[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
AIRLINE FEES
=======================================================================
(111-127)
HEARING
BEFORE THE
SUBCOMMITTEE ON
AVIATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
July 14, 2010
__________
Printed for the use of the
Committee on Transportation and Infrastructure
U.S. GOVERNMENT PRINTING OFFICE
57-486 PDF WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia, JOHN L. MICA, Florida
Vice Chair DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of JOHN J. DUNCAN, Jr., Tennessee
Columbia VERNON J. EHLERS, Michigan
JERROLD NADLER, New York FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida JERRY MORAN, Kansas
BOB FILNER, California GARY G. MILLER, California
EDDIE BERNICE JOHNSON, Texas HENRY E. BROWN, Jr., South
GENE TAYLOR, Mississippi Carolina
ELIJAH E. CUMMINGS, Maryland TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania SAM GRAVES, Missouri
BRIAN BAIRD, Washington BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington JOHN BOOZMAN, Arkansas
MICHAEL E. CAPUANO, Massachusetts SHELLEY MOORE CAPITO, West
TIMOTHY H. BISHOP, New York Virginia
MICHAEL H. MICHAUD, Maine JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona BRETT GUTHRIE, Kentucky
CHRISTOPHER P. CARNEY, Pennsylvania ANH ``JOSEPH'' CAO, Louisiana
JOHN J. HALL, New York AARON SCHOCK, Illinois
STEVE KAGEN, Wisconsin PETE OLSON, Texas
STEVE COHEN, Tennessee TOM GRAVES, Georgia
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
MICHAEL E. McMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
JOHN GARAMENDI, California
HANK JOHNSON, Georgia
(ii)
Subcommittee on Aviation
JERRY F. COSTELLO, Illinois, Chairman
RUSS CARNAHAN, Missouri THOMAS E. PETRI, Wisconsin
MICHAEL E. McMAHON, New York HOWARD COBLE, North Carolina
PETER A. DeFAZIO, Oregon JOHN J. DUNCAN, Jr., Tennessee
ELEANOR HOLMES NORTON, District of VERNON J. EHLERS, Michigan
Columbia FRANK A. LoBIONDO, New Jersey
BOB FILNER, California JERRY MORAN, Kansas
EDDIE BERNICE JOHNSON, Texas SAM GRAVES, Missouri
LEONARD L. BOSWELL, Iowa JOHN BOOZMAN, Arkansas
TIM HOLDEN, Pennsylvania SHELLEY MOORE CAPITO, West
MICHAEL E. CAPUANO, Massachusetts Virginia
DANIEL LIPINSKI, Illinois JIM GERLACH, Pennsylvania
MAZIE K. HIRONO, Hawaii CHARLES W. DENT, Pennsylvania
HARRY E. MITCHELL, Arizona CONNIE MACK, Florida
JOHN J. HALL, New York LYNN A. WESTMORELAND, Georgia
STEVE COHEN, Tennessee JEAN SCHMIDT, Ohio
LAURA A. RICHARDSON, California MARY FALLIN, Oklahoma
JOHN A. BOCCIERI, Ohio VERN BUCHANAN, Florida
NICK J. RAHALL, II, West Virginia BRETT GUTHRIE, Kentucky
CORRINE BROWN, Florida
ELIJAH E. CUMMINGS, Maryland
JASON ALTMIRE, Pennsylvania
SOLOMON P. ORTIZ, Texas
MARK H. SCHAUER, Michigan
JOHN GARAMENDI, California
DINA TITUS, Nevada
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Baldanza, Ben, President and Cheif Executive Officer, Spirit
Airlines, Inc.................................................. 2
Dillingham, Dr. Gerald, Director of Civil Aviation Issues, U.S.
Government Accountability Office............................... 2
Mitchell, Kevin, Chairman, Business Travel Coalition............. 2
Moore, Kyle, Vice President, Marketing, Sabre Holdings, and on
behalf of the Interactive Travel Services Association, American
Society of Travel Agents, Consumer Travel Alliance............. 2
Ridley, Dave, Senior Vice President, Marketing and Revenue
Management, Southwest Airlines................................. 2
Rivkin, Robert S., General Counsel, U.S. Department of
Transportation................................................. 2
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Cohen, Hon. Steve, of Tennessee.................................. 40
Costello, Hon. Jerry F., of Illinois............................. 41
Mitchell, Hon. Harry E., of Arizona.............................. 48
Oberstar, Hon. James L., of Minnesota............................ 49
Petri, Hon. Thomas E., of Wisconsin.............................. 53
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Baldanza, Ben.................................................... 61
Dillingham, Dr. Gerald........................................... 72
Mitchell, Kevin.................................................. 132
Moore, Kyle...................................................... 138
Ridley, Dave..................................................... 152
Rivkin, Robert S................................................. 158
SUBMISSIONS FOR THE RECORD
Baldanza, Ben, President and Cheif Executive Officer, Spirit
Airlines, Inc., response to request for infmoration from Hon.
Costello, a Representative in Congress from the State of
Illinois....................................................... 33
Dillingham, Dr. Gerald, Director of Civil Aviation Issues, U.S.
Government Accountability Office, supplementary report
entitled, ``Commercial Aviation, Consumers Could Benefit from
Better Information about Airline-Imposed Fees and Refundability
of Government-Imposed Taxes and Fees''......................... 82
Ridley, Dave, Senior Vice President, Marketing and Revenue
Management, Southwest Airlines, response to request for
infmoration from Hon. Costello, a Representative in Congress
from the State of Illinois..................................... 035
Rivkin, Robert S., General Counsel, U.S. Department of
Transportation, response to request for information from Hon.
Duncan, a Representative in Congress from the State of
Tennessee...................................................... 29
ADDITIONS TO THE RECORD
Consumers Union, William J. McGee, written statement............. 164
FlyersRights.org, Kate Hanni, Executive Director and
Spokesperson, written statement................................ 167
National Business Travel Association, written statement.......... 176
HEARING ON AIRLINE FEES
----------
Wednesday, July 14, 2010
House of Representatives,
Committee on Transportation and Infrastructure,
Subcommittee on Aviation,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:04 p.m., in
room 2167, Rayburn House Office Building, the Honorable Jerry
F. Costello [chairman of the Subcommittee] presiding.
Mr. Costello. The Subcommittee will come to order. The
Chair will ask all Members, staff, and everyone to turn
electronic devices off or on vibrate.
The Subcommittee is meeting today to receive testimony
regarding airline fees. I intend to give a brief opening
statement and then call on Mr. Petri to give an opening
statement or his remarks.
I might mention that we are going to have votes at 2:45. We
were just notified. So what I think I will do is first welcome
everyone to the hearing today. Secondly, I want to especially
recognize and thank the families of Colgan Flight 3407 for
being with us today and for their steadfast support for
improving pilot training and safety in the industry.
With that, Mr. Petri, in order to move things along so that
we can get to our witnesses, I will enter my entire statement
into the record. But before I recognize you for your opening
statement, I would ask unanimous consent to allow two weeks for
all Members to revise and extend their remarks and to permit
the submission of additional statements and materials by
Members and witnesses.
With that, my entire statement will appear in the record
without objection.
The Chair recognizes Mr. Petri.
Mr. Petri. Thank you very much, Mr. Chairman. And to
demonstrate how effective your leadership of this panel is, I
will ask unanimous consent that my statement be entered into
the record.
Mr. Costello. Without objection, so ordered.
Obviously, we are trying to get to the witnesses to hear
your testimony before we are interrupted for votes; that is why
we have entered our statements into the record.
Let me now recognize our witnesses today. First, Dr. Gerald
Dillingham, who is the Director of Civil Aviation Issues with
the U.S. Government Accountability Office; Mr. Robert Rivkin,
who is the General Counsel with the United States Department of
Transportation; Mr. Ben Baldanza, who is the President and CEO
of Spirit Airlines; Mr. Dave Ridley, who is the Senior Vice
President of Marketing and Revenue Management, Southwest
Airlines; Mr. Kevin Mitchell, Chairman, Business Travel
Coalition; Mr. Kyle Moore, who is the Vice Presidente of
Marketing, Sabre Holdings, and on behalf of The Interactive
Travel Services Association, American Society of Travel Agents,
Consumer Travel Alliance as well.
With that, I will now recognize Dr. Dillingham. As is the
policy of this Subcommittee, we would ask that you summarize
your written testimony that you have submitted to the
Subcommittee and try and summarize your statement in five
minutes so that we will have time to ask questions.
With that, the Chair now recognizes Dr. Dillingham.
TESTIMONY OF DR. GERALD DILLINGHAM, DIRECTOR OF CIVIL AVIATION
ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; ROBERT S.
RIVKIN, GENERAL COUNSEL, U.S. DEPARTMENT OF TRANSPORTATION; BEN
BALDANZA, PRESIDENT AND CEO, SPIRIT AIRLINES, INC.; DAVE
RIDLEY, SENIOR VICE PRESIDENT, MARKETING AND REVENUE
MANAGEMENT, SOUTHWEST AIRLINES; KEVIN MITCHELL, CHAIRMAN,
BUSINESS TRAVEL COALITION; AND KYLE MOORE, VICE PRESIDENT,
MARKETING, SABRE HOLDINGS, AND ON BEHALF OF THE INTERACTIVE
TRAVEL SERVICES ASSOCIATION, AMERICAN SOCIETY OF TRAVEL AGENTS,
CONSUMER TRAVEL ALLIANCE
Mr. Dillingham. Thank you, Mr. Chairman, Mr. Petri, Members
of the Subcommittee. My statement today summarizes the findings
of GAO's study of aviation-related fees and their potential
impact on the Airport and Airway Trust Fund and the flying
public.
