The Real Fight Over 'Hidden' Airline Fees

Travel agent and consumer groups claiming to be "mad as hell" are pressing federal regulators for new rules that would force airlines to tell fliers up front about the many fees they've tacked onto ticket prices. Charges for such things as checked luggage, extra legroom, and early boarding can add considerably to basic airfares.

A measure the Transportation Dept. is considering, with public comments due by Sept. 23, would require airlines to publish their fee data much the way they now transmit fares several times per day to global distribution systems (GDS) such as Amadeus IT Holding SA (AMS:SM), Sabre Holdings, and Worldspan. These computerized systems provide the data for flight information sold by travel agents, including online operations Expedia (EXPE), (PCLN), and Orbitz (OWW). Three groups lobbying for such a rule, the American Society of Travel Agents, the Business Travel Coalition, and the Consumer Travel Alliance, have dubbed Sept. 23 "Mad as Hell Day" to help publicize the issue. Airlines say the effort reflects an attempt by the distribution services to reinforce their position.

The Government Accountability Office said in a July report that such fees are not transparent. It recommended that the Transportation Dept. require fee disclosure across all ticket distribution channels. Such a change would also lead to some of the fees being paid at the time of ticketing. Right now such ancillary products are sold primarily at airlines' websites, airport kiosks, or on the plane, after a ticket is purchased.

That has led to a situation in which air travelers can't easily compare total flight costs on the Internet, as they do with fares, since baggage and other fees vary among airlines. And other services, such as extra legroom or early-boarding access, are often sold only at the point of check-in. As a result, corporate travel managers often do not know how much an employee's trip will cost and many road warriors face questions when they turn in expense reports listing those charges. Travel agents complain that the current fee system hobbles their ability to give customers the total price of many itineraries and increases the likelihood of an unpleasant sticker shock. "The money isn't usually the issue but the surprise could be," says Karen Gearhart, who owns Kaye Britton Travel in Farmington Hills, Mich. "I don't want any surprise to my clients."

Airlines Weigh How to Disclose Fees

Airlines collected $7.8 billion last year from ancillary fees. They say they want their fees to be transparent—but they quibble over how those fees should be displayed. The carriers are also loath to cede yet another product to a distribution system with which they have skirmished for decades. "We think the GDSs have come into this battle with a very strong market position and are seeking to solidify their position by having it mandated by the government," says Cory Garner, director of merchandising strategy for American, a unit of AMR Corp. (AMR). American advocates a Web-based interface directly with travel agents, bypassing the current system of fare publishing.

Moreover, airlines have a strong incentive to control access to fee data. For one, the airline gains an advantage with buyers when price comparison is difficult—the Internet, for example, gives airfare shoppers a critical boost that has commoditized base fares. "The secret and the grease of any free-market society is the free flow of pricing information," says Charlie Leocha, director of the Consumer Travel Alliance in Springfield, Va. "And what's happening now is that this information is not flowing freely."

Second—and far more important as airline merchandising evolves—will be the sophisticated methods airlines envision for customizing packages around each traveler's preferences. There will be a day, for example, when such customization will become so granular—"one-to-one marketing," as travel professionals call it—that everything down to your fare may be customized based on the airline's knowledge of your travel habits and spending. But for now airlines are still in the early stages of ascertaining whether they can make more money selling optional products through third parties, Forrester Research (FORR) travel analyst Henry Harteveldt wrote in an e-mail.

Two-Price Proposal

One idea floated in the Transportation Dept.'s rule proposal would require airlines to provide two prices for a given itinerary: one with the base airfare and one with the airfare plus all fees a traveler might incur. Even advocates for the new rules say that approach would be unwieldy and relatively useless for consumers since each trip can involve so many variables. An airline seat, for example, has up to 30 different ancillary product combinations an airline can sell around it, such as aisle or window assignment, or early-boarding privileges, says Kyle Moore, vice-president for product marketing at Southlake (Tex.)-based Sabre, the largest U.S.-based GDS. The company also owns

The approach travel agents and the GDS companies advocate would be for airlines to distribute their fees the same as their fares. Sabre officials say 26 airlines have already tested such fee publishing through their Airline Tariff Publishing Co. (ATPCO), which sends fare data electronically to the major distribution systems. United (UAUA) also sells access to its "Economy Plus" seating with extra legroom through some of the distribution systems. "If their primary goal is to create a healthier airline industry by driving greater revenue … then here is a mechanism, an existing infrastructure that is in place," says Chris Kroeger, a senior vice-president of marketing at Sabre. "There's this myth that one-to-one marketing can only be done if it's directly with an airline."

Bear in mind that these fees are only going to become more complex and even harder to track: Airlines will almost certainly manage their fees just as they do fares, with fluctuating prices. For example, a $25 fee to check a suitcase may vary by airport, traveler, flight, or time. It's a logical step for airlines, says Jay Sorensen, president of airline consultant IdeaWorks. (The company has performed work for Amadeus, a GDS based in Madrid.) "It's time for the regulatory process to admit that this is now a complex purchase," Sorensen says. It will be up to the Transportation Dept. to decide who untangles that.

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