Who Should Be More Transparent? Stoking Passions of Airfare Pricing.

Airline industry lobbyists are pushing the Transparent Airfares Act.

They say that government rules requiring airlines to advertise full final prices, including taxes, makes it easier for government to raise taxes and puts air travel at a disadvantage relative to other industries that have no such requirement.

Because of that ruling, the government today is able to hide the outsized, ever-increasing amount that airline customers pay in government-imposed levies. In fact, the government’s ability to conceal such extra costs actually increases the temptation of lawmakers to raise taxes on airlines and their passengers and further puts air travel at a competitive disadvantage to other modes of transportation that do not have to include taxes in their fares, which ultimately hurts our economy and jobs.

Matthew from Live and Let’s Fly declares,

Allowing an airline to advertise a “price” for an airfare that rises 15-20+% on the final payment screen is legalized bait-and-switch

Wandering Aramean wants to “Teach[…] Airlines the Meaning of Transparency” and acknowledges that “hotels and rental car companies are not required to publish all-in fares” but thinks that those industries should be required to rather than allowing airlines not to have to.

Of course pricing engines can show fare breakdowns alongside final price. But that’s not all the lobbyists are actually after.

Legislative change to recent regulations might cause consumer sticker shock in the airfare purchase process, and no doubt that’s what the lobbyists want — to stoke outrage and create grass roots support for lower taxes on aviation. I’m skeptical that would happen or become a viable movement.

But while big airlines may not like paying taxes, it actually provides a competitive advantage for them against low cost carriers like Spirit, Allegiant, and Frontier whose business model the lowest possible fare plus optional add-on fees (that can be tough to avoid). Taxes make up a much greater proportion of ticket price for those airlines, and disadvantage them (since doemstic tickets have a 7.5% excise tax which is proportional plus fixed tax costs that become a lower percentage of total cost the higher the overall fare).

In Europe pricing includes VAT. In the US prices of retail goods do not generally include sales tax. And we have a tipping culture in the US so restaurant pricing will generally exclude both meal tax and tip.

I’m not sure that one system is inherently better than another, although I prefer all-in pricing.

It’s odd that airfare pricing in particular is the focus of regulation and then legislative fights to overturn that regulation.

All-in-all, while this issue seems to get juices flowing among many, I see it as a non-issue. I’m not on one side or another here, I just see a ton of spent energy over an issue I cannot get excited about.

At the same time I see the passions it raises among others, so would love to understand better why this is such an important issue either way. We see full price before we buy, we can build expectations of full price the way we do in a restaurant, but I also don’t see big problems seeing the breakdown on the purchase screen rather than being jolted once you get there.

Should I care about this issue, either way?


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. It’s fine just the way it is currently – any airline is free to show the breakdown at any and every point in the transaction, they just need to ensure that the total price is bolded and easy to see.

    I have a feeling that the airlines will try to allow ‘carrier fees’ in the taxes and fees section if this goes through. Then you will get to see transcon fares for $79 each way, with fuel surcharges and convenience fees hidden until after selecting a flight.

    If anything, they should require the airlines to show total prices with certain options selected, i.e. checking 1 standard bag and getting an assigned seat in advance, allowing for easier comparisons.

  2. From what I have been able to glean from the data, the amount of fee’s and taxes collected still do not cover the operating costs of ATC and DHS as they can be associated to commercial air travel. That would lead me to believe that air travel is being subsidized out of the general revenues of U.S. Treasury. I don’t see why these costs shouldn’t be covered with use based fees.

  3. I’m ambivalent about this issue, too.

    On one hand, it’s certainly more convenient to see an all-in price.

    On the other hand, it does give cover to gov’t to raise taxes, and that’s bad.

    Also, it seems nuts to pick on the airline industry. There are WAY more deceptive pricing activities that should be regulated.

    Like mandatory “resort fees” should be banned. They serve no purpose other than to deceive.

    And have you ever tried to buy a concert ticket, only to be left guessing what the final price actually is?