Our full report was published this morning on the GAO's
website. This study addressed four questions: first, what are
the nature and scope of these fees, including the fees'
relationship to the cost of the services provided and their
degree of transparency; second, what is the potential impact of
such fees on revenues used to help fund FAA through the Trust
Fund; and, third, how have the fees affected the number of
checked bags and airline policies associated with checked and
mishandled bags; and, lastly, what processes are available for
refunding government-imposed taxes and fees to passengers who
do not use their non-refundable tickets.
With regard to the nature and scope of the fees, starting
in about 2007, airlines began to charge for many services for
which separate charges did not previously exist, such as first
and second checked baggage, carry-on bags, meals, blankets, and
seat selection. Prior to 2007, the flying public generally
considered these kinds of services were included in the price
of the ticket. Since these services were unbundled and fees
established, the revenues from these fees have become an
important part of the profit and loss statement of many
airlines.
During 2008 and 2009, U.S. passenger airlines posted
operating losses of about $4.4 billion; however, during that
same period airlines reported fee revenues of at least $7.9
billion. This $7.9 billion represents only a portion of the
revenues that were generated from optional fees. According to
airline officials, the fees are based on a combination of
factors, including the cost of providing the services,
competition, and consumer demand.
I think it is worth noting that the fees are not assessed
equally. For example, some passengers, such as business class
and elite frequent fliers, do not pay for certain services such
as checked bags and early boarding. In addition, airline
operational fees are not fully transparent. Specifically, DOD
does not require the disclosure of most of these fees by
airlines or ticket distribution channels that are used by
consumers. Therefore, consumers cannot readily compare the
total cost of flights offered by different carriers.
With regard to the potential impact of these fees on the
Trust Fund, the IRS has determined that many of the fees that
have been established by airlines are not related to the
transportation of a person; therefore, they are not subject to
the 7.5 percent excise tax which would be deposited into the
Trust Fund. However, if checked bag fee revenues that airlines
reported in fiscal year 2009 had been subject to the excise tax
on domestic travel, it would have generated about $186 million,
or somewhat less than 2 percent of the Trust Fund revenues for
2009.
With regard to our question on checked baggage issues,
since the airlines established check baggage fees, the number
of checked bags per passenger and the rate of mishandled bags
have both declined. According to airline officials that we
talked to, their airlines have generally not changed their
baggage handling policies or their compensation methods.
Consequently, it would be reasonable to conclude that the
decline in the number of checked bags was likely a factor in
the decline in the rate of mishandled bags.
Finally, regarding the processes available for refunding
government taxes and fees to passengers who do not use their
non-refundable tickets, government taxes and fees include a 7.5
percent excise tax, a September 11 security fee, and various
inspection fees. We found that the refundability of these taxes
and fees on unused, non-refundable tickets varies depending on
the tax and the fee. We also found that clear information was
not generally available to consumers about the eligibility of
refund for these fees and taxes.
Mr. Chairman and Members of the Subcommittee, to address
the issues that we identified through this study, our report
contains a matter for congressional consideration on the
taxation of optional fees and six recommendations to various
fellow agencies that generally focus on disclosure and
transparency issues. Thank you, Mr. Chairman.
Mr. Costello. Thank you, Dr. Dillingham.
The Chair now recognizes Mr. Rivkin.
Mr. Rivkin. Chairman Costello, Ranking Member Petri, and
Members of the Committee, thank you for the opportunity to
appear before you to discuss airline fees.
Secretary Ray LaHood is committed to protecting the
interests of airline consumers. During this Administration, the
Department has implemented a number of initiatives to further
that commitment. Last December we established a new foundation
in consumer protection through a rule that attacked several
persistent and pernicious practices, including lengthy tarmac
delays, chronically delayed flights, and lack of consumer
information about on-time performance. In the last year we
issued 37 cease and desist orders against airlines and agents,
assessing more than $3 million in civil penalties, and we are
very focused on the impact of new airline fees on consumers.
We believe that the proliferation of these fees and the
manner in which they are presented to the traveling public can
be confusing and, in some cases, misleading. Many travelers
still expect that the basics of air travel are included in the
ticket price, but that is no longer the case. The published
fare used by many consumers to choose a flight does not clearly
represent the actual cost of travel once the new fees are
added. These include fees for services that used to come
included in the fare, like checking bags, carrying bags
onboard, and now even getting soft drinks. As a result, it is
difficult for consumers to compare fare offerings and make
rational economic decisions based on the full cost of their
travel.
We believe consumers should have complete information about
the full cost of their trip at the time they make their
decisions about travel. We believe that information should be
presented in a clear, straightforward way so that consumers can
make informed decisions. The Department recently issued a
Notice of Proposed Rulemaking that would apply these basic
principles of transparency and fairness to the airline
industry's new fee structure, among other consumer protections
proposed. On fees, here is what we proposed:
First, we would require true, full price advertising.
Advertised tickets would be required to include all mandatory
taxes, fees, and charges. If you have to pay a charge to fly,
like what some airlines call a fuel surcharge or a convenience
fee, it must be included in the total price presented to the
consumer.
Second, we propose that airlines' optional fees be fully
disclosed on airline websites. By optional fees we mean charges
for things like checking baggage or seat assignments that
passengers can choose to avoid and yet still fly. We would also
require more detailed and prominent disclosure for fees related
to carry-on and checked bags, and that such fees be
affirmatively agreed to by the consumer with no opt-out
requirements or shenanigans.
Third, we propose to require reimbursement of baggage fees
when the bags are not delivered or not delivered on time.
Fourth, we are seeking comment on a proposal that airlines
report both a full fare, the carrier's base fare plus the
mandatory charges, as well as what we have referred to as
``full fare plus'', which would be the full fare ticket price
plus the cost of baggage charges that consumers are
traditionally used to seeing included in the price of the
ticket. We are seeking comment on that; we haven't made any
determination of what the Department thinks is appropriate.
And, fifth, the Department proposes to require airlines to
provide their agents and global distribution systems complete,
accurate, and up to date information on ancillary fees so that
the information is readily available to consumers.
Among other key provisions of the rule unrelated to fees,
we also propose to increase compensation and transparency for
bumped passengers and to require airlines to allow cancellation
of a reservation without penalty within 24 hours of booking a
flight.
Our proposed rule addresses most, but not all, the
recommendations of the General Accountability Office report
that was released today. One recommendation in the report
involves the TSA $2.50 security fee that is imposed per flight
segment, up to $10.00, to cover the cost of screening and
related services, as well as other fees imposed by government
agencies. Although these fees are beyond the scope of our
current rulemaking, we would be happy to work with you and the
GAO on this issue.
We are committed to acting swiftly to try to complete the
rulemaking by the end of this calendar year.
In closing, I want to thank this Committee for invigorating
our consumer protection program. Your leadership and support
have enabled us to redouble our efforts to protect consumers.
We are committed to the mission you have given us and we look
forward to continuing to work with you. I would be happy to
answer any questions you may have, and I ask that my written
statement be made part of the record. Thank you.
Mr. Costello. Thank you, Mr. Rivkin. You have made mention
of Secretary LaHood and the action that he has taken thus far.
We applaud him for his swift action and look forward to working
with you on these issues.
The Chair now recognizes Mr. Baldanza.
Mr. Baldanza. Chairman Costello, Mr. Petri, and the
Subcommittee, thank you for the opportunity to appear today in
connection with the review of airline fees. Spirit Airlines is
based in Fort Lauderdale, Florida. We currently have a fleet of
31 aircraft serving 44 cities in the U.S., the Caribbean,
Central and South America. We carry approximately 6.5 million
passengers a year, and over the next five years will add 35 new
aircraft to meet the growing demand for our unique ultra low
cost carrier service.
Spirit believes that unbundling, and by that I mean
separating out optional customer services from the fare that
are not essential to transporting a passenger, allows the
customers the choice to purchase services or not, and this
benefits the traveling public through lower total cost. This
approach generates increased tax revenue by stimulating more
travel. These unbundled services do not impose any cost on
airport infrastructure, on the Nation's air traffic control
system or any other government services funded by the aviation
Federal excise tax. As such, no additional tax burden should be
imposed on the cost of these ancillary services.
Over the past decade, the U.S. airline industry has lost
approximately $60 billion in light of a continuing weak economy
and reduced demand for air transportation, as well as volatile
and uncertain fuel prices. Imposing additional taxes on the
industry and its passengers will be counterproductive and
result in less, rather than more, tax revenue.
In 1978, Congress passed the Airline Deregulation Act,
which stressed competition as the way to stimulate efficiency,
innovation, and low prices. Spirit Airlines takes this policy
to heart. Our goal is to offer consumers a real choice in
selecting an airline for their travel needs. Since 2007, when
we adopted our unique Ultra Low Cost Carrier, or ULCC, business
model to provide basic air transportation at the lowest
possible price, in every market Spirit serves it provides an
important public interest service by disciplining fares.
Spirit's impact was clearly demonstrated when our pilots
went on strike last month and other carriers, including low
fare carriers, immediately raised prices. For example, Jet Blue
raised its round-trip fare in the Fort Lauderdale-San Juan,
Puerto Rico market. We and Jet Blue are the only carriers who
serve that market nonstop. They released their fare from under
$200 to over $600, while at the same time putting out a press
release saying that they were helping Spirit's customers.
