The day before a congressional committee is scheduled hold a hearing on disclosure of airline fees, new survey results from the Business Travel Coalition reinforced prevailing sentiments on the topic of ancillary charges. Travel managers and travel agency executives want full disclosure of all add-on fees in global distribution systems and believe government intervention should compel airlines to do so.
Set for Wednesday, the hearing hosted by the U.S. House of Representatives Committee on Transportation and Infrastructure's Subcommittee on Aviation will come about four weeks before the close of a public comment period on a related set of rules proposed by the U.S. Department of Transportation. Among other things, the DOT rules would require carriers to provide GDSs with information about bag fees and optional services fees. [Proposed rules also include details on tarmac delay regulations and data, disclosure of customer service plans, consumer problem rectification, oversales and advertising "full" fares.]
"The proliferation of ancillary fees over a relatively short period of time has raised concerns over the costs and transparency of such fees," according to the subcommittee. "Often, consumers are not entirely aware of the range of fees that they may encounter in the ticket booking process, at check-in and at the gate."
The subcommittee also intends to explore whether such fees should be subjected to the 7.5 percent tax on airline tickets, "especially if the services provided for such fees were traditionally included in base ticket prices."
'Fair, Accurate And Readily Accessible'
Conducted this month, the BTC survey collected responses from 86 corporate travel managers and 52 travel agency executives (and 50 other industry participants including airline representatives). Ninety-three percent of travel managers said ancillary fees and unbundling have "somewhat" or "very negatively" affected their programs. About 85 percent of travel agency executives said the same about the impact on their businesses and their ability to serve customers.
Among both travel managers and agency execs, more than 85 percent said airlines would not "make fair, accurate and readily accessible disclosure" of all ancillary fees without government regulation. More than 95 percent of both groups said they support an option floated by DOT that would require airlines to display fee data in GDSs.
Survey respondents submitted comments in which they cited challenges related to setting budgets with less predictability, tweaking travel policies and reimbursing travelers without fully understanding charges, incomplete purchasing data for use in negotiationsand "increased labor and technology costs," according to BTC.
Subcommittee: Airlines Wary Of GDS Market Power
In prepared testimony for Wednesday's hearing, BTC chairman Kevin Mitchell wrote: "Airlines are in effect trying to make only a part of the airfare visible; they are not providing the entire fare" because of low-fare competition that motivates major network carriers "to obfuscate the true, all-in price by hiding fees and especially resisting efforts to have fees and fares made available in a comparative display for travel agents via the global distribution systems."
Mitchell argued that DOT should require carriers to provide fee data in "the travel agency channel through any GDS in which that airline has agreed to participate" and that Congress "also provide this relief in the FAA Reauthorization Act."
According to subcommittee materials, "Many airlines oppose a mandate to provide GDS companies with access to information on optional services and pricing because they believe it would place airlines at a competitive disadvantage in the marketplace, further strengthen GDS market power, thwart the entry of new competitors in the GDS market, and expose consumers to higher prices necessary to recoup GDSs' fees."
Taxation Implications
According to the subcommittee, the hearing also will include discussion on "revenue potentially available to the Airport and Airway Trust Fund if certain ancillary fees were subject to the Federal tax on airline tickets." The subcommittee noted that "Federal regulations (last amended in 1962) exclude from the excise tax fees for 'transportation of baggage' as well as fees for 'nontransportation services,' among others." It also referred to a 2009 Internal Revenue Service "private letter ruling" in which the "IRS concluded that fees for the following services are not subject to the excise tax: checked baggage, headsets for use with inflight entertainment systems, food and alcoholic beverages in flight, and ticket changes." The subcommittee materials however, clarified that a private letter ruling "is directed solely to the taxpayer who requests it ... it is not binding on other taxpayers and holds no precedential value. Whether or not the IRS would rule that ancillary fees are not taxable in all cases remains an unsettled question. At a time when the FAA's primary fund for capital programs is in decline, a hypothetical application of the 7.5 percent tax to ancillary fees could generate additional revenue for necessary aviation programs."
In addition to BTC's Mitchell, those scheduled to testify at Wednesday's hearing include Spirit Airlines CEO Ben Baldanza, U.S. Government Accountability Office director of civil aviation issues Dr. Gerald Dillingham, Sabre vice president Kyle Moore (listed as speaking on behalf of the Interactive Travel Services Association, the American Society of Travel Agents and the Consumer Travel Alliance), Southwest Airlines senior vice president of marketing and revenue management Dave Ridley and DOT general counsel Robert Rivkin.
Fees 'Rival' Fares
The Consumer Travel Alliance this week released a study that found "hidden fees charged by airlines on popular routes can increase the base cost of an airline ticket by an average of 54 percent for a typical traveler with two checked bags and extra legroom, or by an average of 26 percent for a comparable one-bag traveler."
According to CTA director Charles Leocha, "hidden fees charged by airlines now rival the cost of the tickets themselves, often without any disclosure to the consumer at the time of purchase." Like BTC, CTA appealed to Congress and DOT "to take swift action to ensure that all ancillary airline fees are fully disclosed to travelers through every distribution channel, so the total cost of air travel can be compared between carriers."