    How about some online merchants that add a “service fee” (or similar nonsense) when you go to check-out?

    I’m inclined to argue that airlines should be treated like all other businesses, but it’s hard to get all hot and bothered about this.

  4. If you want people to be upset about the taxes, have the TSA collect them as they go through security. Kill two vultures with one stone.

  5. Personally I find it deceptive in all industries to advertise one price and then bill for a different (higher) one. Specifically, I really dislike the idea that most businesses are permitted to exclude sales taxes from their pricing. It’s dishonest advertising, presumably legalized by Congress.

    This proposed airline law is very flawed, as it would provide no benefit whatsoever to individuals, and would instead provide a significant benefit to airlines. As a consumer I see no value, so I strongly oppose.

    My cynical viewpoint foresees this will be used to disguise a one-time price increase by the airlines. If a consumer is used to seeing a $300 transcon fare, and on the last page is shown that’s really ~$350 now with taxes, many might just accept it, like they do on their meals, cell phone bills, etc etc, and guess what, the airlines just made an extra $50 per head… Not so different from what they did when the law that permitted the 7.5% tax lapsed (the FAA funding, I think). You sure didn’t see the consumer benefiting, the failure to renew that law turned into a one-off bonus to airline profits, not a tax reduction to consumers.

    You can hypothesize many other scenarios in which taxes, fees, etc will be buried by these airline interests.

    As to the industry argument that breaking out taxes might cause people to realize how heavily taxed they are (which, frankly, I don’t believe they are compared to the costs incurred by the government for providing the infrastructure for air transport), check out your latest cell phone bill and see how well that worked. Junk taxes and fees are often 20-30% additional, and I don’t see anyone objecting.

    So, Yes, you should strongly oppose this bill. It has zero benefit to you as a consumer and plenty of potential downside.

  6. Go right ahead and let them do it. And in addition, do the following, allow the taxes on the transportation product to be paid YEARLY, meaning at tax time.

    Allow the airlines to operate in a manner everyone else does. And if the government wants to ridiculously tax me for crossing state lines , let them do so in accordance with my yearly filing so that such taxes just like any other form of tax may be subject to the Code as it’s currently enforced.

    In addition, how come there is no provision for a tax break for people who contribute more to the system than others?

    There are a myriad of programs whereby nobody contributes or someone who contributes very little can avail themselves of the system. And there are even more salaries generated, however the PAYOR of the fees isn’t even entitled to itemize these taxes on their return. ( Companies may do so but there is no benefit to the individual household).

    So if you want to do so, I say go ahead but stop collecting all the ‘taxes’ up front and ensure a path whereby those who pay “IN” get something out.

    Yes I know… what a KWAAAAAAZY concept. Ne’er appen

  7. I think the taxes and fees should be separate. On one side what goes to the airline (base, yq, fees) on the other side what goes to gov.

  8. To me, there’s a fundamental difference between mandatory taxes imposed by the government or other external party, versus mandatory fees and fuel surcharges imposed by the airline that is selling you the ticket.

    When I buy a ticket, I know exactly what the government imposed taxes will be, as the government is required to be transparent. A simple search prior to purchase will indicate what they are.

    On the other hand, fuel surcharges are purely bait and switch. They are mandatory, are excluded from taxable revenue, and are extremely opaque. Can someone tell me what the fuel surcharge is from NYC to LON? There are so many variables – the airline, the class of travel, the number of stops, etc. They are unrelated to distance flown much of the time, there is no formula (ie a percentage of the ticket), and they are not instantly refunded if you cancel a ticket (unlike those taxes). If the airlines continue to pursue this kind of dishonest pricing, they should indeed be required to make them clear at every point – and they should be included in anything that indicates the “price” of a ticket.

    Finally, there is a fundamental difference between restaurant pricing, in which a service charge is excluded in favor of tipping: the unlisted tip is discretionary. I don’t like tips (I would prefer the price to include service), but if I don’t want to pay a tip, I don’t have to.

