Fee Regulation: Congress Should Give Up and Airlines Should Shut Up

Fall must nearly be here.  The air is crisp, leaves are changing colors, and Congress is trying to regulate airline fees.  It’s a time-honored tradition, and one so dependable that I was able to reuse the image below from a previous post.  Even some of those faces are the same.

As usual, I think this latest plan is a bad one, but I also wish American would stop throwing around threats about what will happen if this comes to fruition.  It’s not helping.

The plan this time (aka Fee Regulation Act #3,958) comes from the Senate.  The idea is to regulate the level of fees that can be charged by airlines.  Specifically, it’s in section 3129 of the Senate FAA re-authorization bill.

…the Secretary of Transportation shall prescribe regulations–
(1) prohibiting an air carrier from imposing fees described in subsection (b)(1) that are unreasonable or disproportional to the costs incurred by the air carrier; and
(2) establishing standards for assessing whether fees described in subsection (b) are reasonable and proportional to the costs incurred by the air carrier.

The fees in question are those for changes, cancellations, checked bags, seat selection, same day change or standby… and “any other fee.”  So, yeah, it’s broad.  Even though the Senate is telling the DOT to figure out how to do it, it’s not leaving much to chance.  The guidelines demonstrating exactly what needs to be considered in determining the costs involved are quite detailed.

This idea is, to put it bluntly, stupid.  In what industry are the players forced to price based upon costs?  You think your iPhone is sold as a reasonable mark-up over the cost of sweatshop labor in Asia?  No, it’s priced based on what the market will bear.  That’s the foundation of a free market.

There must be limits to this, of course.  That’s why we have rules around things like monopoly pricing power and gouging.  It’s hard to define that in the airline industry and previous cases have often resulted in no action, but an attempt to define and regulate that wouldn’t be objectionable.  That is absolutely not what’s happening in this proposal.

Why is this bad?  Well, let’s look at change fees, for example.  I find the standard $200 change fee obnoxiously high.  We can argue whether there’s collusion on that or not and whether it should be challenged.  But the proposal here would require airlines to charge change fees based solely on:

  • The net benefit to the airline after considering the ability to anticipate expected cancellations and changes, ability to fill a seat after someone changes off a flight, the difference in fare paid for a ticket sold to fill that seat vs the original value, and the likelihood that the changing passenger will fill another seat on another flight
  • The costs of processing the change electronically
  • Any related labor costs

This is completely ridiculous.  So the airline will have to build some sort of interactive model that updates in real-time to determine the valid change fee? Or do you just have to take a random average over time throughout the network and then apply that number across the board?  Neither solution makes sense.

Fortunately, this probably won’t happen.  Last I checked, the House version didn’t have this in it, and I assume it will quietly disappear if there’s ever a final bill.  Considering how bad Congress is at putting together any FAA re-authorization, it remains to be seen if we’ll see any bill pass at all.

But let’s pretend it does happen.  Then what?  Well, unless the airlines can magically make their models reflect the existing change fee as being valid, fees are going to have to go down.  Hooray, victory for consumers, right?  Of course not.

This can go a couple of ways.  Airlines need to make a healthy profit.  Fares are low on a historical level, but much of that is true because of all these optional fees that have sprung up in the last decade.  Change fees alone are big business.  In the first half of this year, DOT-reporting airlines took in more than $1.3 billion in change fees alone.  American had the most with $450 million.

If these fees get cut in half, do you think American is going to just say “aw shucks, that’s a bummer”?  Of course it won’t.  American has decided to speak out about its plans.  CEO Doug Parker told a group in Texas this week that it would consider eliminating the ability to change tickets at all if this were to happen.  That may sound like a valid threat, but to me it rings hollow.  When Doug used to talk about the 3-hour tarmac delay rule, he used to say that the airlines brought it upon themselves by having so many bad incidents.  This is the same situation.  If American opted to retaliate against bad legislation by banning changes, then it would find itself facing worse legislation due to its actions.  I wish American wouldn’t say stuff like this, because it just makes people angry at the airline.

What’s more likely is that fares would rise.  The airlines want to maintain healthy margins.  If fee revenue drops significantly, then they have to pick it up elsewhere.  With fees regulated across the board, the only place to gain is via increased fares.  It’s just moving the money around, but it will likely result in reduced service.  If fares have to go up, demand will go down.

This whole thing is a bad idea, but American isn’t helping things by speaking about it.  Just work the halls of Congress and let it die the quiet death it deserves.

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77 Responses to Fee Regulation: Congress Should Give Up and Airlines Should Shut Up

  1. SirWired says:

    Change fees making more sense wouldn’t even be difficult. A nominal fee, plus a percentage of the fare that rises as the date of travel approaches. All the way up to 100%. (The cruise industry does it this way.)

    It could be structured to be revenue-neutral while not continuing to pointlessly anger customers.

    As a side-note, I don’t remember you admitting at the time that the airlines brought the tarmac delay regulations on themselves, after years of “self-regulation” and promises to do better were for nought. All I remember you writing was how inflexible (true) and unfair (not true) the rule was.