In an effort to make airfares as low as possible, in 2007,
Spirit unbundled the charge for checked bags and, despite
rising fuel costs, lowered our base fare to adjust for the
unbundling. This April we announced our decision to charge for
carry-on luggage that is too big to fit under the seat
beginning on August 1st. This charge does not apply to such
items as medical equipment, baby strollers, and the like.
Carry-on bags have become a nightmare for passenger boarding
and deplaning; they create a safety risk for both passengers
and flight attendants, and lead to costly flight delays.
Carrying more than one bag is not necessary for all
travelers, and we believe it is unfair to charge those
customers for extra services they do not use. The carry-on fee
for most passengers is $20 to $30, and Spirit reduced its base
fares by about $40 to offset these charges. Spirit also lowered
its checked bag charge to encourage passengers to check their
bags. The carry-on fee has not affected Spirit's bookings
because the total cost to customers for travel on Spirit
remains far lower than on other airlines.
As a group, low fare carriers already pay a greater
percentage of the total ticket cost in taxes than do the higher
fare legacy carriers. This is because much of the tax burden on
airlines is in fixed charges. On a domestic flight, these
include an addition to the 7.5 percent excise tax, a $3.70
segment fee, $2.50 September 11 fee, PFCs at airports of up to
$4.50, and a 4.3 cents per gallon commercial fuel tax. So, for
example, on a 300 mile trip with $180 round-trip fare, the
customer could pay a total of about $35.40 in taxes, or 20
percent of the fare, including the Federal excise tax.
Since Spirit has the lowest fares in the industry, our
lower income passengers are already effectively paying the
highest taxes as a percentage of the total fare. This is an
unfortunate and highly regressive result of the existing tax
structure. Our average fare is under $85. Most of the industry
is well over $100. And our passengers pay over $11 in Federal
excise tax between the ticket price and the fuel, or 13 percent
on this amount just for the ticket, tax, and fuel.
The primary impact of charging for nonessential ancillary
services will be to raise prices for all consumers and thereby
dampen travel demand and likely result in less total government
excise tax revenue. At a time when the industry has serious
financial issues and the Secretary of Transportation has formed
a commission on how to strengthen the industry for the benefit
of employees, consumers, and shareholders, it would be
counterproductive to impose yet another tax burden.
As noted, the services Spirit has unbundled do not involve
activities that drive up the cost of air traffic control or
other services paid for by the Aviation Trust Fund. They are
not charges for the transportation of any person. For example,
the handling of checked bags impose high labor cost on the
airline but doesn't touch air traffic control. Another non-
transportation ancillary fee for flight charges involving non-
refundable tickets covers the cost imposed on the airline by
such a change. These include both the direct cost for the time
of the reservation agents and the potential lost revenue from
empty seats. Passengers who want to avoid such fees can
purchase a higher priced refundable ticket or purchase low cost
travel insurance.
Recent articles in the press based on a first quarter DOT
report said Spirit had the highest ancillary revenue as a
percent of total revenue. We believe this comparison is highly
misleading. Spirit's percentage of ancillary revenue to total
revenue is higher than other carriers simply because our fares
are so low. For example, if Spirit had the same average fares
as American Airlines, our percentage of ancillary fees would
only be 14 percent.
Over 70 percent of Spirit revenue that comes from ticket
sales is subject to the aviation excise tax. Of the 25 percent
of the revenue that could be labeled ancillary, about 60
percent is related to an itinerary. Of this, about 50 percent
is from baggage fees and 10 percent from seat selection fees.
So, in total, only about 15 percent of Spirit total revenue is
from ancillary fees selected by passengers in connection with
their travel.
We are certain that Spirit's decision to unbundle services
not essential to the transportation of services have had
minimal, if any, negative impact on the total excise taxes paid
for travel on Spirit. This is because our lower fares have
enabled more people to fly, despite the difficult economy of
the last several years. Imposing excise taxes on these fees
will simply raise fares, dampen the public's ability to afford
travel, and therefore result in lower overall tax revenue.
Lastly, Spirit firmly believes that customers deserve to
have access to as much information as reasonably available on
the cost of their travel. Spirit's website provides information
on all of its charges, and customers can see the total cost of
their flights, including all optional services they have
selected, before confirming their purchase. This makes it easy
for customers to comparison shop to confirm that Spirit's total
price is still the lowest.
Unfortunately, under the DOT policy, airlines must include
the Federal excise tax as part of the base fare, so this tax is
hidden from the customer. We are not aware of any retailer of a
retail product where, by government fiat, merchants are
prevented from showing customers how much of their payment is
for tax.
In closing, I would like to note two of the particularly
onerous proposed new rules recently announced by the DOT.
First, after decades of permitting airlines to list certain
government taxes and fees separately from the base fare in
advertising, the Department proposes to require airlines to
include all applicable taxes and fees in the advertised fare.
This new requirement will further obfuscate the portion of the
ticket price going to the government. We believe Congress
should direct the Department to permit airlines to display
fares on their websites in a totally transparent way so
customers can immediately see the full tax component of their
fare.
Secondly, the Department proposes to require that all
airlines allow customers to hold a booking without payment or
allow booking to be canceled without charge for at least 24
hours, even for non-refundable tickets. Many of our promotions
are for one-day sales only. Allowing a 24-hour hold would
circumvent the sale, resulting in a term which adds lower
revenue and means higher fares.
Also, holding the fare for 24 hours allows customers to
take away valuable selling time, potentially resulting in an
empty seat. Most low fare carriers, including Southwest, do not
permit either of these options for non-refundable tickets. Such
a rule would require substantial and costly changes in our IT
reservation system, as well as changing the contract with our
credit card processing agent. As noted, on Spirit, passengers
can shop and compare prices before they buy.
In conclusion, we believe ancillary fees and other consumer
protections, Congress must be guided by the objectives
established by the Airline Deregulation Act, namely, the
encouragement of innovation, competition, and the expansion of
low fare service. Tax revenue should be generated by promoting
economic expansion and taking steps to encourage more people to
fly.
Imposing new taxes on fees for nonessential customer
services unrelated to costs imposed by the system must be
avoided. Such taxes would surely harm competition, raise costs,
and slow the industry's require from a decade of losses. In
addition, Congress should look carefully at the new rules
proposed by the DOT. Rules that benefit few customers but raise
costs for all should not be imposed on the industry. Such rules
create inefficiency, reduce innovation, and lead to higher
fares.
Thank you for your consideration.
Mr. Costello. Thank you.
The Chair now recognizes Mr. Ridley.
Mr. Ridley. Chairman Costello, Ranking Member Petri, and
Members of the Subcommittee, thank you for inviting Southwest
Airlines to testify at today's hearing. My name is Dave Ridley,
and I am Senior Vice President of Marketing and Revenue
Management. I have been a Southwest employee since 1988. In my
role, I am accountable for the company's top line revenue
performance. My responsibilities include, among other things,
pricing, advertising, and the maintenance of our brand image as
America's leading low fare, high customer service airline.
Today, Southwest is the Nation's largest airline in terms
of domestic passengers, carrying more customers than any other
U.S. airline. We now carry over 100 million passengers a year,
serving 69 cities in 35 States. We are the most heavily
unionized airline in the Country and we are the only airline
that has not had an involuntary furlough of an employee since
our inception in 1971.
After 39 successful years in the airline business,
Southwest continues to look for ways to differentiate ourselves
from other airlines beyond our consistently low fares and our
great customer service. Most recently we chose to make our
affordable, transparent, and easy to understand pricing
structure a focal point in winning the hearts and minds of the
flying public by not following the industry trend toward
nickel-and-diming of our customers. Our overriding philosophy
at Southwest Airlines is to not charge customers for things
they have historically received for free. That is why Southwest
is committed to low fares with no hidden fees. What you see is
what you pay.
When you book a ticket on Southwest, you will not pay a fee
to check your first or second bag, or to carry on a bag, for
that matter; you will not pay a fee to check your bags
curbside; you will not pay up to $150 to change your
reservation; you will not pay a fee to sit in a window or aisle
or an exit seat; you will not pay a fee to make your
reservation over the phone; and you will not pay a fuel or peak
travel surcharge fee, either. And, as always, snacks, sodas,
smiles, and the occasional bad jokes are all complimentary at
Southwest Airlines.
Our position on fees aligns our corporate goal to generate
positive financial results with the passion of our people to
provide good customer service. We listen to our people. They,
in turn, do not shy away from telling us exactly what they
think. Our people told us that they don't want to nickel-and-
dime their customers.
Allowing our people to do what they do best in a customer-
friendly way is just one reason why, since 1987, when the
Department of Transportation began tracking customer
satisfaction statistics, Southwest has consistently led the
entire airline industry with the lowest ratio of complaints per
passengers boarded. This is further evidence that our policy of
not nickel-and-diming is not a gimmick; it is good business and
it makes our people feel better about who they are and what
they do.
Due in large part to our Bags Fly Free campaign, Southwest
has experienced a domestic market share shift worth close to $1
billion since the introduction of this campaign. As a result,
our customers, employees, and shareholders have been the
beneficiaries of this decision.
While we are not fans of fees for services that
historically have been part of the base fare, we believe
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. Southwest made the conscious
decision to limit our customers' exposure to what we view as
unreasonable and annoying fees. That was our choice. Other
airlines have chosen a different business model and should have
every right to do so.
However, we do think the Federal Government should focus on
ensuring the full disclosure of any and all fees to consumers,
making sure that airfares are advertised fairly and honestly.
