August 4 - BTC Statement Regarding Airline Passenger Rights Before the U.S. DOT Future of Aviation Committee

Business Travel Coalition

Statement Regarding Airline Passenger Rights

Before the U.S. DOT Future of Aviation Committee

Subcommittee on Competition

Wednesday, August 4, 2010

Good afternoon and thank you for inviting Business Travel Coalition (BTC) to share its perspective on why we believe there is an urgent need for a strong and coherent set of consumer protections in the marketplace for commercial air transportation services. When it comes to the classic legal consumer protections Americans have long enjoyed in many fields, airline industry consumers face a vulnerability unique among retail industries.It is this unparalleled vulnerability that explains why the U.S. Department of Transportation (DOT) must act to safeguard consumer interests. That the airline industry is deregulated economically – with the freedom to charge such prices and set capacity as the airlines elect -- has zero bearing on the need for consumer protections that consumers in almost all other industries take for granted.

I will focus my statement on three points that support the case for air passenger protections at the federal government level. They are: (1) federal preemption, (2) airline industry history of abuse, and (3) growing and deepening consumer frustration with current airline industry practices.

Federal Preemption of State Consumer Protection and Tort claims and Airline Immunity from FTC Oversight

Airline passengers are unique in having virtually no legal rights under consumer protection and many traditional common law claims at the state level, and no protections from the Federal Trade Commission (FTC) that apply in virtually all other retail industries. As such, airline passengers are in a consumer protection “no man’s land.” Federal preemption of most State law claims that safeguard consumer welfare, coupled with the statutory exclusion for airlines from the jurisdiction of the FTC means that:

First, state laws that make unlawful, unfair or deceptive acts or practices by businesses, such as the state deceptive trade practices laws that apply to other industries, are preempted by federal law and hence have no application to airlines.  The U.S. Supreme Court, of course, reached that conclusion in the case of Trans World Airlines, Inc. v. Morales nearly 20 years ago. Thus, State Attorney Generals cannot use their usual powers to police unfair or deceptive acts or practices in the case of airlines while other industries have their behavior checked by these important consumer protection statutes. Moreover, there is no private right of action under those state deceptive trade practice laws for aggrieved consumers to seek legal redress for unfair and deceptive conduct by airlines.

I should also add that many federal courts have found in specific cases that because of federal preemption consumers lacked the right to bring traditional state common law tort claims against airlines such as suits for false imprisonment.

Second, by virtue of the U.S. Supreme Court decision in American Airlines, Inc. vs. Wolens in 1995, a passenger lacks the right to sue an airline for breach of contract when an airline has failed to provide decent service - except to the extent that an airline has voluntarily assented to some “self-imposed undertaking.”Anyone who has perused the airline drafted – and I might say imposed – conditions of carriage will know that airlines assume precious little in terms of explicit contractual commitments to passengers.

Third, it means that under federal law DOT is the sole guardian of air traveler welfare because the FTC, which can and does enforce Section 5 of the FTC Act against most other industries, is powerless to protect air travelers.For reference, Section 5 allows FTC to act against unfair or deceptive acts or practices and the FTC has vigilantly exercised that power.Thus, it is unavailing for airlines to oppose passenger rights initiatives under the headline banner that they “should be deregulated like other industries" because other industries in fact are subject to enforcement action by FTC when they engage in unfair or deceptive acts or practices.

Finally, 49 USC Section 41712, the FAA section that is analogous to FTC Section 5 and is applicable to airlines, empowers only DOT to act against unfair or deceptive acts or practices of airlines.This law has been universally interpreted as affording an injured consumer no right to sue in court on his or her own behalf.