    Like it or not, the new rules have worked.

    • XJT DX says:

      The tarmac delay rule did not have benefits without consequence. While it did fulfill its ultimate goal of giving passengers a choice during extended delays, it came at a price. As someone whose worked inside an airline operations center where those choices are made, I can tell you that there have been longer delays and more cancellations that would not have happened had the tarmac delay rule not been in place, meaning one way or another, passengers were affected and additional costs were incurred and, as Cranky pointed out, the cost ultimately passed on to passengers in the form of higher fares.

      The same would hold true for regulation of fees. To be revenue-neutral as you mentioned, you’ll have to make that money across the board, likely in the form of increased fares. That being said, I agree in principle with the tarmac delay rule because it is about giving consumers a choice. I’ll wait until the final ruling on regulating fees before making any similar assumptions.

      • TOTAL says:

        “The tarmac delay rule did not have benefits without consequence”

        Sure — but given the outcry about delays, perhaps we should think about whether the public preferred the new model rather than the old?

    • CF says:

      SirWired – I’m not sure what you mean about me “admitting” anything. I’m just pointing out what Doug Parker said. As others have mentioned, sure, the rule worked at nearly eliminating 3 hour sits. There was no question that would happen. The question was around what the consequences would be to achieve that. I haven’t looked in ages, because this is a non-issue at this point, but there were added costs and higher cancel rates the last time I looked.

      The point is that this was a blunt instrument that wasn’t thought through well. I remember a study done that showed a different rule with more nuance would have achieved nearly the same benefit without all the costs.

  2. SirWired says:

    And on bag fees… I think we can all admit airlines screwed up the introduction, pretending it was about the fuel it physically cost to fly them. That was guaranteed to backfire when fuel came down.

    In any case, there are sensible changes that can be made there too, like the ability to calculate the fees as part of the search process. (When it comes to international code-shares, trying to figure this out yourself is hopeless, and the airlines don’t help.)

    Also, why, oh why, do you not get a refund for a late bag? At best, some airlines will grudgingly grant you a credit. You’d think that an automatic refund of the fee would be a no-brainer.

    • CF says:

      SirWired – I agree on all of this. The feds were moving toward requiring refunds if bags didn’t arrive as planned, but I think that was one of the rules that was pulled once Trump took office. I might be wrong on that, but others can chime in.

    • Dan says:

      Same with “fuel surcharges”. When fuel dropped, the only thing about the fare component that changed was the name. I think most of them went from “fuel surcharge” to “carrier imposed surcharge.”

      British Airways’ advertising fine print made me chuckle for quite awhile. The fine print said, “Advertised price does not include taxes, fees, charges and surcharges.” Yes, there were four different things noted in the exclusion. Made me say “WTF”.

      • CF says:

        Dan – I agree that the fuel surcharge name was misleading when it didn’t fluctuate with fuel, but that has been included in the advertised fare for years now so it’s irrelevant except corporate accounts (who many not get a discount applied to surcharges) and award tickets.

      • Tim Dunn says:

        Fuel surcharges are not allowed on domestic US fares.

  3. You can always count on Cranky carrying the airlines water..

  4. The trouble is, no matter what rules/fees are put in place, there are too many people putting too much effort into scamming the system, and it ruins things for the rest of us. Having worked with lawyers for a lot of years, I’ve seen plenty of pendejos who act like their masculinity has been chopped off if they’re not able to get away with something they’re not entitled to when they travel. These types ( and others like them) are precisely why bereavement fares, for example, have all but disappeared, and why you may have to sit next to someone’s emotional support lizard on your next flight.

  5. pavelow42 says:

    I disagree. When the govt allowed the US airlines to merge down to 4 airlines from 8, they created a monopoly. They should have understood that the airlines would collude to maximize profits, even if by unreasonable means. They should have anticipated that at some point things would go too far. We are there.

    A $200 change fee is outrageous. How often does the airline just sell the seat again? More than two weeks out the change fee should $20, within 3 days, $100, within 24 hours $200.

    The amount of money made on change fees is UNDER reported. It doesn’t account for the people who just “eat their tickets” vs paying the change fee. Often the change fee is more than the tickets value. I guess the actual revenue is actually over $2B.

    How does Southwest make money every year with no change fees and no baggage fees??? It can be done.

    iPad, Typos happen, sorry

    • Realist says:

      “How does Southwest make money every year with no change fees and no baggage fees??? It can be done.” Answer: by charging higher fares. When you compare SWA’s fares to other airlines base fares (sans bag fees, etc.) they are almost always higher. You just made Cranky’s point for him.

      • grichard says:

        I think Cranky’s conclusion would be that Southwest is hurting itself by doing this. (Higher fares -> lower demand.) Perhaps that’s true, but given Southwest’s overall success, it’s not obvious.

        • CF says:

          grichard – That’s been my general belief, but there is something to be said for being the one airline that bucks the trend. That will attract the people who like the one-size-fits-all fare. Think about people who check two bags and need to change – they’ll be way better off with Southwest because on Southwest, the people who don’t need bags or changes are subsidizing those that do by paying the same fare.