Only an informed consumer can make apples-to-apples fare
comparisons, which allows them to shop for a flight that best
meets their needs and preferences. To protect the traveling
public, fees should be prominently disclosed to consumers
wherever tickets are sold. We generally agree that the fee-
related elements of the DOT's NPRM would achieve this goal.
On behalf of Southwest Airlines, thank you for this
opportunity to testify, and I would be happy to answer any
questions.
Mr. Costello. Thank you, Mr. Ridley.
The Chair now recognizes Mr. Mitchell.
Mr. Mitchell. Mr. Chairman, Ranking Member Petri, and
Members of the Subcommittee, thank you for inviting the
Business Travel Coalition to appear before you today to
represent passenger and corporate managed travel interests on
airline product unbundling and fees.
Today's hearing is critically important because of the
potential for consumer abuse in this fast changing, unbundled
marketplace for airline services. BTC is not against unbundling
as a matter of principle, but, rather, it is opposed to the
absence of full disclosure of all add-on fees and charges such
that all consumers cannot make genuine apples-to-apples
comparisons of all-in airline fares.
Without timely and complete airline disclosure of an
increasing array of add-on charges to global distribution
systems and the travel agencies that they automate, consumers
deprived of all-in information will become as economically
trapped by airlines as they would be physically trapped during
a seven hour tarmac delay. The need for consumer protection in
this area is acute, but the remedy need not be burdensome.
The highlights of BTC's survey results of 188 travel
industry experts released yesterday are revealing of a sea
change in thinking about Government oversight in commercial air
transportation. Consider: 100 percent of corporate travel
managers indicated that unbundling and extra fees have caused
serious problems in their manage travel programs; 86 percent
believes that airlines, absent Government rules, will not make
fare adequate and readily accessible disclosure of their add-on
fees and charges so that travel managers and their travel
management companies can do comparison shopping of the all-in
prices for air travel across carriers; and 95 percent support
the proposal that the USDOT require airlines to make add-on
data available and easily accessible to the travel agency
channel through any GDS in which that airline or an airline has
agreed to participate.
These survey participants, I should point out, are business
people who do not generally favor government intervention in a
marketplace. However, they see a market failure coming at them
with the speed and impact of a Stephen Strasburg fast ball to
the side of the head. With across-the-board unbundling of air
travel services, and absent the government empire stepping in,
consumers will not have the ability to evaluate the full price
of air travel options available to them. For decades, the
transparency of airfare information through all channels has
been a marvel of modern technology and has benefitted consumers
immeasurably.
Unbundling without disclosure threatens to catapult us out
of the 21st century and back into an opaque Stone Age where a
telephone, calculator, pen and paper, and a lot of unproductive
time were needed to figure out how to compare airline services.
Add-ons, like checked bags, are material to air transportation
the way a chair is material to a restaurant meal. What some
airlines are doing is akin to a restaurant advertising a $20
business person's luncheon special and then surprising the
patron with a $10 add-on fee for use of a chair when handed the
menu. The patron is given partial information and essentially
tricked into coming to the restaurant. The stakes, of course,
are much higher at the airport for families and businesses on
tight budgets, which is why you are having this hearing today.
Of significance is that major airlines remain at a 30 to 35
percent cost disadvantage vis-a-vis the low cost carriers and,
as such, cannot offer the kinds of across-the-board low fares
that the low cost carriers do. There is, therefore, a
motivation present to obfuscate the true all-in price by
keeping fares opaque and especially resisting efforts to have
fees and fares displayed transparency for travel agents via the
global distribution systems.
Importantly, the Airline Tariff Publishing Company has a
new airline-tested data system ready to facilitate the loading
of add-on fares in the global distribution systems. However,
not a single major U.S. airline has signed on, to BTC's
knowledge, to permanently use this new system because the first
airline to do so would likely show all-in higher airfares of 30
percent or more compared with its competitors.
This is an industry where a few dollars can make a
difference for a consumer in choosing one airline over another,
so no one airline can rationally be expected to make the first
potentially suicidal move. That is why a reasonable measure of
Government help is needed, to ensure that all airlines jump
together for the benefit of consumers. Moreover, except to the
extent that Congress or DOT mandates specific consumer
protections, airline passengers are without legal rights and
remedies because of Federal preemption and a lack of FTC
oversight in this area.
In conclusion, Mr. Chairman, the International Airline
Passengers Association, IAPA, and its 400,000 members, join BTC
in encouraging this Committee to urge the DOT in its NPRM to
require airlines to make add-on fare data easily accessible not
only on their own websites, but also to the travel agency
channel through any GDS in which an airline has agreed to
participate. Congress could also provide this relief in the FAA
Reauthorization Act through Senator Menendez's sensible
disclosure proposal. Either way, consumers would finally have
the batting helmet needed to step up to the plate confidently
in today's unbundled marketplace.
Thank you, and I look forward to your questions.
Mr. Costello. Thank you, Mr. Mitchell.
The Chair now recognizes Mr. Moore.
Mr. Moore. Thank you, Mr. Chairman.
Sabre Holdings owns both Sabre Travel Network, the part of
our business that runs the Sabre GDS, and Travelocity, one of
the Nation's largest and most popular online travel companies.
Today in my testimony, I am representing three groups: The
Interactive Travel Services Association, the trade association
for online travel companies and GDSes; the American Society of
Travel Agents, the largest association of professional travel
retailers in the world; and the Consumer Travel Alliance, a
nonprofit member of the Consumer Federation of America created
to inform and educate legislators and regulators about policy
decisions about consumer travel. I am responsible for the
systems that manage the sale of air travel across all channels
where airlines distribute through Sabre, which has recently
been heavily focused on airline unbundling.
Up until recently, air travel shopping in the U.S. has been
one of the closest things you will find to an Adam Smith
perfect marketplace. Consumers have enjoyed access to near
perfect information on air products and prices. Through the
Internet, travelers can shop anytime, day or night; and the
prices, while constantly changing, are also constantly updated.
They can book when they feel the product is appropriately
priced for themselves, and travelers are extremely price
sensitive. The vast majority of travelers select air travel at
or very near the lowest fare offered.
Unfortunately, that perfect model is now broken. Mr.
Mitchell and the rest of the panelists outlined this very well,
but, in short, with the removal or repackaging of many services
from what has traditionally been included in the fare, shoppers
have a very difficult time finding out the true cost of travel
for their proposed trips. They are left to find out the true
cost only when they have completed the return flight for their
trip, when they have paid for the last baggage fee and picked
their seats for themselves and their families, to the painful
surprise of blown budgets.
Consumer Travel Alliance has just released information that
outlines the impact on consumers from hidden fees, with
effective price increases of 20, 40, 60 percent and higher. But
it doesn't have to be this difficult or harmful. Solutions are
coming online that will bring back transparency for the
consumers. But this can only happen if the airline community
makes information on ancillary fees readily available. Let me
repeat that. It can only happen if the airline community makes
information on ancillary fees readily available, something that
ITSA, ASTA, and CTA strongly believe the airlines should be
compelled to do.
A broad collection of airlines, agencies, GDS, and standard
setting bodies such as ATPCO, ARC and IATA have outlined how
the information for ancillaries can be shared within the
industry. ATPCO, the airline-owned fare clearinghouse, has
adapted their systems to support ancillary fee information with
the same level of specificity that airlines have for base
fares. Targeting the ancillaries to specific dates, routes,
flights, fares, traveler groups, corporations or agencies, and
many, many, many, many other variables.
At Sabre, we are on the cusp of being able to make this
information available to the shopper as they shop, whether
online or through a traditional travel agent. At the end of
this month, Sabre is poised to introduce the ancillaries and
their prices into the shopping workflow of the traditional
travel agent.
In referencing the graphic you see in front of you, next
month we will take this a step further, a big step, enabling it
in the low fare search process. Low fare search is something
you would liken to online shopping, where you ask for flights
and fares for your desired departure and return dates. Next
month we will allow shoppers to choose what ancillaries are
important to them for their trip. If they believe they are
going to need to check a couple of bags, they can specify that
up front. If they are traveling with their family, they can
indicate the need to be able to select seats together. The
system then finds the lowest fares that meet those specific
needs, inclusive of the ancillaries, giving the consumer the
total price for their trip, with no surprises at the airport.
These standards can solve yet another problem: that today's
corporations and agencies have virtually no ability to manage
where the money is going. The systems can fix that too. And it
is important to note that Sabre and the rest of the industry
are all going down this path concurrently.
Of course, all of this only happens if the airlines are
compelled to provide that information to the channels that
represent approximately half of the air travel sold in the
United States. Absent this, consumers will invariably selecting
flights only to find that things weren't as they appeared on
their screen.
And, to be clear, this isn't about compelling an airline to
participate in the GDSes. Airlines have the choice to
participate or not. This doesn't change that at all. This is
unequivocally about the consumer. If the airline chooses to
sell through the GDSes, the airline should show the consumers
their full prices, not something that dramatically understates
the real price travelers pay.
Finally, airlines have a powerful disincentive to actually
provide this information to consumers, as this gives that last
holdout airline the added advantage of appearing lower priced
than their competitors, who might actually be providing the
information on their full cost. This is why the Government must
step in. We don't believe airlines will do this on their own.
We at ITSA, ASTA, and the CTA believe it is important that
those airlines selling the GDSes provide the information in a
way that allows consumers to shop with full knowledge of and
confidence in the travel costs in total, as you can see above.
At the same time, consumers deserve the opportunity to know
what to expect when they are buying. In this manner, the cost
of compliance for the airlines are negligible and the benefits
are enormous. And I too thank you for your time.
