Why Do Airlines Get to Game Ticket Pricing?
U.S. consumers may well remember the days, pre-2012, when shopping for an airline ticket was complicated by the airlines' favored pricing scheme. Back then, an advertised $240 fare might suddenly turn out to be a $300 fare, given that taxes account for roughly 20 percent of the average domestic U.S. airfare. Passengers hated the system while the airlines -- which hate price comparison shoppers, because they drive down prices -- embraced it. Fortunately, in 2012, the Department of Transportation imposed a rule requiring that the airlines advertise fares inclusive of the base fare, taxes and fees. Yet, notably, the rule didn't prohibit the airlines from publishing the taxes and fees separately; it just required that they do so less prominently than the advertised fully inclusive fare. The airlines, incensed at this pro-consumer bit of rulemaking, have been trying to overturn it ever since.
On Monday, the U.S. House of Representatives gave them a big boost by passing on a voice vote the Transparent Airfares Act, against almost universal consumer opposition. The misleadingly titled bill (which has yet to be taken up by the Senate) rolls back the 2012 Department of Transportation rule so that airlines can go back to advertising their cheap-looking base fares, minus taxes and fees. Under the new legislation, the latter will only need be revealed via an "easily accessible" link or popup. By all rights, the legislation should be renamed the Opaque Airfares Act.
How do the airlines and their allies in Congress justify this anti-consumer jujitsu? Shamelessly, they champion themselves as tax crusaders. Consider, for example, the letter that Doug Parker, chairman and chief executive officer of American Airlines, published in the July issue of American Way, American's inflight magazine. In it, Parker notes that the Transparent Airfares Act "would allow airlines to show base airfares in advertisements while clearly and separately disclosing government-imposed taxes and fees as well as the total cost of the ticket." However, he does not note that airlines are already free to disclose this information in their advertisements (a freedom that existed before the DOT's 2012 rule), but generally have chosen not to do so.
Sadly, Parker isn't the only airline luminary presenting this misleading argument. Airlines for America, the airline industry trade group, celebrated the House passage on Monday with a press release announcing that the Transparent Airfares Act "would ensure that airline customers know exactly how much of their ticket price is attributable to federal taxes and fees, and still know the full price of air travel before they purchase a ticket." Again, this is something that airline customers could know today if only the airlines would bother to reveal it in their advertisements. That they don't is, perhaps, the best evidence that the carriers' primary concern isn't tax transparency, but keeping fares up.
Ironically, the airlines can make a reasonable argument that consumers should be paying more attention to ever-increasing taxes on airfares. As Parker notes in his letter, the average base airfare has declined 8 percent since 2000, while taxes and fees have increased 49 percent. To be sure, many of those taxes are security-related and came online after 9/11. On July 21, in fact, the Transportation Security Administration's congressionally-mandated security fees more than doubled in some cases, and those hikes were -- as the airlines are happy to note -- absorbed into advertised fares that include taxes and base fares. Most passengers probably don't know that they exist, and if they do notice, likely just assume that the airlines are responsible for bumping up the fares. Both consumers and airlines have reason to be upset at that status quo.
Nonetheless, so long as the airlines fail to take advantage of their pre-existing right to make information about those taxes available to their customers, there's absolutely no reason to take their supposed concerns seriously. Instead, the calls for tax transparency should be viewed as little more than a cynical tactic to manipulate consumers and their representatives. The House, unfortunately, could not resist offering its support. We can only hope that the Senate will show more sense.
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