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There are no winners when transparency hides information

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There are no winners when transparency hides information

There are no winners when transparency hides information
May 09
08:00 2014

MIAMI — If it ain’t broke, don’t fix it.

That adage is one the airline industry seems to struggle with on a regular basis, though I suppose part of that may be because they’ve yet to find themselves in a sustained period of “ain’t broke” operations. Still, the past few years for the US aviation industry have been a remarkable success by most measures. Load factors are at or near all-time highs and airline revenue is strong. Data from IATA says that the industry is strong as does corroborating information from the US DOT.

Most US carriers are reporting profits, many at record levels. Indeed, the US airlines’ lobbying organization, Airlines for America, acknowledges that the current environment is one where there is stability for the airlines, an environment where investments in updated products is a reasonable and financially sound decision. And there’s the part where air travel provides a great value to the consumer as well.

So, what do they want to do with their newly found stability and profits? Change the rules of the game to drive fares even higher while hiding the total cost of travel from the customers more than the unbundling of today already does. And, worst of all, they’re couching this plan under the guise of “transparency” to consumers.

The Transparent Airfares Act of 2014 is, at its core, a move to hide the full details of airfare from the consumer on the first page of search results. Since 2012 the DoT, under the auspices of the unfair trade practices clause in 49 U.S. Code § 41712, has required that airlines include the total cost of a ticket – everything that a passenger will be required to pay for conveyance – as part of the first number shown in search results or in advertisements.

The airlines dislike that. They feel they’ve been singled out as an industry (they have not) and that the taxes on their product are akin to so-called “sin taxes” on products where the tax rates are designed to decrease consumption. And so their solution to that is to separate out the tax burden from the ticket costs in the advertising and search results. Only after a consumer has selected what they want to buy will the additional taxes and fees be added back in. Consumers won’t have all the data – a key component of transparency – until much later in the purchase process.

To be fair, this is the way the industry ran for many years. From 1987 until 2012 the airlines were permitted to spit the details in such a way. And the DoT decided that it was a broken enough system at that time that it needed fixing. The airlines, despite record loads and increasing profits, feel that they’re still being short-changed and that they are unable to properly disclose to customers the portion of ticket costs which are being collected on behalf of government entities. A4A President Nicholas Calio says in a statement, “[W]e urge the Administration and Congress to follow the lead of the airlines and give consumers the information they need and the transparency they deserve.” Somehow Calio seems to believe that the airlines he represents are not allowed to identify the taxes being paid as part of a purchase. I’m sure that news would be a great surprise to JetBlue, Spirit Air, Frontier and US Airways. All four carriers show the breakdown on the first page of search results today.

So if such behavior is not permitted then why are so many carriers providing that “transparent” data to their customers already? And if they are already permitted to do what they claim to be asking for then what’s the real goal here? Like most things in life it is all about the money. The airlines are not satisfied with record profits and record loads. They want more and they want to get there by obfuscating the costs of travel. They want to hide the total cost of a ticket from their customers until far later in the transaction process than they are permitted today. And they’re pretending that it is about “transparency.”

Does the current policy cost the airlines some money? Maybe. I’m not completely convinced that a short-term study on grocery buying habits can readily be applied to the aviation industry where consumers have had two years to become familiar with the current pricing policy. And then there’s the part where the rest of the world is generally doing things this way, too, typically across all industries. And even if it does cost them some money (one estimate made earlier this week was $1bn annually, though the basis for that calculation is questionable at best) I’m very much OK with that. If being honest with your customers is too expensive a proposition then it is time to get out of the business. Share the tax breakdown if you want (some of your peers already do), but not at the expense of real transparency about the total costs involved.

The current system is not broken. Far from it, in fact. It most definitely does not need fixing.

 

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Seth Miller

Seth Miller

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