Mr. Costello. The Chair thanks you, Mr. Moore, and now
recognizes the distinguished Member of the Full Committee,
Chairman Oberstar.
Mr. Oberstar. I greatly appreciate your holding this
hearing, Mr. Chairman, and the participation of Mr. Petri as
well.
There are few issues of more lively interest to air
travelers than these checked baggage fees and other fees that
airlines are charging. Hardly a weekend goes by in my travels
that I am not asked by passengers: Aren't you going to do
something about these fees? Can't something be done about these
fees? Well, we are starting. We are at least having a hearing.
We started with Mr. Costello and I asking GAO--thank you, Dr.
Dillingham, for your very thorough report--to evaluate and
report to us.
I would say it looks to me like the airlines are learning
from units of government. It is a back door price increase. It
is not a tax if it is a fee. If you call it a fee, it is not a
tax, so you can impose these taxes with impunity by calling
them a fee. That is just back door financing.
Look, passengers are paying for meals, for pillows, for
blankets, for headphones, for beverages, to check the luggage,
and some or at least one airline proposed a carry-on luggage
fee. In Europe, a low fare carrier proposed a fee for using the
potty on board the airplane. That didn't last very long, but at
least they proposed that up front.
And then you have premium services, early boarding and
early access to overhead space. But there is never anybody on
board those planes, flight attendant or others, who say, no,
no, you are in row 24, you can't park your bag in row 3. They
can do these things themselves, but they aren't doing it.
In 2009, US Airlines collected $7.8 billion in fees, $2.7
billion of which is from checked baggage. The first quarter of
this year, $770 million in checked baggage fees, while the
network carriers are losing money and the industry, as a whole,
reported a profit of only $12 million.
So, look, you have additional effect. And I make it a
point, Mr. Chairman, every airport I go through, I talk to the
TSA agents. What does this mean for you, the fee for checked
baggage? Well, it means more carry-ons, more densely packed
carry-ons, and carry-ons that are more difficult too screen,
thus taking us longer to screen and more difficult to find
things that are jammed in and packed in. We frequently have to
have backup TSA persons to read and back up the primary
screener. I found that all around the country.
Those are hidden consequences of this rush to bag more
money by imposing fees for bags. And then those fees are not
subject to the airline ticket tax. And, as the GAO report
indicated, that could be the equivalent of 2 percent of the
revenues into the Aviation Trust Fund, which benefits primarily
the airlines, air traffic control, the facilities and equipment
account, airport construction improvement program. All of that
would benefit, but you have the airlines saying, well, we have
lower ticket prices.
But if you add in the cost of all these charges that I
listed a moment ago, those ticket prices are back up where they
were before the fees, and probably higher.
I think the GAO report recommendations of disclosure and
some of the testimony we have heard today at least is a
starting point.
But I just want to say to the airlines, who I am sure are
in great number here or back in their offices listening in, if
they don't exercise restraint, there is going to be a
continuing outcry from the traveling public and you are going
to have some kind of regulation that you won't like. So if you
don't exercise self-restraint, then you are going to get push-
back from the traveling public, they will come to the Congress,
and then the Congress will act. And that is not a threat, that
is history.
Thank you.
Mr. Costello. The Chair thanks you and now recognizes Mr.
Petri.
Mr. Petri. Thank you very much.
I have a couple of questions for Mr. Rivkin, and maybe
others would care to respond. Focusing on fees and disclosure
of fees on airlines, what about discounts and undisclosed
discounts? I mean, the strategy of a lot of these airlines
seems to have all these fees and then to have affinity programs
with lots of discounts, so if you belong to this thing you
don't pay for the bag or you get into a fast find or you get
free drinks, or you get 101 different perk, so to speak, or
upgrade and all.
I mean, is it legitimate to have a strategy that
differentiates in that way and unbundles, so that customers
more or less get the benefits and charges that they want to pay
for, rather than one size fits all?
Mr. Rivkin. Thank you for the question, Congressman Petri.
The focus of the Department of Transportation since
deregulation has been to ensure, to the extent we are able,
with the great support of this Committee and the Congress, that
we can guard against unfair and deceptive practices, unfair
methods of competition, and to ensure safe and adequate
transportation. All we are trying to do is to fulfill that
charge.
We have, as you know, a current rulemaking proposal, which
I can't discuss beyond describing it under the rules related to
regulatory proposals, but if there are other suggestions that
are not included within the scope of the rule that we have put
forward, which is rather broad, we would be very happy to
consider them in discussions with you or your staff.
Mr. Petri. OK. I am really just kind of curious because I
know if you are a customer of Mr. Moore or someone else, and
you knew you flew four times with AirTran you could get a free
first class upgrade or you could save baggage charges or God
knows what, or some other airline, that might make a difference
because you might figure, well, we are taking several trips and
it would be better to go with the airline that would charge $5
more, but would give us all these extra discounts.
So you are looking at extra charges, but you are not
looking at the other side of it in this disclosure, and it
seems to me a lot of these airlines have a strategy to try to
capture the business and higher price customer by giving the
individual business traveler all kinds of perks through these
affinity plans that the boss is paying for and might not even
realize is going into this because he is making the decision;
he has to choose between two trips and he will choose the one
that gets him the extra personal perks that he would like.
Is that what they are doing or is this a problem, or is
this something we should be addressing here in this Congress?
Mr. Moore. I think it is a wonderful observation and I
think it is exactly right. But I also believe that this was an
unintended consequence out of this. You had airlines that were
introducing these additional fees, but they did not want to
anger their most loyal and highest revenue-driving passenger,
so they were waiving them for that. That actual drove greater
loyalty for those most loyal passengers, because now they had
even greater differentiation in the products and services that
they could expect relative to somewhere where they are not a
loyal traveler.
And that really just kind of speaks to why all this stuff
is so important. This has made it even more complex than it
used to be, and that is why consumers are unhappy. This is an
incredibly complex process, and that is why we believe it is
incredibly important for the airlines to provide the
information so that you can differentiate between those that
may be frequent travelers versus not in comparison shopping.
The systems are ready to do that; we need the data.
Mr. Petri. OK, thank you.
I just have one other quick question. It is slightly
unrelated to the subject before us, but as long as Mr. Rivkin
is here, we do have a pretty strong rule currently to protect
the traveling public, which says if an airline stays more than
three hours, I guess holds passengers on the ground for more
than three hours, there is this tremendous fine. We are
starting to hear from various carriers that, to avoid that,
they are asking people, after about two hours, to get off the
plane, even though it might actually mean flights are more
delayed than they would otherwise be and people are, overall,
more inconvenienced.
So I am just curious as to whether you or the Department,
people dealing with this rule and its wise implementation,
would be open to sitting down and reviewing various ideas for
fine-tuning it with the idea of ending up conveniencing, rather
than inconveniencing, the traveling public so far as
unanticipated delays are concerned.
Mr. Rivkin. Of course we would be, Congressman. We just got
our first full month of comparative data, which showed that
three-hour tarmac delays are down substantially from, I
believe, 34 a year ago to 5 this last May. We are investigating
those 5 and any that we have become aware of that have occurred
since then. We are always looking for ways to improve on our
regulatory responsibilities and would be very happy to work
with you.
Mr. Petri. Thank you.
Mr. Dillingham. Mr. Petri?
Mr. Petri. Yes.
Mr. Dillingham. Just wanted to let you know that the GAO
has been asked by Committees of the Congress to evaluate the
impact and implementation of the rule, and, as Mr. Rivkin said,
there has only been a month of data to this point, and we are
waiting on a little more time to pass so we can have something
to base our study on. So we will be looking at that as well.
Mr. Petri. Good. We are just hearing from various people in
the industry. A big fine concentrates the mind and there are
some ideas that people think they have that they would like
evaluated not to set aside the rule, but to implement it in a
way that would benefit the traveling public more than a rigid
one size fits all approach, which they currently fear is the
case.
There are some unanticipated consequences in airlines'
behavior because, facing a big rule, when they get near the
three hours, or fear they might, get everyone back in the
airport and then maybe they will have to sit there for six
hours or eight hours, waiting for another flight; whereas, they
could have, if they had gotten taken off knowing the weather
change or whatever was causing the delay was about to be
overcome. But airlines are afraid of paying a couple million
dollars because they hit the three hour point. They would
rather save that money and inconvenience the customers than
give them true convenience.
Anyway, this is the concern that they have, that it is not
a voluntary delay; they are trying to work with some real world
situations, but to save this money they are faced with really
inconveniencing customers or spending $3 million of their
money, so they currently are really inconveniencing the
customers, which is not our intention.
Mr. Dillingham. Right. We will, in fact, be looking for
unintended consequences as well, as we undertake that work.
Mr. Mitchell. Mr. Petri, may I, very briefly?
Mr. Costello. Mr. Mitchell, go ahead.
Mr. Mitchell. Very brief comment. The reason that the rule
is working so far is because finally the airline senior
management teams have been made to prioritize this problem. One
month of data, six months of data will not really matter. What
is going to matter is that the airlines will have a period of
time over the next 12 months to do the enormous work required
in their systems and their operations to make this work for the
passenger. I would virtually guarantee, a year from now, this
will be a nonissue; the airlines will adjust.
Mr. Costello. Mr. Rivkin, to follow up on Mr. Petri's point
and question, let me ask did you say that the Department has
one month or was that a quarter, the five tarmac delays?
Mr. Rivkin. That was in the month of May of 2010. So we can
only compare that month to May of 2009.