    Opaque, variable pricing is the enemy of the free market. I don’t understand why anyone in their right mind, on any side of the political aisle, would fight transparency.

  9. I think sales tax should be included in prices (the way VAT is elsewhere in the world). But even if you disagree, there are a couple of reasons why leaving out taxes when quoting airfares is worse than doing the same thing with sales tax.

    First, a lot of people don’t fly very often, whereas people pay sales tax all the time. I fly enough that I know roughly what the taxes are, so it wouldn’t be a big surprise for me. But my in-laws have taken only 3 or 4 plane trips in their entire lives. When someone like them goes to buy a plane ticket, they don’t have any idea what the taxes are like. There are a lot of people like them. And a big part of why the airlines are pushing this proposal is because it’ll make it easier to rip off inexperienced flyers like my in-laws.

    Second, while most taxes apply to all tickets, a few of them vary from airport to airport. If I’m trying to decide between two different airports for a trip, those taxes might actually make a difference about which airport I pick. And even though I fly a lot, I don’t know the local airport fees at every airport in the country. I don’t want to have to go all the way through to the final screen before seeing the full price. (This isn’t a big deal, because those local airport fees are usually fairly small, but it still matters.)

  10. I think we need to go after resort fees, ticketing fees, or any mandatory fees which you cannot get out of which are imposed by the airline or hotel. Those should be shown as all-in and required by law. Then, we can discuss taxes

  11. @Noah: I agree with you that it would be good to go after all the fees you mention. But there’s no reason to move backwards on taxes in the meantime.

  12. AS is tom here. the all-in price should be the most prominent price everywhere, not just for air tickets. Although I no longer live in the states, it used to infuriate me that the price shown on the shelf or label would not be what I paid at the till. It’s easy enough to calculate the sales tax but not easy to carry the tax table in your head. I lived in PA and some things (clothes for example) were sales tax exempt, plus you had different sales tax by by county. I would pay slightly less by buying something close to my work, outside of Allegheny county where I lived.

    I was a relief moving to Australia and return to all in pricing (and uniform GST).

    I’m all for breaking taxes and fees out, on the receipt or website. I think it’s important to see who’s getting what and how the retailer/service provider is justifying the price. I might make purchase decisions based on these. I frequently choose to rent cars off-airport because of ridiculous airport fees. But at the end of the day the most prominent price you see should be the amount of money you hand over at the till.

  13. @Rob – Yes exactly. “First, a lot of people don’t fly very often, whereas people pay sales tax all the time.”

    Now there should be no proscribed “barriers to entry” because let’s face it being a FF is not exactly a business venture but it is a bit of an investment. Not really and if you think it is, you need some sharpening of the analytical skills but it is what it is.

    There’s no problem with trying to make the system fair for all participants on a Flight by flight basis but to skew the system so that people who avail themselves of it bear the extraordinary cost of someone who takes part maybe once every 2 years is to absolutely bastardize what America is all about. But that’s ok. We’re REALLY GOOD at doing that these days.

  14. Oh and I completely understood Smisek’s stance when it came to the relationship of the Airline industry with it’s consumers and the government as far as people not understanding how much of their fare goes to the government and how much the airline is actually being paid. That part of Smisek’s youtube speech I got.

    The part where he then moves to private pilots and people who live down South. That part I didn’t understand at all. Nor did I feel it was necessary. It’s ok. Everywhere you turn nowadays. Class warfare. We “MUST” categorize and oppose. It is our programming.

  15. Talk about “class warfare”: the people who would be hurt the most are those who have the lowest education, who can’t easily search for the fees (think those who are uncomfortable with the internet) or can easily mentally add lots of numbers together.

    There is nothing wrong with the current system, except that it does not allow for airlines to steal from ignorant people through obfuscation. Free markets depend on lack of obfuscation, and it’s the government’s role to keep markets free.

    If you care about free markets, you should care about this issue. A LOT.

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