DOT Airline Fee Proposal Sparks Content Clash

A U.S. Department of Transportation proposal that would require airlines to transmit ancillary fee data for display at the point of sale through global distribution systems has divided the corporate travel supply chain—with airlines opposing regulatory interference in their relationships with distributors, and GDSs, business travel groups and some travel buyers advocating greater pricing transparency to consumers when they make air travel purchasing decisions.

With the comment period on the proposed rulemaking closed as of late last month, DOT said it is evaluating the flood of public comments to shape its final decision. Though a DOT spokesperson said, "There's no fixed timeline," DOT expects to issue a final ruling no later than spring 2011.

The brief proposal on GDS fee transparency, part of DOT's most recent drive to bolster air traveler protections, weighs in at just a few sentences and no more than 200 words, yet has elicited hundreds of public comments in the docket.

DOT is determining whether to require airlines to submit ancillary fee data to "global distribution systems in which they participate in an up-to-date fashion and useful format," the proposal reads. "This would ensure that the information is readily available to both Internet and 'brick and mortar' travel agencies and ticket agents so that it can be passed on to the many consumers who use their services to compare air transportation offers and make purchases."

The American Society of Travel Agents, the Consumer Travel Alliance and the Business Travel Coalition, in addition to what they said are 50,000 petition-signing corporate travel buyers, travelers and consumer advocates, have come out in favor of DOT-imposed rules on the display of ancillary fees at all points of sale as a means to preserve consumer pricing transparency, according to comments filed in the docket.

Airlines, meanwhile, have advocated a free-market approach, not regulatory intervention, as a guiding principle in governing which data airlines submit to distributors. Al Lenza, former head of distribution for Northwest Airlines and now CEO of the Lenza Group consulting firm, called the proposed rulemaking on GDS display a "well-intentioned" but ultimately flawed proposal that would diminish airline leverage in negotiating deals with third-party distributors and box them into sales and marketing strategies determined by the GDSs. If adopted, Lenza argued, "It could strip the carriers of this bargaining leverage with respect to ancillary products, resulting in higher distribution costs which must ultimately be borne by consumers."

Filing comments on behalf of the largest U.S. airlines, the Air Transport Association similarly argued that if DOT moves forward with its forced GDS display efforts, it would be handing a victory not to consumers seeking transparency, but to GDSs seeking new airline deals. "A government mandate that carriers must provide GDSs with fee schedules would further strengthen GDS market power, thwart the entry of new competitors in the GDS market and expose consumers to higher prices necessary to recoup excessive GDS booking charges," ATA posited in its comments, which called Sabre and Travelport a GDS "duopoly" that together hold 90 percent of the U.S. GDS market. ATA made no mention of Amadeus.

ATA claims DOT precedent is on its side. When DOT deregulated the U.S. GDS market in 2004, ATA quoted the department that "airlines should have some bargaining power against systems if each airline can choose which services and fares will be saleable through each system and the level at which it will participate in each system."

Noting parallels from the web fare debate that similarly divided the corporate travel supply chain earlier in the decade, ATA interpreted DOT precedent as meaning that "airlines should be able to use their control over access to their web fares as a bargaining tool for getting better terms for computer reservation system participation." That, ATA said, happened during the last major round of airline-GDS negotiations in which GDSs reduced their fees to airlines in exchange for full content, which included web fares. ATA noted that "a similar situation is presented here."

ASTA, however, claimed that the rule would not interfere with the principles of deregulation, since they "would not require any airline to do business with any particular GDS."

Using the example of United Airlines selling Economy Plus seating through Sabre as evidence that some GDSs and airlines already have entered into commercial agreements to distribute ancillary services, Lenza said, "Regulations should not impact the competitive dynamics playing out in the marketplace between the parties in the distribution chain." According to Lenza, "Airline websites, with links to the various distribution systems and properly maintained, should be the primary vehicle for ensuring customer awareness and communication."

Delta Air Lines agreed, noting its website now includes a link directing consumers to information on its ancillary services and associated fees. "Delta displays all such services and fees in one easy-to-access format on Delta.com," the carrier said in comments. "Moreover, Internet vendors, such as Compare Airline Fees, have made consumer access to these services and fees on a comparative basis convenient and easy."

Other airlines and airline groups agreed with a DOT proposal that they post all ancillary fees on their websites, but ASTA argued that transparency should be replicated in all points of sale—both direct and indirect. "But the critical issue is not whether the airlines will make the information 'available' in lists and the like," ASTA said in comments. "The key issue is whether the airlines will be required to provide the information to consumers in a form that enables consumers to make 'all-in' full-price comparisons incorporating the ancillary services that interest them and most importantly to do so before they have committed to a ticket purchase."

ASTA suggested that "it is commercially absurd to suggest that travel agents can simply hunt down the ancillary fee information, transaction by transaction, on airline websites whenever they need to know," but Sabre has attempted to automate that very function, and Delta and US Airways said Sabre's Air Total Pricing offering, launched last month, served as evidence that the GDSs already have the capability to aggregate the data they seek, display ancillary fees and include their tally at the point of sale.

Still, the question goes beyond whether DOT will require airlines to simply display ancillary fees and their cost at the point of sale to whether the mandate will force the sale of ancillaries through the GDS. A DOT spokesperson clarified that the department is considering both.

BTC noted it is advocating that DOT require airlines to provide a la carte content to GDSs so it can be booked, in addition to requiring airlines to provide ancillary fee information to GDSs so they can display it at the point of sale (see Editor's Note). "It is critically important that consumers understand the all-in price of a ticket before a purchase decision is made and before they arrive at the airport," BTC chairman Kevin Mitchell said in a filing. "Comparison-shopping, a major consumer benefit in commercial air transportation, has been severely impaired during the past 24 months."

While airlines argued that forcing them to present ancillary fee information through the GDS would raise costs for consumers, Mitchell argued that by taking away transparency and adding ancillary services through the booking cycle, airlines could be playing a bait-and-switch game, luring bookers with a low fare, then saddling that fare with add-ons, resulting in overall higher airline costs.

The National Business Travel Association also advocated for more point-of-sale openness, noting in comments filed by executive director Michael McCormick that "NBTA members have wrestled too long with fee transparency."

Though NBTA said it supports the right of industry to "create and follow chosen business models," it considered ancillary fees part of the fare, and therefore subject to transparent display. "DOT must establish a framework for transparency so travelers and booking agents can understand the total cost of travel before booking a ticket. Of course, any requirements put forward by DOT should not stifle innovation in airline sales or in the myriad distribution models in the marketplace. To accomplish these dual goals, DOT should require that airlines provide fee and fare information such that any platform selling airline inventory can acquire and display the fee information for those researching and booking travel, without dictating how the fee data be transmitted or displayed."

This report appeared in the Oct. 11, 2010, edition of Business Travel News.