Separating fact from fiction on airline pricing

Let’s take away airline price transparency in order to make it more transparent.

That's the nonsensical pitch that Nicholas Calio, the president and CEO of Airlines for America (the trade association representing U.S. airlines), made in a Congress blog on April 24. The airlines are attempting to overturn the current full-fare advertising rule that requires advertisements feature the full cost of travel, including mandatory taxes and fees.

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Since 2012, in fighting the current Department of Transportation (DOT) consumer protection regulation, the airlines have lost at every juncture. They lost while formulating the rulemaking. Airlines lost again during the rulemaking process when consumer comments poured into DOT supporting this rule. Airlines sued DOT in the federal Court of Appeals and lost. Finally, the airlines appealed to the Supreme Court and were denied.

Now, airlines are attempting a legislative assault to enshrine a right to employ drip pricing into law. Drip pricing is advertising, according to the Federal Trade Commission (FTC), where firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process.

Make no mistake about it: this legislation that Calio’s Airlines for America is peddling on The Hill has nothing to do with providing more “transparency” to consumers about the airfares, taxes and fees, but is clearly focused on deceiving, misleading and enticing consumers with unrealistically low airfares.

Every paragraph of Calio’s statement is fraught with distortions. The misinformation employed to support his call for a new law that will legalize drip pricing for airlines, a kind of bait-and-switch advertising, is nothing short of audacious.

Calio: Airlines fully support transparency and want to ensure customers know exactly what they are paying when buying a ticket.

Fact: Airlines have opposed every DOT initiative to force transparency of the full cost of travel, including optional ancillary fees, like baggage and seat reservation fees, to their own agents. This proposed bill allows airlines to obscure mandatory taxes and fees as well.

Calio: DOT rules hide the “tax bite” the federal government takes on each ticket.

Fact: The DOT Full-Fare Advertising Rule clearly allows airlines to include taxes and fees in their advertising as long as the total cost of the ticket is the most prominent price displayed. Airlines simply have made a choice not to do so and have concocted a phony claim. There is absolutely no such rule that requires airlines to “hide” taxes and fees.

Calio: Air travel is nearly the only commercial product that must include taxes in the base price.

Fact: Other industries that face similar federal excise taxation roll those taxes into the overall price of the product. When was the last time anyone in the country saw gasoline sold “plus tax”? Spirits, cigarettes, tires, certain trucks and other industries all are faced with excise taxes that are not broken out at the point of sale.

Airlines are treated just as every other industry in the country as far as pricing and disclosure of taxes goes. All other commercial products add state and local taxes to their final price. Airlines are not subjected to state and local taxes, only federal taxes. Calio’s reference to industries that are subject only to state and local taxes (as opposed to federal excise taxes) is truly a misleading apples-to-oranges comparison.

Plus, from the consumer’s perspective, it is relatively easy to calculate up-front the total final cost of state and local taxes because those taxes are fixed percentages, minor and well known.  But when it comes to air travel, consumers lack that facility since taxes and fees can vary substantially based on the number of stops, the connecting airports and whether the travel is wholly U.S. or international.  

Calio: The rule also makes air travel appear to be less price-competitive than other modes of transportation, especially in short haul markets such as Washington-New York, where airlines compete with trains and buses.

Fact: Amtrak and bus companies all include taxes and fees in their prices. This fact is another strong argument to keep the current full-fare advertising rules in place.

Calio: DOT’s full fare advertising rule is contrary to the principle of the Airline Deregulation Act.

Fact: This is not a new rule. It has been in effect since 1984. Before airlines began “unbundling” airfares and refusing to disclose their ancillary fees to their own “agents,” enforcement of this rule was considered by some to be unnecessary. However, with the complexity of current airline pricing models, DOT decided to dust off a 30-year-old rule that “protects consumers, facilitates price comparison, fosters fare competition, and affords sellers an appropriate degree of freedom to innovate.”

The mark-up in the House Transportation Committee of this Airfare Transparency Act of 2014 that proposes the opposite of what its name implies and its passage with no opportunity for consumer input or any hearings in spite of its contentious history begs many questions.

Every major consumer group, travel agents, major media and more than 13,000 citizens who signed a Change.org petition agree with me. The Senate should not allow this anti-consumer bill to see the light of day.

Leocha is the chairman and founder of Travelers United (formerly Consumer Travel Alliance). He is the consumer representative on the DOT Advisory Committee for Aviation Consumer Protections, appointed by the Secretary of Transportation.