          • Kilroy says:

            Cranky,

            I agree with both your points. I almost NEVER fly Southwest, as I have very few trips that require more than a carryon or that involve last minute changes, and Southwest is routinely $100+ more expensive for me on ~$300 roundtrips. That said, my parents like Southwest precisely because of the bag and change fee rules, and because the fare premiums to their home airport aren’t as much.

            As a leisure pax, though, I’ve been on the opposite side with basic economy. While I still have to get things apples to apples (thanks to Google Flights for making this relatively easy), I’d much prefer to have the carry-on bag included for the sake of simplicity than to pay for it separately if total prices are similar.

      • Tom in Las Vegas says:

        Fly on the hideous Spirit or Frontier to save $50 on the fare and give it back being feed to death. No thanks.

    • CF says:

      pavelow42 – As others have mentioned, Southwest makes money by charging more in the fare itself. It’s that simple. And that punishes those who don’t check bags and don’t change flights.

    • USBusinessTraveller says:

      “I disagree. When the govt allowed the US airlines to merge down to 4 airlines from 8, they created a monopoly.”

      pavelow42 – There are currently 11 US airlines offering scheduled services: Delta, American, United, Southwest, Alaska, JetBlue, Hawaiian, Spirit, Frontier, Allegiant and Sun Country.

      • True there are 11 US airlines(/airline systems) offering scheduled services, but after you get past the first four, the remainders are small fry. Alaska had approximately a third of the market share that the big four had.

        Spirit has 121 airplanes, AA’s regional airlines operate almost five times that many airplanes. Frontier, Allegiant, and Sun Country are even smaller.

        Sure theses smaller airlines do exert some pricing pressure, but if you want to go somewhere slightly off the beaten path, you’re not going to get their on the smaller airlines.

        Your argument is kindof like saying that AT&T was never a monopoly in the US, since there were always other telephone companies that provided service in the US, and that interconnected with AT&T. AT&T was big enough to run the telephone business in the US. The four big airlines are big enough that they are near oligopoly status.

  6. A says:

    I was just listening to a morning radio show discuss the airlines raising checked bag fees and the anger was palpable. Based on what was being said by the host and callers is that the constituents want gov’t to intervene. My thought was this will only end when we go back to full gov’t regulation of the industry – AND – the airlines are bringing this on themselves. YES, they should just raise fares and quit with all the ancillary fees. Us frequent fliers that “get it” are far outnumbered by the occasional traveler that very likely makes more noise after a sour experience going to Orlando than we do putting on 25,000+ miles annual.

    Flying just yesterday I was observing how huge the carry-on’s people are bringing on board. Getting an A321 ready to go was agonizingly slow. I felt for the flight attendants. And on a brand new plane how can the bins not take the roll aboards on their sides vs. flat?? Anyway, it’s clearly visible people are pushing back just looking at the size and amount of carry on luggage vs. 15 years ago. There will come a point when this explodes and I for one do blame the airlines. Lots easier to just raise fares and say it’s the cost of flying than trying to hide the true costs in fees.

  7. Mike C says:

    If change costs are so high, why is it Southwest does not have them?  

    • Realist says:

      Who has said the cost to the airline of a ticket change is high (other than perhaps a few disingenuous airline executives)? No one who’s paying attention thinks these fees are based on cost, nor should they be; many of them are convenience fees or designed to influence or dissuade certain behaviors. Like Cranky said, do you think it costs Apple almost $1000 to have your shiny new iPhone X built by sweatshop labor in Asia? How much does it cost Google to produce a search result relative to what they charge for advertising? These companies are far more profitable than airlines and, at least in the case of Google, are de facto monopolies. Are you boycotting Apple and Google asking the government to regulate them as well?

  8. Jake says:

    > In what industry are the players forced to price based upon costs?

    Water, electricity, basic landline are many that come to mind. Airlines are highly subsidized: they don’t own any of the airports they fly to or from, don’t pay tax on fuel, airport loans are tax-free, don’t pay state sales taxes, and so on.

    More importantly, what other consumer industry nickles and dimes you as much as the airlines, making up fees as they see fit (mandatory “fuel surcharges” anyone)? Oh, yes, cable companies (mandatory “sports network fee” anyone?).

    And Congress is finally cracking down on them as well. Because, you know, that’s the will of us, the consumers who vote and pay the salaries of our representatives in Washington. Apparently once in a while they listen to us instead of the shills paid by the cable and airline companies (you included) who would like this charade to go on forever.

    • Matt D says:

      Because Big Business is *ALWAYS* three steps ahead of the law. Nowhere is this more true than in the oil business. Pretty much the entire business-at least from Middle Management level and up *SHOULD* be in prison because of the mind boggling amount of price and supply manipulation, collusion, and other *illegal in spirit* actions they do. But the thing is that they are maestros at covering their tracks through cryptic and private communications. On paper, they “look” legal but the *spirit* of how they operate is anything but. If THEY can pull it off, I see no reason to think that the MBA’s at the airlines can’t pull similar end-runs.