Mr. Costello. To Mr. Petri's point of the industry raising
concerns about consumers, conversely, have you had any
complaints, the Department? Have you received any complaints
from passengers or consumers?
Mr. Rivkin. Yes, of course we have, sir. We have a staff of
lawyers and investigators who field complaints every day.
Mr. Costello. Specifically about the five delays during
that period of time?
Mr. Rivkin. We are investigating those five delays, but we
also, in addition, investigate media reports and call-in
complaints. So, yes, we are investigating whether those are
actionable delays.
Mr. Costello. The Chair now recognizes the gentleman from
Oregon, Mr. DeFazio.
Mr. DeFazio. Thank you, Mr. Chairman.
Mr. Baldanza, you said that you unbundled the charge in
2007 for checked bags and lowered base fares. Was that a net to
the airline? Did you lower base fares as much as your revenue
or did you actually increase revenue although you unbundled?
Mr. Baldanza. Mr. DeFazio, we increased revenue because we
carried more passengers.
Mr. DeFazio. OK, per passenger per average, did you realize
more by unbundling and charging them a little bit less on the
fare but a lot more for the bag?
Mr. Baldanza. No. The average fare we collected from each
customer has dropped each year since 2007.
Mr. DeFazio. OK, so you did it as a public service. That is
good. So when you begin to charge for people to carry bags on
and put them in the overhead, are you going to lower fares
again?
Mr. Baldanza. We already have.
Mr. DeFazio. OK. That is good. I tell you what, I have
flown about 4 million miles since I have been in Congress; had
a hell of a lot of conversations with people getting between
here and there, and the first thing they care about is whether
they get there alive and safely, but the second thing is the
conditions under which they travel and what they paid for their
ticket.
Now, they don't care where that money goes. They just want
to know how much the ticket is going to cost them. So why would
you object to a system where people would be able to
meaningfully compare what they are going to pay in total to go
from A to B?
Mr. Baldanza. We don't object to that system. In fact, we
have spent a lot of money changing our website so that it is
fully disclosed. When you buy a ticket on Spirit Airlines, you
know exactly what your price is for the choices you choose.
Mr. DeFazio. On the first page or when I finally get to the
point------
Mr. Baldanza. Before you pull out your credit card and put
your money up.
Mr. DeFazio. But you are not providing the data to the
marketers.
Mr. Baldanza. Absolutely, because as customers go through
the shopping process, they say I want to fly from A to B, then
maybe I want to check two bags, maybe I want to buy travel
insurance or not, maybe I want to join this club or not, or
whatever, and at the end they see the whole piece of what they
are going to buy------
Mr. DeFazio. Excuse me, excuse me. I reclaim my time.
Mr. Moore, could you comment on this? I saw you shaking
your head. I thought I understood from Dr. Dillingham and from
your testimony that they are not cooperating with the secondary
marketers in terms of these fees and charges.
Mr. Moore. Thank you for the question. In terms of the data
that we would need, that a consumer would need to say, up
front, I am going from point A to point B, as you have said,
and I am going to check a couple of bags, and I want to be able
to preselect my seat, that type of information is not made
available today; and there has been no airline that has said
that they are going to do this permanently. I mean, there has
been no airline that has said that we are doing this expressly
right now.
Mr. DeFazio. I think you said that there is a system that
could accommodate that.
Mr. Moore. Absolutely.
Mr. DeFazio. And I think you said that airlines, some are
more or less interested, but they are worried about the effect,
if they go first, then consumers are getting fully honest what
it is going to cost me in total for this trip, for me and my
kids, and get a meaningful comparison of the bottom line across
all the airlines that you report on, as opposed to when you go
to a captive site, yes, maybe they give you the information,
but you can't compare it unless you want go close that down, go
over to another site, then do a comparison there, and then go
to another site and do a comparison there. They can't go to a
one-stop shopping site and get this information. That is
correct, right?
Mr. Moore. That is absolutely correct.
Mr. DeFazio. OK.
Mr. Moore. That is absolutely correct.
Mr. DeFazio. This kind of reminds me of when I was trying
to ban smoking in my early days on this Committee on airplanes.
The CEO would say, oh, I would love to do it, but we would be
at a competitive disadvantage--I tried to convince him it would
be a competitive advantage because I hate smoking--if we did
that, if we stepped out. So the Government had to stand in and
say we are not going to allow smoking; now you have a level
playing field. So I guess my question would be why wouldn't we
create a level playing field here, especially since, what, half
the tickets are purchased through secondary marketing, not
principally through airline sites?
Mr. Moore. That is right.
Mr. DeFazio. Why wouldn't we create a level playing field
there by requiring the meaningful transfer of the necessary
data to those secondary marketers?
Now, why wouldn't we do that, Mr. Baldanza?
Mr. Baldanza. Well, Mr. DeFazio, proving that our airline
is quite different from the airlines that my competitor------
Mr. DeFazio. The ones that give us one price, like
Southwest? You are very different.
Mr. Baldanza.--is that less than 10 percent of our
customers buy from third-party intermediaries.
Mr. DeFazio. Well, that is great.
Mr. Baldanza. So 92 percent of our customers buy direct
from our airline. We fully disclose 100 percent to that
customer base.
Mr. DeFazio. OK.
Mr. Baldanza. So if we would not------
Mr. DeFazio. You are not answering my question. If the
Government orders you to do this, is this going to be a big
imposition on you?
Mr. Baldanza. No, because if we would do it for 92 percent
of our customers, why wouldn't we do it for 8 percent?
Mr. DeFazio. Well, that is true. Well, because maybe you
would get more customers if you were marketed more honestly on
those other sites.
Mr. Baldanza. The 92 percent of the customers that buy from
us feel very good about our products.
Mr. DeFazio. Thank you very much, sir. Thank you. I
appreciate it.
Dr. Dillingham, do you have any comment on whether this
would be overly burdensome on the airlines to provide this data
to the system that Mr. Moore described?
Mr. Dillingham. Mr. DeFazio, based on the work that we have
done, we do not think that it would be a tremendous burden on
the airlines to provide the kind of information in a way that
customers could make meaningful comparisons. Airlines already
have administrative mechanisms in place that would facilitate
doing this kind of thing. It would not be free, but it would
not be overly burdensome either.
Mr. DeFazio. OK.
Mr. Rivkin, why wouldn't we have a comprehensive rule to
require that, as opposed to your sort of picking around the
edges with what you are proposing?
Mr. Rivkin. We have asked that question in our current
rulemaking and propose that it be a Government mandate, and we
are awaiting comment.
Mr. DeFazio. OK, thank you.
Thank you, Mr. Chairman.
Mr. Costello. Thank you.
The Chair now recognizes the gentleman from North Carolina,
Mr. Coble.
Mr. Coble. Thank you, Mr. Chairman.
Good to have you all with us today.
Dr. Dillingham, how would you rate the transparency of
current airline fees, and in what ways could transparency be
improved?
Mr. Dillingham. Thank you, Mr. Coble. I think the findings
of our report indicate that the fees are not very transparent.
In fact, what Mr. Rivkin is talking about in terms of the way
the Notice of Proposed Rulemaking is being developed and put
out to the public is closer to or at least we would consider it
a first step in terms of making it more transparent so that the
consumers can in fact compare what they are going to be buying
from across websites.
Mr. Coble. Mr. Rivkin, how does DOT define deceptive
advertising?
Mr. Rivkin. Mr. Congressman, our mandate is unfair or
deceptive practices. That is similar to State consumer
protection rules around the Country where there is a body of
case law that describes when there is a misrepresentation or a
misleading assertion.
Mr. Coble. How specifically, Mr. Rivkin, does DOT plan to
require full disclosure of optional fees and what would this
require?
Mr. Rivkin. Mr. Congressman, in our current rulemaking,
which is now out for comment, we have set forth a whole series
of proposals that ancillary fees, as I described in my oral
testimony, must be fully and prominently disclosed. The key
proposal is that the total mandatory price must be disclosed
the same way by every airline and agent so that the consumer
can actually compare the real price the consumer would have to
pay as the final price the ticket.
Mr. Coble. I thank you.
Mr. Mitchell, how will more transparency on the part of
airlines and their ancillary fees benefit corporate travel
programs? Or will it benefit corporate?
Mr. Mitchell. Well, the direction of the DOT's NPRM will
solve several problems for corporate travel departments. First
of all, with knowledge of the fares and the fees, they will be
able to budget more effectively; they will be able to
administer the programs, do the accounting and the auditing
correctly; they will be able to enforce travel policy.
Currently, a fee is indistinguishable between a checked
baggage fee or an upgrade to business class, for example. So
there is a whole host of benefits, including their travelers
not being surprised at the airport by these fees, and confused.
So there are great benefits that would come from full
disclosure and transparency as laid out in the NPRM.
Mr. Coble. Thank you.
Thank you, gentlemen, for being with us.
Mr. Chairman, I yield back.
Mr. Costello. The Chair thanks the gentleman and now
recognizes the gentlelady from California, Ms. Richardson.
Ms. Richardson. Thank you, Mr. Chairman.
Mr. Baldanza, I realize you are the President of Spirit,
but I would appreciate not being yelled at like you just did
with my colleague here. So let me just lay that out in the
front. Here, you are in Congress and I am going to talk to you
with respect, and I would like for you to do the same with me.
My first question is--and let me ask this to Mr. Dillingham
when a plane is unloaded, is it generally done by a general
employee on an airport or is it done by a specific carrier? I
seem to recall, and I fly two times a week, I don't always see
that it is a specific carrier. So could you clarify that for
me?
