Are new airline fee disclosure rules any good?

By | September 24th, 2011

Search for a flight between Washington and Los Angeles on and you’ll find a notice posted high above the fares saying, “Additional baggage charges may apply.”

On the Delta Air Lines site, a query for flights from Baltimore to Memphis yields a similar warning — albeit in slightly smaller type — that “there may be additional fees for your carry-on/checked baggage.”

And on, a check for flights between Philadelphia and Phoenix reveals a disclaimer at the top of the screen: “Does not include taxes and optional fees. Checked baggage fees may apply.”

None of this may look like a big deal to you, but it is. Because there’s big money at stake. The domestic airlines raked in $3.3 billion in luggage fees last year, an increase of more than half a billion dollars over 2009.

For years, air travelers have complained that airlines weren’t adequately disclosing these so-called ancillary fees — indeed, that airlines were benefiting from a widespread assumption that checking a bag was included in the airfare, as it still is on Southwest Airlines and JetBlue Airways. But on Aug. 23, a new Transportation Department regulation went into effect, requiring airlines to disclose all fees for optional services through a prominent link on their Web sites. It’s just the first volley in what could be a protracted war between airlines and the government over fee disclosure.

George Hoffer, a University of Richmond transportation economist, believes that the new rule makes sense. “Giving more price information facilitates rational decision-making,” he says. “Without such information, markets can’t function properly.”

Even the airline industry, after initially resisting regulation, is now on board with the new online notification requirement. “The airline industry supports increased communication and full transparency, ensuring that our customers always know exactly what they are getting every step of the way,” says Steve Lott, a spokesman for the Air Transport Association, an airline industry trade group.

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But what is “full” transparency? The airline industry, for its part, believes that it has done enough to disclose fees and is resisting further regulatory moves. For example, it’s opposing efforts to force it to quote a fare that includes the most common fees, particularly for things that used to be included in the price of a ticket, such as reserving a seat or checking a suitcase.

Ian Ford, chief executive of the travel site Undercover Tourist, has been following the DOT rules closely and thinks they’re just a start. Not only are air travelers still unsure about the final cost of a ticket, but finding the online link to the fees is like a “Where’s Waldo” hunt on every page, he says.

The DOT says that its disclosure-rule enforcement is evolving. A spokesman told me that the agency is currently reviewing airline Web sites to ensure that they meet its requirements. Among the changes the agency has demanded: requiring the links to be moved to the first booking screen, so that no scrolling is required, and asking that words such as “fees,” “charges” and “optional services” be included in the links.

Airline supporters say that the new rules, and any additional ones, are unnecessary. “It’s an over-reaching regulatory burden on a deregulated industry,” says Michael Miller, a vice president at the American Aviation Institute, a Washington-based think tank.

He also maintains that the rules are unfair. The federal government isn’t asking hotels to disclose minibar fees or car rental companies to include insurance in a quoted rate. “Why airlines?” he wonders.

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One reason is that airlines occupy a unique space in American commerce. They can’t be sued in state courts because of federal rulings, so the DOT is the only bulwark against any unfair or deceptive business practice. And that’s exactly what concealing fees behind multiple screens is, maintains the federal government.

Another reason airlines are bound to face further regulation is because of the money at stake. Any disclosure requirements that give passengers an edge in their fare searches, allowing easy price comparisons among airlines, probably wouldn’t benefit the companies financially.

“Ancillary fees have become crucial to the bottom line of airlines,” says Jeff Straebler, an analyst with RBS Global Banking & Markets. A recent study by IdeaWorks concluded that the worldwide airline industry earned $21 billion in extra fees last year. For some airlines, these fees meant the difference between a profit and a loss, and for at least one, US Airways, they accounted for the entire profit.

Bottom line, “when new rules are imposed on the airline industry, it shrinks their profit margins,” says Seth Rabinowitz, a management consultant who has worked with several airlines.

All of which raises the question of whether the current fee-disclosure requirements are any good. They’re certainly better than what we had in May, when the rule was finalized. Back then, you had to click through three screens to find out that some fees “may” apply — not exactly hidden, but not clearly disclosed, either.

Airlines can tolerate a requirement to link to a list of fees, but quoting a fare that includes all the required taxes and often-purchased but optional fees is unthinkable, from their perspective. And you don’t have to be an airline analyst to know that they’ll try to find a way around any rule that requires them to do that.

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In a perfect world, travelers would have plenty of choices and the market would reward the airline with the best disclosure. But in an industry dominated by only a few large carriers, there’s no true competition. And without stricter government regulation, many airlines seem content to answer your airfare query with a half-truth.

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