Airlines Should Disclose Bag Fees Upfront, U.S. Proposes

Photographer: Chris Ratcliffe/Bloomberg

Airlines increasingly count on fees from checked luggage to boost revenue. Close

Airlines increasingly count on fees from checked luggage to boost revenue.

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Photographer: Chris Ratcliffe/Bloomberg

Airlines increasingly count on fees from checked luggage to boost revenue.

Airlines in the U.S. would have to disclose bag fees and seat-assignment charges upfront when tickets are sold under a proposed change in federal transportation regulations designed to protect consumers.

Added fees make up a growing portion of the price of flying and those costs aren’t always obvious while buying a ticket, the U.S. Department of Transportation said today.

“Knowledge is power, and our latest proposal helps ensure consumers have clear and accurate information when choosing among air transportation options,” Transportation Secretary Anthony Foxx said in an e-mailed statement.

The proposal would be the third air-traveler protection measure enacted under President Barack Obama and comes as airlines and some members of the House of Representatives are attempting to overturn earlier consumer regulations.

The new regulations would extend the same fee-disclosure rules to ticket agents and add requirements for smaller airlines to submit data on traffic and consumer issues, according to the agency. The measures stem from recommendations made by two U.S. advisory committees, it said.

Airlines believe they already provide customers with transparent pricing information and the proposed changes wouldn’t be consistent with how the government regulates other businesses, the Washington-based trade group Airlines for America said in an e-mailed statement.

‘Proposal Overreaches’

“We believe this proposal overreaches and limits how free markets work and will have negative consequences,” the group said in the release.

Consumer groups said the measure was needed so people can make better choices while booking flights.

“I’m very pleased with most of the concepts” of the proposal, said Charlie Leocha, director of the Consumer Travel Alliance, an Arlington, Virginia-based advocacy group. “It’s something we’ve been asking for.”

When shopping for a ticket, travelers would be able to enter information such as whether family members want to sit together during a flight and how many bags they expect to check and then see a cost for the whole package, Leocha said.

Carriers collected $797 million in baggage fees and $675 million in reservation change fees in the fourth quarter of 2013, according to the DOT’s Bureau of Transportation Statistics. The two fees represent 3 percent of total airline operating revenue for the period, according to the agency.

20 Percent

Airline profit for the period was $7.3 billion. The two fees made up 20 percent of profits.

American Airlines Group Inc. (AAL) objects to how fees are portrayed and believes other businesses charge for extra services, President Scott Kirby, said today at a Wolfe Research Inc. transportation conference in New York.

“I hate the characterization of ancillary revenues as nickel and diming,” Kirby said. “We spend more money carrying bags than we charge in bag fees. So we’re not fully passing that on to the customers.”

Spokesmen for Delta Air Lines, United Continental Holdings Inc., Spirit Airlines Inc. and Sabre Corp. (SABR), owner of the online travel agency Travelocity, didn’t immediately respond to calls seeking comment.

Airlines have been waging a battle against an earlier DOT consumer rule that requires them to prominently display the full cost of a ticket, including government fees and taxes. The rule was enacted to allow passengers to more easily compare prices on tickets, according to DOT.

Consumer Complaints

Airlines for America argues that the rule allows taxes to be hidden within the cost of a ticket. U.S. taxes now make up 21 percent of a typical $300 round-trip domestic ticket, it said.

On April 9, the House Transportation and Infrastructure Committee unanimously approved a bill that would allow airlines to revert to the previous practice of emphasizing base fares that don’t include taxes.

In a successful defense of the regulation before the U.S. Supreme Court, the DOT pointed to hundreds of complaints received during a comment period before issuing its final rule in 2012. Some consumers said they sometimes didn’t know what they’d paid until after the transaction was completed, the department said.

Most people probably wouldn’t consider the House legislation, known as the Transparent Airfares Act, very transparent at all, and with its new proposal, DOT is going even further to ensure people know the true cost of a flight, Robert Mann, a former American Airlines executive and aviation consultant in Port Washington, New York, said in an interview.

‘Double Down’

“It’s kind of a double-down in a different direction than the industry wants to go,” Mann said.

While passengers haven’t been pleased by increases in airline fees, their satisfaction with air travel has gone up, according to the J.D. Power & Associates’ 2014 North America Airline Satisfaction Study released May 14.

Easier check-in and improved in-flight services like Wi-Fi access have smoothed objections to other charges, the ratings show. Satisfaction with “cost and fees,” the category with the biggest impact on the total rating, rose to 642 from 618 a year ago.

“We certainly would not conclude that people are happy with these fees, but we are seeing it go from worst to less bad,” Rick Garlick, global travel and hospitality practice lead at J.D. Power, said in an interview.

Airlines and the public have 90 days to comment on the proposal before the department begins finalizing the rule.

To contact the reporters on this story: Alan Levin in Washington at alevin24@bloomberg.net; Michael Sasso in Atlanta at msasso9@bloomberg.net

To contact the editors responsible for this story: Bernard Kohn at bkohn2@bloomberg.net Elizabeth Wasserman, Romaine Bostick

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