Mr. Dillingham. Ms. Richardson, when you say when a plane
is unloaded?
Ms. Richardson. Like, for example, when Spirit Airlines, if
they are unloading their passengers in Florida, let's say, we
get off the plane. Is it the Florida airport, their employees
that are unloading it or is it Spirit's employees? Or does it
vary from airport to airport?
Mr. Dillingham. Right. I think the latter, it varies from
airport to airport.
Ms. Richardson. OK. That is an important point, because I
think it gets to the question of, well, why are we charging
more fees.
My next question is, Spirit, have you collected data on
your passengers and what do you know in terms of the number of
packages, has it increased or decrease, of your passengers
since you have added this fee?
Mr. Baldanza. Since we began charging for checked luggage,
we are checking less luggage than before we did, so it has
decreased.
Ms. Richardson. OK.
And, Mr. Dillingham, in your professional opinion, in your
evaluation, what I see on the plane and I can tell you is that
I have noticed a dramatic increase with people who have on
bags, how much longer it takes to get everybody onboard, and it
does become dangerous. You have people slinging high bags. Not
everyone is strong enough to lift it and it becomes a problem.
Is there a safety issue that we might have a concern with with
this new policy, Mr. Dillingham?
Mr. Dillingham. Ms. Richardson, there is the potential for
a safety issue here, and I think when we talked with the flight
attendants, for example, they are really concerned because they
are usually the ones that are trying to lift those heavy bags
over into the bin as well. There is also the issue of flight
delays that are associated with that, trying to get all the
bags on.
And then you have situations where people, for a while they
would bring a bag that wouldn't fit. They didn't have to pay
for it by checking it in, but then they could get it free by
taking it down to the gate. So there are all kinds of
unintended consequences and gaps that are going on at this
point in time.
Ms. Richardson. OK. And then I have two quick last
questions, and I realize we are calling for votes, so the
answers, if we could have them be brief.
I believe you had said that the DOT had not responded to
the recommendations, Mr. Dillingham. Is it that they didn't
respond or just that they have not agreed or disagreed?
Mr. Dillingham. The recommendations in our report?
Ms. Richardson. Yes.
Mr. Dillingham. They have not responded; it wasn't an agree
or disagree. And usually they have 60 days to fully comply in
one way or another, so it is not unusual that we are in this
situation, since we just issued.
Ms. Richardson. OK.
And then my last question is back to you again, Mr.
Baldanza. I apologize if I butchered your name. I understand
and I read in your testimony that the information is available
on your website; however, the community that I represent, not
everyone has a computer, not everyone has access to websites,
and many people are utilizing services, as Mr. Moore has
mentioned, calling their local travel agent, who helps them to
answer all the questions. So if you are providing the
information on the website, really, what is your objection to
providing the information to the agencies and to the GDS
system?
Mr. Baldanza. We don't have that objection. What I have
said is------
Ms. Richardson. If you don't have the objection, why aren't
you doing it, then?
Mr. Baldanza. It is simply because we have not had the
ability to see how the system works yet, and we won't put
ourselves at the competitive disadvantage yet.
Ms. Richardson. So------
Mr. Baldanza. And only a small------
Ms. Richardson. Excuse me. I am reclaiming my time. That is
how it works here. So are you saying to me that neither two of
these gentlemen here, Mr. Mitchell or Mr. Moore, have provided
you an example of how you could provide that information?
Mr. Baldanza. No. What I am saying is that
Ms. Richardson. No, yes or no?
Mr. Baldanza. No.
Ms. Richardson. Has anyone supplied you with the
information of how you could incorporate it?
Mr. Baldanza. Not that I am aware of.
Ms. Richardson. And if you were provided it, would you be
open to adjusting that system for consumers?
Mr. Baldanza. We would be open to considering it, yes.
Ms. Richardson. Thank you, sir.
Mr. Costello. The Chair thanks the gentlelady and now
recognizes the gentleman from Arkansas, Mr. Boozman.
Mr. Boozman. Thank you, Mr. Chairman.
Mr. Rivkin, what are the top priorities in the fee
rulemaking, your top priorities?
Mr. Rivkin. What are the top priorities in the current
rulemaking?
Mr. Boozman. Yes, sir.
Mr. Rivkin. Well, we don't list them in order of priority,
but this is a rulemaking that encompasses a broad number of
consumer issues that we issued in the wake of our last
rulemaking, so we have tried to be as comprehensive as we could
be, understanding that there are always going to be other
issues. I would say that true full price advertising is one of
the key principles; that baggage fees be fully disclosed and
reimbursable when not delivered; we have also proposed
increased compensation for involuntarily bumped passengers; and
cancellation of a reservation within 24 hours without charge.
So there are a number of additional provisions and, in
fact, we have tried with this rulemaking to achieve the maximum
public involvement we could by partnering with Cornell
University at RegulationRoom.org so that the public might find
it easier to go to that website and actually comment on the
proposal, Cornell will summarize those comments and place them
on the rulemaking docket.
Mr. Boozman. So you don't really, then, feel that certain
ancillary fees should be included in the base fare? You are not
going that way with the rulemaking?
Mr. Rivkin. We do not have the authority to regulate fees,
routes, or service, so we are trying to discharge our mandate
to ensure that what the airlines do, they do openly and
transparently.
Mr. Boozman. When do you think the final rule will be
issued?
Mr. Rivkin. We are hoping, but we can never be sure, to
issue the final rule before the end of this calendar year.
Mr. Boozman. And we only have literally just a minute or
so, but in separating out the baggage, and, again, I am a guy
that is flying all the time and that is an extra fee and
things, is it such, though, that in having the increased fee
and, thus, not having as much baggage, is that a good thing as
far as transporting people and using less fuel? I guess what I
am saying is are there any positive consequences as a result of
people not having two bags every time they go someplace? Does
that make sense?
Mr. Rivkin. I am sure there are arguments, and I have heard
some of them on different sides of that issue. We just heard
some comments from Mr. Dillingham that more carry-on bags could
be dangerous and could delay the loading and unloading of
flights. On the other hand, perhaps people are incentivised to
carry less with them that they don't actually need. I
personally really don't have an opinion.
Mr. Boozman. How about you, Mr. Dillingham? I guess what I
am saying is do you carry more people on top? Is weight a
factor so that you can actually carry more people and thus,
theoretically, you are not having as many planes in the air to
affect the environment and fuel and all those kinds of things?
Is that a factor in reducing the weight?
Mr. Dillingham. Mr. Boozman, as you have indicated, weight
is a factor in terms of flights, and, therefore, you could make
that argument in weight taken altogether. We haven't done any
work that would indicate sort of what the increment is between
baggage and persons, but the logic is there.
Mr. Boozman. OK. Thank you very much.
Mr. Costello. The Chair thanks the gentleman and will
announce that we have three votes pending on the floor right
now. We will return. Members have questions and I have some
questions as well. I would ask everyone to be back in the room
in your chairs, if you will, by 3:40.
The Subcommittee will stand in recess until 3:40.
[Recess.]
Mr. Costello. The Subcommittee will come to order.
Dr. Dillingham, in your statement you describe potential
revenue for the Airport and Airway Trust Fund if these checked
bags were taxed at the 7.5. How much did you say it would
generate for the Trust Fund, $200 million?
Mr. Dillingham. Around $200 million, yes, sir.
Mr. Costello. OK. And obviously it is not in Trust Fund.
While the airlines have made a substantial amount of money off
of these fees, the Trust Fund has shown a deficit in the same
period of time, is that correct?
Mr. Dillingham. The uncommitted balance in the Trust Fund
has in fact been going down. Mr. Chairman, I wanted to point
out that part of what we say in our report is that we only are
talking about a proportion of the fees that have been charged
by airlines because we couldn't disaggregate some of the other
fees, so the total amount is yet to be determined.
Mr. Costello. But it is clear from what you have seen that
revenue for the airlines as a result of these fees, obviously
the revenue has gone up, while at the same time the Trust Fund
is going down.
Mr. Dillingham. That is correct. But I am not sure I would
link them, but both of those statements are true.
Mr. Costello. But we would generate $200 million more if in
fact the fees that are collected were in fact part of the tax
and going into the Trust Fund.
Mr. Dillingham. Yes, sir.
Mr. Costello. OK. Let me ask you, there are a number of
recommendations, several recommendations that you have made to
the Secretary to improve disclosure and information on airline-
and government-imposed fees to improve airline reporting of
revenues to the Department of Transportation. Can you walk us
through, just for the record, to be clear, what some of those
recommendations are in the GAO report?
Mr. Dillingham. Yes, sir. They fall into two basic
categories. The first one is the matter for consideration that
we offered to the Congress in the sense of if the Congress
wants to consider taxing the fees, and that is a policy
decision that the Congress needs to make, but with regard to
the recommendations that we made to the various departments,
DHS, Agriculture, it was the same basic principle, that is,
full disclosure, transparency of fees. Let those departments,
DHS to let the DOT know what their refund policies is, let the
airlines know what those refund policies are across those
agencies. Again, it is an attempt to be transparent and
disclose to the flying public.
Mr. Costello. Mr. Rivkin, in your testimony you state that
in the proposed rulemaking that you are asking for comments on
the cost and benefits of requiring that two prices be provided
in certain airfare advertising. I wonder if you might explain
that.