    • CF says:

      Jake – Water, electricity, etc are public utilities. The airlines haven’t been public utilities in 40 years. Your examples of subsidies don’t really hold water either. Airlines don’t own airports, but they pay huge amounts of rent/landing fees. And they don’t pay local/state sales tax but they pay huge federal taxes that only apply to the airline industry. But the main point I want to focus on is this:

      > More importantly, what other consumer industry nickles and dimes you as much as the airlines,
      > making up fees as they see fit (mandatory “fuel surcharges” anyone)? Oh, yes, cable
      > companies (mandatory “sports network fee” anyone?).

      This is entirely about perspective. Had the airlines started selling tickets which just included basic transportation and nothing else, you wouldn’t think twice about the fees for additional services. It’s simply the fact that tickets used to be all-inclusive that makes people mad today. (That, and the poor way that the new system was rolled out.)

      Let’s think about this in a different industry: restaurants, and let’s relate that to the airline industry. Pretend 25 years ago I paid x amount for dinner and that included everything I needed for that night out. Then let’s say 10 years ago restaurants decided to unbundle. Now I have to pay for parking if I choose not to walk/Uber/public transit. I also have to pay a service fee in some restaurants which is downright deceptive since it applies regardless of it I want it or not (airlines don’t do that). Now, each item on the menu is a separate price. If I’m not that hungry, I can just order an entree and pay less. I still get dinner, but if I want more food, then I’ll pay more for an appetizer or dessert. And drinks cost extra too – even a bottle of water.

      Had the restaurant industry rolled that out the way airlines did, then people would probably be pretty mad about that. But restaurants always worked that way. The model the airline industry uses makes a ton of sense in that people pay for what they want. The problem has always been in the implementation.

      • Kilroy says:

        Brett,

        That’s a really, really good point that should be mentioned much more often whenever this issue comes up. You’re right, the anger is because the airlines went from all-inclusive to a la carte, and if they they had been a la carte from the beginning, it wouldn’t have been an issue.

        I’d be curious to know if those who are too young to remember the all-inclusive airfare model are less bothered by it than those who flew a lot as adults in (say) the 90s and earlier were. For people in their 20s, most flights they have paid for themselves (if not most flights they have flown) have probably been under the a la carte model, so they may not consider it a big deal.

  9. Cranky, you are Funny: I prefer the airlines which don’t charge these fees (notably, Southwest)…

    • Realist says:

      Good for you. Guess what, we wouldn’t have SWA if it wasn’t for DEREGULATION. Be careful what you ask for.

  10. CP says:

    In this case, Congress has the power of the bully pulpit. The airlines have brought this up on themselves with these outrageous fees and colluding among themselves to raise them. People are fed up and I recall reading somewhere that this is one of the issues that members of Congress hear the most from their constituents. Congress is simply sending a message “fix this”, or we’ll enact terrible legislation to say we did something but will not fix anything. I understand CF’s position because he was a former airline executive, but for the life of me, I can’t understand his comparison between iPhones and airlines. That’s just ludicrous. I also don’t agree with his comment that he wishes “American wouldn’t say stuff like this, because it just makes people angry at the airline”. This is not what makes people angry, in fact, most people will never hear these comments. What makes people angry are is the price gouging with the change and baggage fees, and the ever shrinking seats and pitch.

    • Matt D says:

      It’s a pissing match and purely for show. A bluff, basically to give “The People” the illusion and appearance that Congress is “taking action”. It’s a mostly hollow and toothless gesture because at the end of the day, it’s the airlines who will ultimately call the shots and dictate the terms of the game, not Congress. And everyone knows it. If push comes to shove, the airlines can and will lobby for the opponent of whoever passes punitive “anti business” legislation come election time. That is every elected officials worst nightmare. After all the dust from this masculine ‘sword fighting’ settles, I see no reason to think that anything will fundamentally change. The airlines will still get their profits. Congress will get re-elected. And the travelling public will continue to be bent over.

    • Realist says:

      “The airlines have brought this up on themselves with these outrageous fees and colluding among themselves to raise them.” …while I don’t disagree with the first part of your sentence, what evidence do you have of collusion in the airline industry? This has been alleged and investigated many times, and some times it has been proven to be true, but I contend there’s scant evidence that it’s occurring in the present. Price signaling is performed in every industry; it’s a natural part of free enterprise. More likely what we are seeing is airlines responding to their competitors and trying new products, services and pricing schemes to win market share.

      ” I can’t understand his comparison between iPhones and airlines. That’s just ludicrous.” …really, why? They are both companies trying to make a profit. One, Apple, provides products (although increasingly more of its revenue is derived from services) and the other provides services. Why should one have to base their revenue on their production cost and the other not? The only possible justification for such a position, which others have hinted at in the comments, is because one is a luxury (iPhone) and the other (air travel) is a right or necessity. THAT is ludicrous.

  11. Mike says:

    I’m all for regulating fees, but is there any chance we can start with Ticketmaster before we get to the airlines??

    • Oliver says:

      Just wait… Ticketmaster’s “convenience fee” is probably already on some airline’s drawing board.

