Threatened: The Democratization of U.S. Air Travel
April 11th, 2012

Business Travel Coalition

INTRODUCTION

Proponents of airline industry deregulation in 1978 pursued and succeeded in a mission to radically transform access to the U.S. and global aviation systems away from the just the domain of the wealthy, to virtually all citizens. This noble experiment in the democratization of air travel was predicated in large part upon increased airline competition and enforcement of consumer protections. Today, that hallmark of airline industry deregulation is at significant risk.

Two important keys to ensuring vigorous airline competition have been the ubiquity of complete and accurate product and pricing information and the ability of consumers to comparison shop and make informed purchase decisions from among competing airline offers. Since 2008, when U.S. airlines began to aggressively unbundle previously included core services, i.e., seats, bags and boarding, from traditional airfare offerings, consumers have been effectively stripped of this mission-critical purchasing ability.

By refusing to provide information regarding core services and related pricing in a workable, transactable format to travel agencies, airlines have made it exceedingly difficult for consumers to determine the all-in comparative price (airfare and fees for core services) at the point of sale based on needs identified at the time of purchase. Unless a consumer is armed with a spreadsheet and lots of spare time, it’s tremendously problematic to determine what the best value really is when comparing airline offers.

CONSEQUENCES

There are negative consumer consequences related to current airline product unbundling practices that have rightfully caught the attention of regulators and legislators in Washington – and increasingly in Brussels.

Undisciplined Marketplace. Total prices are obscured as airline consumers are blocked from evaluating offerings of core services and fees in electronic side-by-side comparisons and impeded from purchasing the all-in product (airfare and core services) at their preferred point-of-sale, and by extension, the channel in which they desire to shop. Consequently, consumers pay more than necessary — billions of dollars in fees — for core services because an inability to efficiently compare the total cost of air travel on an apples-to-apples basis across multiple airlines necessarily guarantees that prices go largely undisciplined by the marketplace.

Unfair and Deceptive Practices. Often consumers are startled at the airport by fees that can add 30%, 40% or more to a base airfare. These travelers may have made a different travel decision had they been fully aware of these added costs. Equally troubling is an apparent decline in truthful information about access to seat assignments. It is increasingly reported that airlines may be misleading consumers via seat maps with graphically greyed-out seats that are noted in a typical seat-chart legend as “booked” with only middle seats or premium-priced seats available. As such, a father with small children seeking to sit together can feel emotionally compelled to purchase premium seats straightaway, which can cost hundreds of dollars on a round-trip basis. What is especially egregious here is the use of the term “booked” if an airline is indeed just holding seats back for release and assignment (free or for sale) closer to departure, in which case disclosure of this fact should be an absolute obligation.

Weakened Distribution System. The travel distribution system acts as a competitive check and balance to airlines’ pricing practices and policies. When consumers cannot purchase core services in the channel in which they are shopping, and at the time of the base airfare purchase, they could be induced to use airline websites to access and purchase those core services. This result will no doubt weaken travel agencies at a time of increasing airline industry consolidation to ever more powerful individual carriers turbocharged by globalized, antitrust-immunized alliances. A strong and independent travel distribution system is growing in importance by orders-of-magnitude with respect to safeguarding consumer interests.

CONSUMER PROTECTION’S NO-MAN’S-LAND

Airline executives are often confounded by their perception that the airline industry is being singled out by government for unfair and deceptive practices. However, when Congress deregulated the airline industry it consolidated consumer-protection responsibilities at the federal level and specified that it would be the U.S. Department of Transportation (DOT) alone that would be authorized to protect consumers.

Unlike the case in nearly all other industries (e.g., hotel, car rental, car insurance), airline consumers have no protections against unfair or deceptive practices from the U.S. Federal Trade Commission and no legal rights under state laws to seek redress for abysmal treatment because of federal preemption — a doctrine airlines have championed and fight hammer-and-tong to defend and expand. In short, except to the extent that Congress or DOT mandate specific consumer protections, consumers are without legal rights and remedies. DOT appropriately recognizes the uniquely vulnerable position of airline industry consumers in this virtual no-man’s-land and is compelled to provide meaningful consumer protections.

CONCLUSION

Since airlines will not provide fee information regarding core-services to the travel agency channel in a transparent and purchasable format, DOT has little choice but to act and protect consumer interests, as it accomplished in recent ground-breaking rulemakings. After nearly a half a decade of stonewalling on this issue, few industry observers are betting on airlines to do the right thing, in time.