Republican Congressman John Mica (R-FL) is offering a phony law to cap checked bag fees as a stunt to push his real agenda, which is increasing the cap on facility fees that airports can charge as part of ticket prices.
Realizing that bashing the airlines is good politics, and not wanting to be left out, Senator Bill Nelson (D-FL) has a new report out of the Commerce Committee that bashes airline fees.
Not everything in the report is idiotic, even if most of the underlying premises are. In fact once we get through all the bad ideas, there’s a pretty good one in there.
We Shouldn’t Be Shocked! Shocked! By Airline Fees.. and We Shouldn’t Exaggerate Them
Airline ancillary fees have expanded rapidly since the economic downturn six years ago. Airlines were hurting not just as a result of lower demand (in a capital intensive industry, where they’re still paying for planes and long term leases on gates) but also from sky high fuel prices. Airlines were losing billions of dollars and they adapted out of desperation. It shouldn’t be any surprise that fees ‘have grown faster than the rate of inflation’. Inflation isn’t the baseline expectation for revenue growth in an industry that was losing billions of dollars each year.
Still, it’s a little much to cite inflight internet as an example of a ‘new fee’ when it simply didn’t exist a decade ago. Goodness knows it could be faster, and I certainly wish American Airlines would install latest generation gogo technology instead of leaving in older equipment that limits bandwidth. But beaming internet into the sky is a huge leap forward, and charging for it hardly counts as nickel and diming consumers.
Underlying the report is a hostility to airlines covering their cost of capital. It juxtaposes ‘unbundling’ so that consumers don’t have to pay for things they don’t use (legitimate) with increasing profit (illegitimate).
The addition of these ancillary fees has spurred widespread debate over whether these
fees really constitute separating paid services from the base airfare – sometimes referred to as “unbundling” – or just a new vehicle for airline profit.
Senator Nelson is Offended That Price Isn’t Tied Directly to Cost
They also gnash teeth that it’s illegitimate to charge more for a second checked bag than a first.
[M]any airlines charge a fee for a second checked bag that is substantially higher than the fee for the first checked bag – even though there appears to be no cost justification, other than increased profit, for doing so
Of course profit is a motive in airlines offering air transportation in the first place (!), but regulating airline fees like a utility has perverse consequences.
Airlines realize they need to provide for some checked baggage, and there’s limited cargo space. They want to create a disincentive for more passengers bringing more luggage — they can’t carry it all. There are airlines and routes where additional baggage isn’t allowed at all.
And on routes where cargo is a factor, checked bags trade off directly with other lines of revenue. The more bags passengers bring, the less revenue airlines earn off cargo.
So there’s a logic to increasing costs for second and third checked bags. Price here is tied to opportunity cost, rather than cost of production.
But if all luggage has to cost the same, that’s at least as likely to create a pricier equilibrium for the first checked bag than it is to reduce the price of the second one.
What’s the Best Way to Educate Consumers?
They think airline fees are confusing, and that may be true, although with all of the media surrounding checked bag fees I’m hard pressed to come across anyone that doesn’t know that those fees exist.
It’s possible there are people who don’t understand fees for premium seats, although it’s usually clear what’s going on during the booking process. The committee worries that consumers might not know they don’t have to select a premium seat and that if they don’t they’ll still have a seat on the plane (assigned at check-in).
Travel is complicated, and the internet has pushed out traditional brick and mortar agencies for booking basic airfare. So there’s no one holding consumers’ hands.
However it isn’t clear that mandating the specific fees, that don’t apply to all consumers, be put in front of them during ticket purchase is the best way to overcome hypothesized confused consumers.
Airline fees are well-disclosed on websites, and increasingly they’re well-disclosed during the booking process precisely because airlines want to upsell consumers.
The closest thing to a real problem they’ve come up with is that Delta ought to make more free seat assignments available. Southwest is singled out for praise elsewhere in the report but they don’t offer pre-assigned seats at any price.
Advances in technology, and competition among booking services, is likely to do a lot more to educate consumers than a blanket rule about what all consumers must see and sign off on before purchase. When was the last time you actually read a website’s terms and conditions that you agreed to?
For Good Measure, a Couple of Silly Things The Committee Wants to Impose
The committee wants change fees to be more like JetBlue and Alaska, related to the likelihood of lost revenue, based on how fare in advance of departure a flight is cancelled. They think a change fee not based on proximity to departure or ticket price is ‘unfair and deceptive’.
I love the JetBlue and Alaska Airlines fee models. JetBlue’s fees are $70 – $135 (less for elite frequent flyers) and the sliding scale lets them recognize that the farther out you cancel the more likely the airline just resells the seat. And less expensive tickets can have lower fees, that way you’re more likely to retain *some* value from an inexpensive ticket when you cancel. Alaska Airlines takes a similar approach and is even more generous – free change 60 or more days out, $125 inside of 60 days (lower for elites).
But there’s nothing deceptive about a fixed fee amount, if anything one fee is simpler.
Meanwhile, the committee wants all airline and travel websites to link to the DOT’s consumer protection website. But the consumer protection website apparently isn’t very helpful, because the committee wants that redesigned, too.
The One Good Idea They’ve Got, and an Even Better Idea
One of the report’s recommendations is that airlines should refund checked bag fees when bags get lost or delayed. It’s uniquely obnoxious to charge a fee, not deliver the service, and keep the money.
Alaska and Delta offer checked bag guarantees, with miles or discounts if they fail to promptly deliver bags. That’s a great start.
The report recommends a rule that airlines have to deliver bags within six hours for domestic flights or else refund checked bag fees. I think airlines ought to deliver bags within 30 minutes if they’re going to charge for them.
A better approach would be ending the liability shield that the Airline Deregulation Act has been deemed to provide to the vast majority of airline practices. The Deregulation Act says that the DOT will provide one set of uniform rules for airlines, and states can’t get into the business of having 50 different regulatory regimes, second guessing important airline decisions.
That’s fine as far as it goes, and states shouldn’t be regulating safety (we have incredibly safe air transportation under the current model) or commerce among and between the states.
But under Northwest v. Ginsberg we can’t even sue frequent flyer programs for anything other than a breach of their own terms and conditions. We certainly can’t sue an airline for consistently failing to deliver checked bags they’ve charged us for. I’ve called for a great case that could overturn Ginsberg but since it was a statuatory interpretation case a legislative fix would work as well.
We should bring back torts as a remedy for egregious airline actions. The federal government should stop providing extraordinary protections to the airlines. Then we wouldn’t need politicians grandstanding, and airlines would have to abide by duties of good faith and fair dealing implicit in contract law.