U.S. DOT NPRM Regarding Airline Passenger Protections
A Failed Airline Market
Market failure is defined as when the allocation of goods and services by a free market is not efficient. Put differently, failure exists where a market participant is made better off by making someone else worse off. That’s the reality consumers have faced vis-à-vis airlines for 6 years – ever since airlines began to aggressively unbundle their products in 2008.
Ancillary fees are not clearly and consistently disclosed to consumers through all distribution channels. In particular, airlines usually do not give ticket agents access to ancillary fee information and thus they cannot effectively and efficiently disclose the information to their customers. These hidden fees lead to consumer surprise when consumers find out that services previously included in a ticket price must now be separately paid for.
DOT has been well aware of the problem. The agency observed in its 2011 consumer protection rulemaking that it was “too difficult currently for consumers to effectively comparison-shop and determine the total cost for travel, including ancillary fees for optional services…. The Department considers it to be unfair and deceptive to charge an ancillary fee to a consumer, when that consumer had no simple, practical, and reasonable way of knowing about the fee prior to purchasing the ticket.”
In that 2011 rulemaking, DOT took action to try to prevent the worst-case scenario of consumer surprise and deception by requiring some level of fee disclosure by, for example, requiring airlines to disclose on their websites information about changes in baggage fees. Despite this push by DOT toward greater disclosure, the market has not corrected the problem. Airlines are still withholding ancillary fee data from the industry and consumers.
Three years after adoption of that rule, there is still no convenient and useable vehicle for consumers to determine and compare the all-in price of various travel options. DOT recognizes this in the current NPRM in stating: “While the Department considers the disclosure requirements in its 2011 final rule to be a step in the right direction, these requirements do not fully address the problem of lack of transparency of ancillary services and products.”
Another unmistakable indicator of a failed market is that airlines’ largest customers - corporations, federal and state governments and universities – their demands for transparent and transactable fee data have been ignored for 6 years. This would not happen in a fully functioning marketplace; one or more competitors would always step forward to meet the demands of their best customers.