As airline profits soar, hidden fees and other Gotchas are still OK, administration says
“Passengers still have to go searching for airfares with a calculator in one hand, and that’s how the airlines like it.” — Chrisopher Elliot of consumer travel site Elliot.org.
The Trump administration just helped kill some price tags. That’s bad for consumers, but good for huge, monopolistic airlines.
The main thesis behind Gotcha Capitalism is what I call the “Death of the Price Tag.” Market economies, and capitalism, require transparency to function. Price tags are transparency’s messenger. They are absolutely essentially to the reward-and-punishment mechanism that is key to a functioning market. Price tags allow for comparison shopping, which lets consumers pick the best companies with the best products with the best prices — and lets them shun the worst, which will appropriately go out of business.
As anyone can see, our marketplace is now terribly distorted by false price tags. Aftercharges, tack-on fees, and subtle product degradation rule the day (why is a half-gallon of ice cream only 56 ounces now?). When people buy hotel rooms, cable TV, cell phones, or even software, they often don’t know what the real price will be. They find out later, when the itemized bill comes, and it’s crammed full of things like “urban destination charges.” (Yes, that’s real.) What consumers need to know is the “out the door” price, not some come-on teaser price that’s really a distortion.
On a human level, this is annoying. On an economic level, it’s wrecking our way of life. Because of Gotcha fees, if you sort hotel rooms in New York City by price, you are very likely to make the wrong choice. Same goes for almost every product you buy today.
No industry has exploited this free-market-killing strategy more effectively than airlines. They are truly king of these gotcha fees. In three months from July to September, they collected $1.6 billion just for checked bags — a 10 percent increase in just one year. They earned another $720 million cancellation fees. I’d love to tell you how much they made in other ancillary fees, but I can’t, and I won’t be able to for a while — that’s because the Trump administration just killed a proposal that would have required the airlines to report more fees to the Department of Transportation.
Worse, the administration also killed a proposal that would have required airlines to disclose the full “out the door” price of a ticket when consumers first begin shopping for tickets. That’s a common-sense provision which has no detractors, outside the airlines themselves. Europeans already enjoy this transparency.
In America, we’ll have to wait for it. In her announcement scrapping the proposal, Transportation Secretary Elaine Chao oddly cited a need for transparency, and offered no justification for the move.
“The department is committed to protecting consumers from hidden fees and to ensuring transparency. However, we do not believe that departmental action is necessary to meet this objective at this time,” she said in a statement.
Is there a technological hurdle we don’t understand? No, says Elliot.
“Is it too much of a burden for the airline industry? It has some of the most complex software and IT systems in the world. It could easily report all these fees and make them publicly available at minimal cost,” Elliot says.-“That’s really not at issue. At issue is a philosophy that the DOT does not want to burden the industry with this regulation.”
Are airlines a fragile industry in need of protection during a critical time? Hardly. Profits are cruising along at 35,000 feet. North American airlines are expected to generate $15.6 billion in profits this year. That’s after jaw-dropping profits in recent years.
Why are airlines doing so well? For starters, thanks to massive mergers, only four mega-airlines now control 80 percent of the airline market in the U.S. Add to it persistently low fuel prices. Remember how quickly airlines raised fares when the price of oil spiked in 2014? Well, oil has crashed. What has happened to ticket prices?
In other words, who needs protection more, you or United?
No matter, the Department of Transportation has taken a side, and it’s not yours.
So the next time you book a flight and you’re frustrated that the out-the-door, in-the-air price barely resembles the price you shopped for, you know whom to blame. The Obama administration for not forging ahead with rulemaking fast enough, and the Trump administration for strangling the idea to death.
originally posted at BobSullivan.net