      If AA were to really make their tickets non-changeable, that would seem like cutting their nose…. how many business travelers/corporate travel depts would leave them? WN sure would have a great advertising opportunity. No change fees st AA and WN. The difference? They keep your money.

      • CraigTPA says:

        Doesn’t Allegiant have a “convenience fee” for using their website?

        • CF says:

          cblock2 – Yes, they do, but if you want to go to the airport you can technically avoid it by buying a ticket there. It’s about as close to a bullcrap fee as I think exists in the airline industry, but at least there is a way around it if you’re really interested.

          • AW says:

            I went to my local airport one time to buy a ticket on Allegiant. There is a two-hour window twice a week where someone is supposed to be at the ticket counter. I stood at the counter for a good half hour and didn’t see a soul.

            It’s hard for me to call that an optional fee.

    • CF says:

      Mike – There are so many industries that are far worse than the airlines. At least in the airline industry, they are prohibited from tacking on fees beyond the advertised priced unless it’s truly optional. Meanwhile, hotels get away with ridiculous resort fees that are mandatory even if you don’t want to use the services that are included. And Ticketmaster, yeah. The fees are huge. It should be required that all mandatory fees in all industries are included in the advertised price, just as is in the case in the airline industry.

  12. Nick says:

    Just throwing this out there, what happens to Spirit, Allegiant, Frontier, and Sun Country? Their business models are dependent on fees. And while we may not like those airlines, if this type of legislation passes, I cannot imagine any of them surviving, at least without all merging and trying to form a second Southwest Airline.

    But if they go bankrupt or dramatically scale back, that will give AA, UA, DL, and WN monopolies on hundreds of additional routes, and fares will rise accordingly. I would believe that fares will rise even more for hundreds of routes as many competitors would be wiped out.

    • Bill Hough says:

      Boo Hoo if this happens. If the bottom feeders disappeared tomorrow I wouldn’t feel bad.

      In general, airlines should charge one honest fare and stop nickel and diming people. The solution? Not re-regulation, but change the law on the ticket tax to make it a percentage of the all-in price rather than the basic “fare.”

      • Realist says:

        “In general, airlines should charge one honest fare and stop nickel and diming people. The solution?” That’s your opinion: I for one don’t travel with bags often and don’t want to subsidize those who do. Also I usually travel on the flights I booked, and don’t want to subsidize those that don’t. Pay for what you use. Don’t make me pay more so you can over pack or under plan.

      • Nick says:

        My point is you may get “one honest fare” but with those “bottom feeders” gone, DL, UA, AA, and WN are going to raise their fares.

        To illustrate my point, right now you would pay $30 for a bag, and $20 for a seat, and $400 for your ticket or $450 total on AA.

        On Spirit, you’re going to pay $50 for a bag, $20 for overhead space, $5 for a beverage, $5 for a boarding pass, $30 for a seat, and and $290 for the ticket for a total of $400.

        With no Fees, Spirit goes bye-bye, and now AA is alone on that route, and AA will charge “one honest fare” and it will be $600.

        It’s a pain to pay all these fees, but they allow the ULLC’s to stay in business providing way more competition than there would be otherwise. No one is going to start a new full service carrier with anywhere near the scope of AA, UA, DL or even WN. And if they do it will be 15 years until they can grow enough to reasonably compete.

      • Dale says:

        Might the airlines just pass the ticket tax cost on to the consumer? In Canada baggage fees are subject to GST or HST and the customer pays the additional 5% to 13% or more above whatever the baggage fee is (I understand 80$ baggage fee plus GST or HST on AC and WS for 2 checked bags).So a clause prohibiting the airlines from passing on the additional costs to the consumer would be needed.

    • CF says:

      Nick – It would hurt them enormously. Today, they can rely on a bigger delta between their fares and the legacy airlines because they strip more out. If they aren’t able to charge those fees, then the fare difference would shrink between the two. Everyone would suffer, but the ULCCs would really be in trouble.

  13. Congress is over-reaching but the airlines have themselves to blame for this. As others have noted, the check bag fee was originally billed as necessary for high fuel costs. I and others immediately called BS on this and sure enough when fuel prices cratered the bag fees didn’t come down, thus proving the lie. The airline industry is one of the most deliberately duplicitous PR messaging industries out there. Right behind big tobacco. If they instead were up front about what they were doing they’d get a lot less grief from the traveling public. We’re actually a pretty understanding lot. If fuel prices go up, air fares need to go up to. If it costs more to fly a plane, you have to charge more to keep it in the air. Stop with the BS messaging…Basic Economy isn’t dynamic pricing to give lower quality to those who want it (at a lower price), it’s a price hike on everyone else who finds the bucket insufferable.

    I could go for an a la carte system. But the airlines want the system but without the (sometimes onerous) messaging that goes with it. So they lie and obfuscate to make what they’re doing seem like something else. And the public has caught on and has had it. And when that happens the busy bodies on Capitol Hill get involved. They should stay out. But the airlines brought it on themselves.

