Monday, December 26, 2011

New airfares: less "fine print," but more flak from carriers

Advertisements that make airfares seem enticingly low will soon lose that asterisk pointing to a dense paragraph of additional taxes and fees that make a cheap ticket much more costly.

Beginning Jan. 24, the Transportation Department will enforce a rule requiring that any advertised price for air travel include all government taxes and fees. For the last 25 years, the department has allowed airlines and travel agencies to list these government-imposed fees separately, resulting in a paragraph of fine print disclaimers about charges that can add 20 percent or more to the price of a ticket.

But with airlines now promoting fares on Web ads, Facebook and Twitter, and adopting a whole menu of fees for services that used to be part of the ticket price, the government decided it was time for a change so travelers have a clearer sense of the total price they will have to pay. (The price will not include baggage fees, though, because they are optional.)

“Requiring all mandatory charges to be included in a single advertised price will help consumers compare airfares and make it easier for them to determine the full cost of their trip,” Bill Mosley, a department spokesman, said in an email response to questions about the rule.

The government and the airlines are being guarded in discussing the full-fare advertising policy, since Spirit Airlines, Allegiant and Southwest have asked the U.S. Court of Appeals for the District of Columbia to block the proposed change, arguing that it violates their commercial free speech rights.

Spirit has built its business around advertising $9 fares, then charging additional fees for checked and carry-on bags, advance seat assignments and now a “passenger usage fee” of up to $17 each way for tickets booked online. Since that online booking fee is technically optional — travelers can avoid it by driving to the airport and buying a ticket there — Spirit is not required to include it in advertised prices.

The proliferation of these types of fees has prompted the government to impose a growing number of fines against airlines and travel agencies that violate existing rules.

This year, the Transportation Department has assessed 21 penalties for fare advertising violations, with total fines of more than $1 million; in 2001, there were 14 penalties and $379,000 in fines.

Since August, Spirit, LAN Airlines, South African Airways, Orbitz, Virgin Atlantic, Thai Airways, JetBlue and Air Canada have all been fined at least $50,000 each for advertising infractions.

Under current regulations, ticket sellers may list government taxes separately on an ad promoting a fare, but those mandatory fees must be clearly disclosed — hence the asterisk pointing to additional text or a Web page that itemizes these charges. One of Spirit's violations was advertising a $9 fare on Twitter and forcing customers to click links to two more Web pages to find out the full cost, including taxes and fees.

The new advertising rule is one of a dozen passenger protections the Transportation Department proposed in 2010 and adopted last spring. It extended the deadline for some provisions to give the airlines more time to comply.

Spirit and Allegiant have also challenged new rules requiring the airlines to: allow passengers to cancel a ticket purchase without penalty within 24 hours of booking; include information about baggage fees on e-ticket confirmations; and notify passengers more promptly about flight cancellations and delays.

Misty Pinson, a spokeswoman for Spirit, said the airline could not comment on its objections to the new rules, because of the carrier's coming stock offering.
But in its S-1 filing with the Securities and Exchange Commission, Spirit cited “burdensome consumer protection regulations” as a risk factor for its business model, saying, “We are evaluating the actions we will be required to take to implement these rules, and we believe it is unlikely that we will be able to meet the 2012 compliance deadline in every respect.”

Separately, several airline trade groups and the American Society of Travel Agents have raised their own concerns about the regulations, primarily focusing on the fare advertising and baggage fee disclosure rules.

Airlines for America (formerly the Air Transport Association), the trade group for airlines in the United States, did not join the lawsuit seeking to block these regulations, but the group did file a brief with the court outlining its members' concerns, particularly about the fare advertising policy change.

“We think it's unnecessary and violates the First Amendment,” said David Berg, general counsel at Airlines for America. “The DOT simply has not been able to justify that the current advertising is misleading in any way to support a restriction on free speech.”

Airlines will still be able to outline how much of each fare goes toward government taxes, but the regulation limits how these charges can be displayed.

“You can't show the taxes in essentially close proximity with the total price, and they can't be in the same size font — it has to be smaller type,” Berg said. “That makes it harder for passengers to understand the taxes they are paying.”

The airlines have been ramping up their lobbying campaign to limit aviation taxes, which are paid by passengers through their fares. The carriers view the new rule as restricting their right to political speech. The airlines have also emphasized that the new regulation treats their industry differently from other businesses that routinely advertise prices without including taxes.

Eugene Volokh, a law professor at the University of California, Los Angeles, said that although the practice of advertising prices without taxes was “utterly routine,” he did not believe the court would find that the government's new rule violated the First Amendment.

“To the extent that this simply requires that the full price be in a more prominent format, it's very likely constitutional,” he said. “The Supreme Court has said in the context of commercial advertising, the government has a very broad right to mandate speech that is reasonably aimed at preventing people from being misled.”

He also drew a distinction between sales taxes, which are familiar to most people, and aviation taxes, which are more variable and less well known — giving the government grounds for the regulation stipulating how these taxes are disclosed.

“I think, therefore, most likely it will be upheld,” Volokh said.

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