House tackles ancillary revenues at hearing today
Conspicuous by their absence on the witness list for today’s House Transportation and Infrastructure Aviation Subcommittee hearing on airline fees are any of the legacy carriers or even their Washington mouthpiece, the Air Transport Association. Instead, the subcommittee has invited Southwest and Spirit to testify at the meeting, which is expected to be yet another platform for lambasting the airline industry.
In addition to discussing fees, the committee will explore requirements for disclosure of fares, taxes, and fees, options for passengers to recover the costs of some fees, and revenue potentially available to the Airport and Airway Trust Fund (Trust Fund) if certain ancillary fees were subject to the Federal tax on airline tickets. Outspoken Committee Chair James Oberstar will no doubt make an appearance at the subcommittee’s hearing but will likely not oppose the fees if he gets a 7.5% cut for the Aviation Trust Fund.
That flies in the face of last year’s Internal Revenue Service “private letter ruling” that said that fees were not subject to the 7.5% excise tax on tickets. IRS included in the ruling fees for baggage, headsets, food, alcoholic beverages and ticket changes. The subcommittee said the method of the ruling – by private letter – is in no way binding on all taxpayers, just to the taxpayer that requested the ruling. It further said the question thus remains open.
But the evidence before it is tabloid populist...
On the eve of the hearing the Consumer Travel Alliance (CTA) released a study decrying what it called “hidden fees.” However, the fees have gotten so much ink and received so much criticism that it is hard to accurately describe them as hidden. Even so, the lack of transparency on fees before a traveler clicks the buy button is largely one the airlines will likely lose.
But the CTA analysis flies in the face of numerous surveys showing travelers would rather have the lowest fare and add-on fees for services they want. Indeed, airlines marketed the new fees just that way, suggesting they were trying to save passengers money, rather than have them pay for services they don’t value.
CTA examined popular routes, concluding that a two-bag traveler, opting for extra legroom could expect to pay 54% more while a one-bag traveler would pay 26% more. The alliance is urging Congress to mandate disclosure of airline ancillary fees through all distribution channels, something the industry has been struggling with, saying the technology has yet to catch up with the plethora of fees.
"Our analysis showed that the hidden fees charged by airlines now rival the cost of the tickets themselves, often without any disclosure to the consumer at the time of purchase," said Charles Leocha, director of the non-profit consumer organisation. "For a family traveling in these tight fiscal times, those fees can be an unexpected shock totaling hundreds of dollars in unanticipated expenses. If airlines want to charge additional fees for their services, they should be required to disclose all of those fees through every ticketing channel, so consumers can compare complete travel costs."
The analysis was conducted by examining unidentified base fares and extra charges for nine major airlines for a typical October flight itinerary on four popular routes - New York-Los Angeles, Boston-Washington, Chicago-Miami, and Washington-Orlando. The analysis included just two of the many common fees now charged by the airlines: checked baggage and extra legroom.
The study also found that the amount of hidden fees charged to a typical traveler with a single bag ranged from 10% to 82% of the price of the base fare on specific flights examined in the analysis. In addition, the amount of hidden fees charged to a typical traveler with two bags ranged from 21% to 153% of the price of the base fare on specific flights in the analysis.
"Booking air travel today can be like shopping with a blindfold on," continued Leocha. "Without price transparency, air travelers have no way to find or compare the real and final cost of their tickets. Airlines stripping out those fees for baggage, extra legroom, and other options are deceiving and confusing passengers about the true cost of air travel. It is imperative that Congress and the US Department of Transportation take action to ensure that travelers have access to the complete information they need to make informed decisions about these important travel expenses."
GAO likely to release ancillary report
The highlight of the hearing is expected to be the release of the Government Accountability Office’s long-awaited study on airline ancillary revenues and ensuing testimony of Testimony by Dr Gerald Dillingham, director of Civil Aviation Issues.
Also testifying is the Business Travel Coalition which conducted a survey this month of corporate travel managers and 52 agency executives, as well as airline representatives and other industry execs. It reported that 93% view unbundling as “somewhat” or “very negatively”, which is no surprise since passengers have expressed the same sentiment even at a time when they continue to pay the fees. Last year, ancillary revenue brought in USD7.8 billion to US airlines. The BTC survey also revealed that ancillary fees not only impacted their business, but their ability to serve their customers and respect travel budgets. They viewed “fare, accurate and readily accessible disclosure of fees as a top priority and said such disclosure would only come through government regulation. They support Department of Transportation moves to require airlines to GDSs complete access to fees.
BTC wants relief to be part of the FAA reauthorisation legislation that remains stalled for the third year. “The overriding message from survey participants is that ancillary fees are wreaking havoc on corporate managed travel programs and the U.S. Department of Transportation must, through it Notice of Proposed Rulemaking, require airlines to make add-on fee data easily accessible not only on their websites, but also to the travel agency channel through any GDS in which an airline has agreed to participate,” said BTC Chair Kevin Mitchell.
Mr Mitchell added that moves by some airlines to make the data available only through an airline’s web site or through direct connection was overwhelmingly opposed by travel managers. “Travel managers and travel agency executives do not want to wait ten years, or even one more year to see if the airlines will properly disclose their ancillary fees in all channels in which they sell their products - and thus already make their published, but now incomplete, fares available, he continued.”
Stay tuned for tomorrow’s report.