    • Realist says:

      ^^^This. Calling the fees what they are and explaining the behavior the airlines are trying to accomplish through each fee would (might?) go a long way towards quelling at least some of the uproar. Unfortunately most people are too dense to suss out the true motives of the airlines and getting the publicity / vote seeking rubes in Congress involved just exacerbates the problem. I for one like a la carte pricing but it’s because I understand how the industry works and how the alternative system would affect me. Airlines need to educate their customers better.

  14. Davey says:

    Reality 1: The free market needs to decide fee issues. You don’t like bag fees or change fees? Fly Southwest. Or buy a ticket where the fare is high enough you don’t have to worry about it. Or, seek alternate transportation.

    Reality 2: If Congress regulates corporate return on investmenbt or shareholder return requirements in the airline industry, where’s capital going to go? Hint, not into ther airline industry. Investors go where they can maximize return given the risk in the investment. If Congress begins to regulate return, be it in airlines, medicine or bioscience, I’ll promise you’ll find new investment few and far between.

  15. Eric C says:

    They’d do better for the public to try the same tactics against internet providers, as those are monopolies. Airlines are not. The only thing I’d like to see is a ban on fees that can not be avoided or, put another way, one must be able to board a plane at the advertised price. Defining pitch as available legroom and requiring it to be prominently disclosed if it is less than a threshold would be nice as well.

    • CF says:

      Eric C – That is already banned in the airline industry. Every fee that’s outside the advertised price can be avoided.

  16. Tom says:

    If regulating fees means that fares rise then that would simply mean advertised fares would more closely reflect the actual cost of travel. Alternatively, travel search engines should adapt by allowing users to enter more details about acceptable travel conditions (for example, on one trip carry-on only may be acceptable, on another trip I may have to check bags) then instead of presenting “fares” the sites should present “cost of travel”.

    As it stands the fees come across as a means of false advertising.

    • CF says:

      TomT – But why is it false advertising? Not everyone needs to check a bag or change a flight. I don’t care about food onboard. Any mandatory fee is included in the fare. I will absolutely agree that search engines need to do a better job of how they present options, but that’s something they need to fix.

  17. TOTAL says:

    “What’s more likely is that fares would rise”

    I would much prefer that the airlines be upfront about the costs (ie, put them in the fares) than that they bait and switch by hiding a lot in the fees. The above would thus be a positive result for me.

    We might think about the fact the objection is not about *spending* the money, it’s how the airlines conceal the costs and create unpleasant surprises for their customers.

    If I took an item to a store counter and discovered that in addition to the price tag, I had to pay a “ringing up fee” and a “customer store usage fee” I’d be pissed. ‘Thanks, I don’t think I want it, then.’ ‘Oh, there’s a ‘I’m not going to buy it’ fee, then.’

    Yeah, no.

    • CF says:

      TOTAL – Give an example of a fee that’s a bait and switch scheme? You can avoid any fee in the airline industry if you don’t want what it offers. You can still travel from point A to point B.

      • TOTAL says:

        “Hi, I’d like to see the 7 pm showing of Mission Impossible”
        “Okay, that’s $15.”
        “Excellent. Thanks. I’ll head in now.”
        “Oh, you want to head in now? That’s an extra $5”
        “Uh, okay. Here you go.”
        “What about your backpack?”
        “Uh?”
        “You can’t take it in, but we’ll store it for you for $10.”
        “Er…okay. Here. Now, I’ll go grab a seat right where I want it!”
        “Yeah, that’s another $20.”

        BAIT AND SWITCH.

        • CF says:

          TOTAL – That’s not an airline example (or a real example of anything).
          When you buy an airline ticket, you’re told the restrictions and what extra items will cost before you purchase. You can argue about whether disclosure is good enough or how the different airlines lay out their systems, but that’s an implementation issue, not an issue with the fees themselves.

          • TOTAL says:

            Dude, that whooshing sound you heard was my point going right over your head. It seems to have hovered there for a bit, hoping you would look up, but no, you didn’t.

            • Phil M says:

              Dud er I mean dude, Isn’t it possible that you misunderstood CF regarding giving an example of “bait and switch”? The context of the messages is airlines, not movies or any other abstract examples. Maybe that went over your head?

            • Total says:

              Nope. I used what’s called an ‘analogy’ to illustrate my point, and both CF and you acted as if I thought we were actually talking about the movies. Both of you should Google ‘analogy’ and then think long and hard about how the educational system has so signally failed you.

  18. Must be an election year and Congress needs to show voters that they are working hard and need their reelection vote in November. Amazing all the ‘bills’ that will fade away come Wednesday, November 7, bet this will be one of them.

  19. Now, if only they would only devote this much energy to banning fees you can’t avoid like hotel resort fees or limiting what types of taxes you can pay for hotels and rental cars. I really don’t like being taxed while visiting some city to help a billionaire build a sports stadium that they should have built with their own money.

    I know someone who flies F9 all the time and they know that they can get a cheap fare and know enough to bring a backpack which meets the personal item size (hence no carry on or checked bag fee) and how to get a decent seat without paying.

