This has to be the most absurd fee ever charged by an airline. Startup carrier Breeze Airways, founded by the creator of JetBlue and several other airlines around the world, will hit you with a $27 “technology development fee” when buying a ticket. The reason why – and how to avoid it – will really take you beyond the looking glass of the U.S. airline industry.
Never heard of a “technology development charge” before. pic.twitter.com/QCy9iGMwA7
— Ross Feinstein (@RossFeinstein) August 12, 2022
How on earth can you be charged an extra fee for ‘technology development’? Isn’t the fare buying your air travel, and if the airline needs to invest in technology to deliver your travel that’s just part of their costs? Why not an ‘engine surcharge’ or a ‘gate fee’?
In fact what Breeze is doing really isn’t different than the tactics of other ultra-low cost carrires in the U.S. Spirit Airlines, Frontier Airlines, and Allegiant all charge extra fees for booking their tickets online. Oh, and they also charge fees for booking by phone. Ludicrous, right?
- It’s their cash register. It’s how they sell a product. Supermarkets and hardware stores don’t charge separate “cash register fees.”
- You can avoid paying these fees by buying your ticket at the airport. Almost no one does this because it’s time consuming, and you have travel costs (and if you drive, parking costs) as well.
- It’s more expensive for an airport agent at a ticket counter to sell tickets than to sell them by computer online. Don’t these airlines want to encourage customers to book online?
Years ago airlines used to award bonus miles for online bookings. Hotel chains sometimes offer bonus points for making bookings through their app. Pushing customers to self service modes holds down costs (and encouraging them to book direct rather than through an online agency saves commissions or override expense).
So why do ultra low cost carriers make it cheaper to buy tickets at the airport? Glazer’s Law actually holds here. The reason is taxes (and regulation).
- Airlines want to move as much of the cost of a domestic ticket into fees as possible. That’s because domestic airfares are subject to a 7.5% excise tax. Anything that’s a fee, from seat assignments to checked baggage fees, avoids this tax.
- Calling part of the cost of a ticket a ‘booking fee’ or a ‘technology fee’ saves taxes on that part of a ticket.
- However the Department of Transportation requires that for something to be a fee, it must be optional. If hotels were regulated by the DOT they couldn’t have non-optional resort fees, all mandatory costs would have to be included in the room rate.
- The online (and telephone) booking fees are optional, because customers can avoid the fees by buying at the airport. The same turns out to be true for the technology fee. It’s optional, and you can avoid it by ticketing at the airport.
Now it all makes a lot more sense why ultra low cost carriers will sell you tickets for less at the airport than they will online. You save the online booking fee and in the case of Breeze Airways, the technology development fee. And they do this because it saves them 7.5% tax on the amount of the fee for everyone else who doesn’t go through the hassle of airport ticketing. 7.5% of $27 is an extra $2.02 in Breeze’s pocket on every single ticket they sale, thanks to tax arbitrage.