The federal government released plans this week to regulate the way airlines disclose their fees. Airlines, of course, already disclose their fees the way the government has told them they have to. And new rules would have some pretty perverse consequences.
Airline fees are pretty transparent compared to fees in many other industries already. There are very few people that do not know checked bags cost money, except at Southwest Airlines where they advertise heavily that each passenger gets two free checked bags (and except, generally, for elite status members and co-brand credit card customers). The Department of Transportation may even regulate how elite status checked bag fee waivers work, requiring any itinerary booked while a customer has status provide free bags even for travel that takes place after status expires.
Many commenters in social media have noted, and Josh Barro offers in his column, that the area where fees are actually deceptive in travel isn’t with airlines but with hotels.
I think airline price transparency is already pretty good — airfares are routinely quoted inclusive of mandatory taxes and fees, and I think airlines (and even more so, third-party airfare booking sites) are pretty good about showing upfront which fares do and do not include checked bags. …I mainly want to note that the airlines are a paragon of fair and clear pricing compared to the hotel industry.
Not only are hotel prices routinely quoted exclusive of taxes and fees4, hotel rates are often subject to “resort fees” or “destination fees” that are mandatory add-ons to the room rate, payable to the hotel itself, and yet excluded from the initial rate quote. This should be illegal.
Resort fees are mandatory costs of renting a room, they just aren’t included in the ‘price’ of the hotel. They’re an “add-on.” That’s absurd, but it’s not the only bad practice. At some hotels there’s also add-on fees to cover hotel property taxes and add-on fees to use electricity.
While the federal government’s proposed rules for airlines say it’s not acceptable to disclose even optional fees like those for seat assignments and checked baggage during the purchase process – they must be available at the first instance a price is shown in a search – the government (through the Federal Trade Commission) says resort fees are fine as long as they are disclosed prior to confirming the reservation. When it comes to hotels you see a price, go through to a booking, and find out that the mandatory price of the room is higher and that is fine (though very hard to comparison shop!).
There’s a reason for this. We usually think of airlines as having been deregulated, but that’s not really true.
- The government no longer decides where airlines are allowed to fly, and what prices they can charge. They actually remain one of the most heavily regulated industries. Just look at the process they go through to get permission to give passengers hand sanitizer.
- Air travel involves more government in its production process than nearly any other industry. Airports in the U.S. (unlike much of the world) are generally owned by governments. Airport security is mostly provided directly by government, not merely regulated by government. From the moment a plane pushes back to the point it pulls into the gate at its destination where it goes is dictated by government-provided air traffic control every step of the way, again in contrast to much of the world.
- Airlines got exemption from state regulation in the Airline Deregulation Act – they don’t face different rules in 50 states – but in exchange they got their own federal regulator who delves into minutiae that most industries do not face.
- Supreme Court precedent says that common law claims for good faith and fair dealing are state-level claims pre-empted by the Airline Deregulation Act as well, leaving DOT as the primary venue for consumer redress as well.
In some cases DOT improperly ignores consumer complaints, leaving customers stuck. The Department’s Inspector General found that to be the case with frequent flyer programs.
On the other hand we have the federal government delving into whether airlines have to disclose bag fees in their app or just during desktop or mobile bookings and whether online travel sites like Expedia have to sell seat assignments and not just tickets. On the other hand hotels can show lower prices for their rooms, make it hard to compare prices, and impose additional fees with impunity.
Those differences exist for historical reasons that lead to different regimes regulating each type of transaction. Airlines inherited a regulatory regime that stems from the early days of the industry a century ago.
In the early days of US civil aviation the largest airline customer was the federal government. The Postmaster General picked winners and losers by awarding contracts to favored companies, which culminated in the ‘Spoils Conference’ and the ‘Air Mail Scandal’ that led to the Roosevelt Administration taking mail contracts away and assigning carrying air mail to the military.
That ended disastrously, and led to greater regulation of airlines including which ones could carry mail, who could run an airline, and anti-trust enforcement in the industry. When industry regulation was finally relaxed, airlines inherited a separate regime than other industries. And so conversations around consumer protections are different than they are even for adjacent busineses.