  20. I think Doug Parker’s on to something with his comment about eliminating change fees. What other industry allows someone to purchase a ticket—usually at the absolute lowest fare—but then to change the time/date/city pairs while maintaining the value of that original ticket price? The argument is that one enters into a contract when one buys a ticket. Break the contract, lose your money. It sure would make things easy from a revenue management standpoint—sell the number of seats on an airplane, and if a seat becomes available due to a cancellation (no changes allow—a passenger either keeps the original ticket or doesn’t), sell it again. Seems that this is how it works with concerts, movies, sporting events, etc., and Congress isn’t trying to change that.

    Additionally, it will only take one air carrier to change the policy regarding eliminate changes to a ticket, and I bet other air carriers will follow. Initially, passengers will hate it and will complain greatly, but just like when the first air carrier charged for a checked bag, and people said “I’ll never pay for a checked bag!”, we’re ten years in, and almost every passenger expects to pay for a checked bag. They grumble, but they pay it.

    I double dog dare DP to eliminate change fees by not allowing changes once a ticket has been bought!

    • David M says:

      Concerts, movies, and sporting event tickets are usually transferrable though. So if someone buys a ticket and then doesn’t want to go, there is the opportunity to resell them via markets like StubHub. Airline tickets are mostly-not-transferrable (and if they are, it’s still done via the airline).

      • CF says:

        David M – You beat me to it! The transferability is the key. I personally love the concert ticket model, but where it falls apart for airlines is in selling connections. Then you have to just set a fare for each seat, but that makes connections more expensive than they should be. If you discount it, then someone could transfer leg by leg and make a profit every time.
        So, for better or worse, I think the best option today is something that’s non-refundable but comes with a change fee of some sort.

  21. Dan Larsen says:

    CF,

    In general, I think “markets” have trouble with pricing many things that have high fixed productions cost and low marginal costs. As consumers, we have some inherent belief that products should be priced at a level that reflects production cost and some “reasonable” profit markup. These issues are accentuated when a product is considered “essential” as opposed to a “luxury” good.

    $1k Iphones likely won’t get much attention at the government level, but prescription drugs and airline pricing most certainly do. Why? The later are products that people feel they need (in whatever sense of the word) but are priced too high relative to the marginal cost of providing the service.

  22. Dan says:

    I have a feeling that high change fees are actually a matter of price discrimination or market segmentation. As a leisure traveler, I almost never pay change fees. So for me, if the choice is between a $250 base fare + $100 change fee or $100 base fare + $200 change fee, I’ll take the cheaper fare every. single. time.

    • I agree. I travel quite a bit and I average 1 change fee a year. Most people who pay change fees are business travelers who are on their company’s dime and it’s their company that sets the travel policy.

      Plus, the legacies have some form of same day confirmed/same day standby which Southwest doesn’t have.

    • Thats exactly why the airlines do this. They want to segment the leisure and business fliers.

    • A says:

      I paid a change fee this week. Same day flight change and was $75 on DL because I didn’t get Gold status last year. So, if you’re valued enough by the airline the fees generally don’t exist. I’ve never paid a bag fee but I’ve always had enough status to get that for free. Anyway, my change fee was because I booked the 8pm flight as it was $300 cheaper than the 5pm flight. Same day change to the 5pm flight was $75, confirmed. All-in my employer saves $225. Have done this time and time over. Often, if I do this kind of swap at the airport the gate agents usually waive the fee. Now I travel enough to be comfortable using the system to my advantage and am always prepared to stick with my original ticket. For the infrequent traveler this is confusing and seemingly downright deceptive. I get it when people gripe about getting “screwed” on their one flight per year because they don’t know the system. Kinda like people taking their shoes off in the pre-check line, they don’t know better. Those that want regulation are the infrequent travelers, but they outnumber the dorks reading this blog that know better. Airlines try to be transparent but in reality their FFers know their system and as a result they probably don’t do enough to explain for the infrequent flier.

  23. Bjorn says:

    An unmentioned factor is that excise taxes are levied on fares but not fees. From the government’s standpoint, higher fares and lower fees brings in more tax revenue.

  24. Tim Dunn says:

    The thesis of CF’s article is correct – and the fact that the article has received such a high percentage of comments to page views shows people either strongly agree or disagree.

    The US government makes these threats about re-regulating aspects of the US airline industry, usually in the fall, and almost always in election years. Given that there really is no basis for regulating certain aspects of the economic basis of the US domestic airline industry, the best angry regulators can do is penalize airlines for underperformance which is what the Tarmac rule was all about.

    A couple of key points are in order, though.

    American and Delta both generate more than $40 billion per year in revenue. Even $1 billion plus or minus of any type of fee is just a couple percent of an airline’s revenue. Given that the big 4 each carry more than 150 million passengers per year, the vast majority of passengers don’t pay change or baggage fees – because if they did, collections would be a whole lot higher.

    Second there are MANY US industries that have nickel and dime fees that far exceed what airlines charge for fees – and most of them are not optional for the customer. Telecommunications is one of the worst; tell me how many Comcast and AT&T customers have a bill with no carrier imposed fees. Precious few. And there are few houses that have as many wired telecommunications choices as they do airline choices at the closest airport.

