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Airline Fees Are Here to Stay, But Can Be Fixed

Airline fees are all about gaining a competitive advantage. Legacy lines, in particular, simply cannot compete on cost compared to low-cost airlines, which operate leaner, more efficient route networks than larger lines. Fees allow legacies to compete on price and cover their costs. In Spirit's case, adding fees allows the airline to advertise extremely low fares, and use those advertised fares to brand itself as the cheapest option out there, whether or not that is actually true.

And it's exactly this competitive advantage that sends airlines running for the hills when the issue of fare transparency comes up.

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In yesterday's House Subcommittee on Aviation hearing on the subject of airline fees, Congresswoman Laura Richardson asked Spirit Airlines CEO Ben Baldanza a very simple question: Why wouldn't Spirit agree to submit its list of ancillary fees so they could be included as a full-fare display on sites such as Travelocity? After hemming and hawing a bit, Baldanza admitted, "We wouldn't want to be at a competitive disadvantage."

Richardson was concerned specifically with customers who don't have Internet access, but the issue of fare transparency came up countless times during the hearing, and is at the crux of the debate over airline fees.

Realistically, it's not fair to tell airlines they can't charge fees—Southwest Senior VP of Marketing and Revenue Management Dave Ridley told the Subcommittee his airline "believe[s] strongly that the decision on whether or not to charge a fee for an airline product or service is a business decision best made by each individual airline." But nor is it fair to withhold airline fees from passengers up front, only to slowly reveal them throughout the booking process. Baldanza repeatedly boasted that Spirit customers know the full price of their ticket "before they pull out their credit card," but neglected to mention that some fees, such as those for checked bags and the airline's opt-out travel insurance, are not clearly presented up front. This means the customer doesn’t know the full price of his or her fare until literally the moment before inputting the credit card info, which makes comparing full fares between carriers an arduous, frustrating experience.

Kevin Moore, Vice President of Marketing for Sabre Holdings, which owns Travelocity and the Sabre Network Global Distribution System (GDS), testified that full-fare disclosure could easily be part of the airfare booking process, if only the airlines would play along. "We are concerned that airlines have a disincentive to provide data, as that data would make the prices of their products seem higher," Moore told the Subcommittee. "Every airline would of course prefer to appear lower priced than its competitors for the longest possible time. Thus, powerful economic motivation exists for airlines not to provide the add-on price information to the GDSs."

More simply, no airline wants to go first.

The Government Accountability Office's (GAO) Gerald Dillingham told the subcommittee his organization doesn't believe fare transparency can happen without rulemaking and/or Congress' involvement, and he's right. The airlines have little to no incentive to clarify their fee scheme, and plenty of reasons to keep things status quo. As Kevin Mitchell of the Business Travel Coalition (BTC) told the subcommittee, "There's great profitability in complexity and confusion."

But a while later, as the hearing wound down, Southwest's Ridley fired a closing salvo in an attempt to distance his carrier from the fee-crazed masses. "There's profitability in simplicity, too," he said. This should be printed in enormous letters on a huge sheet of paper and hung in every airline CEO's office, and even in the DOT offices for good measure. In essence, there is a balance to be found between good business (fees) and good customer service (disclosure). Or rather, some airlines would do well to remember that good customer service is good business.

A simple, clear, and transparent booking process that displayed fees would accomplish this by allowing consumers to choose what's best for them and leaving airlines to compete on the strength of their product, not the obfuscation of their total fares.

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