to be released by DOT that will propose just such a regulation. At the same time, IATA, the International Air Transport Association, is proposing a new distribution capability (NDC) that will effectively gut the ability of consumers to comparison shop for airline tickets and create a world of personalized pricing based on loyalty and other characteristics, such as marital status.

The airlines envision a world where there are no fixed everyman tariffs on air travel. They are dreaming of a world where prices will only be served up after passengers reveal personal data that will allow airlines to serve a customized price to their customers and, perhaps, offer additional packages designed to fit each passenger’s personal travel profile.

In their proposal to DOT, IATA admitted that the airlines are not providing consumers adequate information to “make an informed choice.”

Now, more than ever, consumers need protection from the airlines’ marketing dreams. Discounts here and there are fine, but when significant portions of the cost of transportation are withheld by the airlines during the ticketing process and the ability to comparison shop is thwarted, DOT should act.

Today, the “airfare” between Washington and Manchester, NH, for example, might be $160 while baggage fees and seat reservations may add $160 to the final price. In the real world, a 100 percent increase in the cost of travel because of ancillary fees seems significant. Those kinds of fees should be able to be included in comparison-shopping engines.

The airlines claim that their new marketing plans are being hindered by “old” technology. That may be partially true. But, the real roadblock to technological development is the withholding of data. Without transparent and dynamic ancillary fee data, new technology cannot be developed even by state-of-the-art organizations such as Google (no technological slouch).

This next NPRM will propose that airlines disclose their “optional fees.” Consumers won the first round with “mandatory taxes, surcharges and fees” now mandated to be included in advertised prices. Step two will be fulfilled when airlines begin releasing all their pricing data in a dynamic fashion.

The next six months will tell the story. CTA believes that this new rulemaking will set the stage for less deceptive and misleading air travel prices. It is always nice to be able to comparison shop and to know that advertised prices reflect the full cost travel.

Photo: by Mark Fischer Flickr Creative Commons