Accordingly, and as DOT recognized at page 37 of its NPRM on Enhancing Airline Passenger Protection issued on June 2, 2010, the DOT is the sole creator and enforcer of consumer rights in the field of air travel. Therefore, where DOT has not prescribed the rules of the road in terms of consumer protections, consumers of air travel are typically without rights and without remedies -- like serfs in the Middle Ages. The horrid experiences of consumers confronted with egregious tarmac delays before the DOT enacted such clear rules to mitigate carrier behavior underscores my point about the plight of air travelers absent a resolute government response.Indeed, the airlines, with the aggressive defense and extension of federal preemption are responsible for the uniquely defenseless predicament of air travelers, and hence, are themselves the root cause of the up swell of voices demanding a quantum of protection for air travelers.

Airline Industry History of Abuse

Because of the high complexity associated with air ticket pricing and rules, compounded by airline product unbundling and ancillary fees, there are strong motives, opportunities and incentives for some airlines to take advantage of consumers. Airline consumers are vulnerable to abuse and airlines have a long history of frustrating consumers’ search for the lowest airfare offerings. For example, if a book were written about airline ownership of global distribution systems, the first 19 of 20 chapters would be about abuse, deception and consumer harm by air carrier owning those systems.

Consumer Frustration

Often airline industry commentators complain airlines are singled out for consumer protection initiatives, unlike the hotel and other travel segments. In addition to the key points I just made about preemption and the history of abuse, there is simply not the deepening dissatisfaction among consumers in other travel industry segments that there is with airlines. For example, just recently, J.D. Power & Associates released a major survey of American travelers that found that satisfaction with hotels is growing especially with regard to costs and fees. In sharp relief, airline consumers are inundating their elected officials in Washington and DOT with complaints about ancillary fees and other issues. If the same level of frustration were rained down on Congress from consumers of the hotel and rental car segments, Members of Congress would likewise pay attention.

Let’s look at just one prominent consumer problem in air transport, the subject of a recent House Aviation Subcommittee hearing. Airline unbundling and ancillary fees represent a good proxy for other consumer protections under consideration in the DOT’s currently open Notice of Proposed Rulemaking (NPRM) that I alluded to a moment ago.Without timely and complete airline disclosure of the increasing array of add-on charges to global distribution systems, and the travel agencies that they automate, consumers deprived of all-in information will become as economically trapped by airlines as they would be physically trapped during a seven-hour tarmac delay. The need for consumer protection in this area is acute.

The highlights of a recent BTC survey of 188 travel industry experts are revealing of a sea change in thinking about government oversight in commercial air transportation: Consider these findings:

  • 100% of corporate travel managers indicated that unbundling and extra fees have caused serious problems for their managed travel programs.
  • 86% believe that airlines, absent government rules, will not make fair, adequate and readily accessible disclosure of their add-on fees and charges so that travel managers and their travel management companies can do comparison shopping of the all-in prices for air travel across carriers.
  • 95% support the proposal that DOT require airlines to make add-on data available and easily accessible to the travel agency channel through any global distribution system in which that airline has agreed to participate.

These survey participants are business people who do not generally favor government intervention in the marketplace. However, they see a market failure coming at them with the speed and impact of a Mark Buehrle fastball to the side of the head.

With pervasive unbundling of air travel services, and absent the government umpire stepping in to ensure transparency of these extra fees and charges, consumers will not have the ability to evaluate the full price of air travel options available to them before they are locked into a purchase. For decades the transparency of airfare information through all channels has been a marvel of modern technology and has benefitted consumers immeasurably. Unbundling without disclosure threatens to catapult us out of the 21st century and back into an opaque stone age where a telephone, calculator, pen and paper, and a lot of unproductive time, were needed to figure out how to compare airline services.

BTC encourages DOT in its NPRM to require airlines to make add-on fee data easily accessible not only on their websites, but also to the travel agency channel - through any global distribution systemin which an airline has agreed to participate. Since half of all travelers book through the travel agency channel, they represent a sector of the flying public far too large to be left as prey for unscrupulous pricing practices that hide the ball on the total costs to fly.

Finally today, BTC supports the creation of a passenger rights ombudsman within the DOT and applauds the Department for its leadership in the currently open NPRM, which addresses many important passenger rights issues.

Thank you for the opportunity to present our views.

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