    Third, the outrage from bureaucrats about fees is hypocrisy at its finest considering how much the government collects in aviation taxes. The US government’s grab far exceeds all US airline fees combined – and they are not optional. None of the people who complain about airline fees have highlighted the steps they have taken to bring down the far larger and far more pervasive AND GROWING taxes and government imposed fees.
    Next, the notion that legacy airlines or even the big 4 (AA, DL, UA and WN) operate a monopoly is patently false. Four companies can be an oligopoly – not a monopoly – but even then it is clear that the US government has repeatedly given access to low cost and ultra low cost carriers at the most congested airports to ensure that there is ample competition. No other country on the planet provides as much market access to competitive airlines as the US.

    Regulating fees would kill the ultra low cost segment in the US which is just now growing far more than any other segment of the industry. What regulators really don’t understand that legacy airlines can charge high fares to some customers and include services for some passengers at no additional charge while charging fees and offering a lower fare to other groups of passengers. Legacy airline pricing is very complex while regulators and consumer groups love to paint with broad brushes even though most customers do not come close to being high fare and fee-paying.

    And finally airlines like LUV which pride themselves on not charging fees do so because they want to create a market image of being simple and customer friendly. In reality, every airline including WN charges bag fees; no airline provides an unlimited amount of baggage at any weight. There is no way of knowing how much ANY airline collects for a domestic first bag vs. oversized international bags etc.

    The vast majority of WN passengers do not fly routes directly competitive with a legacy airline because WN’s focus cities are largely in cities where there is not a legacy carrier presence. Arguing that WN is profitable without fees misses the point that the majority of airline passengers choose schedule if they are business oriented or price if they are leisure oriented. People who choose LUV do so because WN is either the best choice for schedule or because the lack of fees matters to them. Many business passengers and many leisure passengers who fly legacy airlines can figure out how to travel without being charged bag fees. Leisure passengers that cannot carry what they pack onboard even if it were free are the ones that need a bag on bag fares – and that is the minority of passengers. The vast majority of passengers do not use change fees.

    Returning point 1, the majority of passengers do not pay the fees about which regulators and consumer groups complain about. The passengers that do pay largely do know what they are buying because the US airlines disclose them. If fees were as prevalent as some argue, airlines would collect far more of them. If there were millions of passengers that were surprised at what they are being charged, there would be far more complaints than there are.

  25. CZBB says:

    Good plan, so we don’t end up with the “Resort fee” situation that exist with hotels. Until airlines realized they could be sued for it, there was the insanity where fuel surcharges actually exceeded the total fuel costs

  26. Dave says:

    This administration and the GOP House and Senate sure do seem to be interested in more Gov’t regulation. I thought Republicans were generally against that. Oh wait, they’re only interested in making sure everyone is following Evangelical Christian lifestyles now. Oops – did that just come out? Sorry, my filter is gone. How about they focus on auto insurance carriers instead, and their shady, un-transparent pricing tactics,instead of an industry trying to maintain profitability despite high fuel prices.

  27. Despite corporate rhetoric, US airlines have utter contempt for their customers, with slight exceptions Southwest, Alaska and a little of Hawaiian. If the others could squeeze money out of the customer without delivering ANY service, they would do it. Change fees are utter nonsense. Remember the days when you could buy the used return ticket of someone else, and use it? These are gone, not for the nonsense of security, after all a paid rear in a seat is paid for, regardless of who used it. It was all about more airline cash. At what point in this arrogant fee-a-thon will customers revolt? Dont worry the airlines will call the cops and drag the customers off.

  28. Terry S says:

    I always find these discussions that Cranky has about fees kind of strange. After all, I’m pretty sure the biggest effect when the government starts regulating fees will be a major reduction in the headcount of these internal fee organizations. While it’s sad for the people who will loose their jobs, let’s not forget the airlines make a lot more profit selling airplane miles to banks and other organizations, than whatever incremental profits they make from fees. The companies will adjust internally. I understand why Cranky focuses only on revenue, but it’s kind of missing the point. Question that Cranky might want to answer, is what percentage of profit does say American earn from fess and other charges and how large is the organization that runs that profit center?

    More troubling is that Cranky (and many others) want to focus on the worst product these companies offer. It’s almost as if I went to car dealership and the sales droid forced me to drive an used beater first before I could try the new car I actually have my eyes on. I get that we’re never going back to the 30’s (or even the early 70s), but given that a lot of flights are 80-90% filled, I really have a hard time not thinking fees and charges are more about internal politics than a large number of customers demanding the cheapest possible fares. I guess if you believe your job is convincing your boss than passengers don’t mind to be stacked up like cordwood, you would be happy with the current system.

    • CF says:

      Terry – Internal organizations? This is just handled by pricing and marketing. It doesn’t take much to implement this, and there is no big organization that handles it. Probably the largest expense is in IT work to make sure it can all be handled correct, but this really isn’t a cost issue in general.

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