Mr. Rivkin. Certainly, Mr. Chairman. The basic principle is
that we want there to be a full fare price that includes all
the non-optional prices so that, really, apples to apples could
be compared. We are seeking comment really in an agnostic way
and hoping that we can become educated and learn through the
rulemaking process what would be useful. In addition to that
price, the mandatory price that includes fees, we seek comment
on whether it would be helpful to the public to have another
price that would be essentially the bare minimum price plus
what people are normally used to having included in the price
of a ticket such as a bag or two and perhaps a seat being
selected. We are asking if there might be some standardized way
of comparing that notional price, as well, to give more
information to consumers.
Mr. Costello. I mentioned earlier, when I recognized you,
that I commend the Department of Transportation and the
Secretary for being proactive and taking regulatory actions
concerning consumer protection issues, and I am pleased that
you are moving forward with additional regulatory protections.
Regarding deceptive fares and deceptive advertising and greater
transparency for airline fees, I, frankly, do not believe that
we are going to get where we need to be unless we do this
either through rulemaking or through action taken by the
Congress.
Mr. Baldanza said earlier that he did not object. I think
he talked about an unfair competitive advantage if one airline
does it and the other one doesn't. Obviously, if you do not
have an objection to posting all of the fees, if everyone has
to do the same, and he said he wouldn't have an objection.
I assume, Mr. Ridley, you would say the same, is that
correct?
Mr. Ridley. Given our situation, where we have very few
fees, we would not object.
Mr. Costello. Mr. Baldanza, let me ask you. In your written
testimony you indicate that Spirit believes it is unfair to
charge passengers for extra services that they do not use. What
do you mean by that?
Mr. Baldanza. Thank you, Chairman. What I mean by that is
that different customers ask for different things in terms of
their air travel, and we think it is unfair to presume that a
customer might want, might need to check two bags or might need
to have a certain service onboard.
So at Spirit we think it is very important to only charge
them what is necessary for their trip, but then make available
in an optional basis other services and options that they may
be able to use. We think this benefits consumers. We think this
results in lower fares and it gives customers the option to say
this is valuable to me, so I will pay for it, or it is not
valuable to me and I can save the money.
Mr. Costello. You also indicate in your written testimony
that unbundled services do not impose any cost on airport
infrastructure, that there is no cost imposed on airport
infrastructure as a result of unbundled services. What do you
mean by that? Are you saying that checked bags do not put
additional cost on an airport?
Mr. Baldanza. What I mean by that is that the costs of
transporting the passenger are all included in the base fare,
and the things we charge extra for we don't believe add to the
burden that the Aviation Trust Fund funds. So checked bags, for
example, add cost to the airline, but they don't particularly
use air traffic control, they don't particularly add airport
related costs to the airport, they add to the airline.
Mr. Costello. I would respectfully disagree with you. I
think it is pretty clear that it does.
But at this point I will recognize the Ranking Member, Mr.
Duncan.
Mr. Duncan. Well, thank you, Mr. Chairman, and thank you
for calling this hearing. I just have a couple of questions.
First of all, does anyone on the panel disagree with the
statement by Mr. Ridley when he said that Southwest strongly
believes that the decision on these charges should be a
business decision and left up to the airlines. Anybody disagree
with that statement? Yes, Mr. Moore?
Mr. Moore. I am not sure that I would disagree with the
statement. What I felt like I heard Mr. Ridley say is that it
should be left to the airlines as to how they actually market
their products and services. So whether they choose to bundle
or not, I too believe that that is an airline decision. The
thing that I think was important, that I believe that Mr.
Ridley would also support, is transparency. So if that means
that you have an airline that is bundling and one that is not,
it just needs to be made clear to the consumer about how you
compare those apples and apples.
Did I characterize that right for you, Dave?
Mr. Ridley. I think that is fair, yes.
Mr. Duncan. Well, let me ask Mr. Dillingham and Mr. Rivkin.
In our briefing it says through various rulings and guidance,
the DOT has required that airlines and ticket agents disclose
the following fees in airfare advertisements: fuel surcharges,
peak travel and holiday surcharges, and government fees, among
others. Do you think it would add substantially to airline
costs or would really substantially decrease airline travel if
the airlines were required to disclose these things like extra
charges for bags and the kind of fees that we have been talking
about here today?
Mr. Dillingham. Mr. Duncan, from the work that we have
done, we have seen no indications that the showing of fees and
transparency of fees and disclosure would decrease travel.
Mr. Duncan. Well, would it be a substantial cost for the
airlines to do that in some ways?
Mr. Dillingham. Again, based on the work that we have done,
we do not think that it would be a substantial cost to the
airlines. The airlines have administrative mechanisms in place
starting as a base, and the technologies that we currently have
make these kinds of disclosures relatively easy. And as you
heard some of the witnesses today, the market is beginning to
rev up to produce all kinds of mechanisms that will make this
an easy thing to do. It then becomes the airlines' choice. As
the Chairman said, short of congressional action, then it
becomes the airlines' choice whether they want to participate.
Mr. Duncan. Mr. Rivkin?
Mr. Rivkin. I agree, Congressman Duncan, with Mr.
Dillingham that there is not a substantial cost to disclosing
fully the fees in the way that our regulations have suggested.
Of course, the Committee needs no reminding that every
rulemaking goes through a rather rigorous cost-benefit
analysis, and it won't get through OMB if it doesn't have
benefits commensurate with its cost.
Mr. Duncan. I will let all of you respond, but let me ask
the airlines not only about that question I just asked, but
also, and maybe you have covered this, but I have had votes in
other Committees and haven't been able to hear all of the
hearing, but what is the problem with the travel agents? They
say that the airlines won't give the information about these
additional fees to them and it has caused some problems for
them.
Mr. Baldanza and Mr. Ridley, what do you say about that in
response to the travel agents?
Mr. Baldanza. Well, this may be a bit of a clarification on
my earlier testimony as well, but I can confirm that Spirit
provides full detail about its fees and services to all of our
GDS partners today. And perhaps we are not providing it in a
format or timeliness or way that they can use it properly, but
if we are not doing it that way, we just need to know and we
will do that, because we are very open to that idea.
Mr. Duncan. All right. Mr. Ridley?
Mr. Ridley. Mr. Duncan, I am not sure that Mr. Moore might
be a better one to answer this, but since you ask the airlines'
perspective, in Southwest in particular, where we sell less
than 5 percent of our bookings through either an online travel
agent or a travel agent, this is kind of a de minimis issue
that I am really not------
Mr. Duncan. Is your main concern that you don't mind
disclosing all these ancillary charges, but you just don't want
to be taxed on them? Is that the main concern of the airlines,
Mr. Baldanza?
Mr. Baldanza. Well, we are fine with full disclosure
because, again, we believe with full disclosure we still will
often have the lowest total price. But in regards to tax, we
don't believe it is appropriate to tax the ancillary fees
because, in most cases, they do not use the infrastructure that
the tax is intended to pay for.
Mr. Duncan. And if they help you make any profit, you are
going to pay taxes in that way anyway, is that correct?
Mr. Baldanza. That is correct, and it also allows lower
fares to the consumer, which generates more travel, which also
generates more tax revenue.
Mr. Duncan. Mr. Ridley?
Mr. Ridley. Well, at Southwest in particular, we are
talking about $100 million, which is a lot of money, even in
this town. While that is a lot of money, it should be compared
to the billions of dollars of fees that are the subject of this
hearing. The industry is overtaxed, I will make that point. But
in terms of whether the ancillary revenues that are the
discussion of today's hearing should come under the excise tax
ambit, we just take the position that the airline industry is
already too heavily taxed.
Mr. Duncan. Mr. Mitchell and Mr. Moore wanted to comment
either on the earlier questions or the later parts too, so go
ahead.
Mr. Moore. Mr. Duncan, thank you. My comment that I wanted
to make just surrounded the question you were asking on
difficulty, and what I would suggest to you is today there are
a number of airlines, 26 airlines, that are test piling this
information through ATPCO. They are experimenting with, you
know, if I have this ancillary fee how would I file it, all
that kind of stuff.
So they have done some good work to lay the groundwork even
internally for this. Those 26 airlines represent 86 percent of
the U.S. point of sale bookings in Sabre, meaning from today
the airlines that actually know how to do this represent the
vast majority of bookings that we already do. Airlines can do
this, it doesn't have to be that difficult.
Mr. Duncan. All right. Mr. Mitchell?
Mr. Mitchell. Yes, Congressman. I think that there are five
reasons why the airlines are resisting this. The first is, as
we said earlier, a few of us, the first airline to jump into
this system and show fares that are 30 percent higher than
their competitor is going to lose.
Mr. Duncan. Right, I heard that.
Mr. Mitchell. The second reason is that there is great
profitability from complexity and confusion. When you purchase
a fare, you purchase it thinking, many times, that that is what
my all-in price is going to be. Then you get to the airport and
you are paying 30 percent or 40 percent more. Had you know
about that earlier, you may have made different choices of
airlines or transportation. So there is money to be made in
complexity.
The third point is that by withholding this information
from the GDSes and the travel agencies, it is the common view
of many industry participants that what the airlines are
endeavoring to do is force the agencies to actually pay them
for this content. What that will do, in effect, is shift the
cost of merchandising and distribution onto the backs of
consumers.
And, finally, or fourth, let's move passengers in droves to
Airline.com, where they do not have comparative shopping
capabilities and where they are going to get higher yields and
higher fares.
And, finally, there is the tax avoidance issue.
Mr. Duncan. All right. Well, let me ask Mr. Rivkin this.
Has the Department of Transportation received a large number of
complaints about these extra fees? Have you gotten thousands of
complaints or hundreds of complaints?
Mr. Rivkin. I don't have those with me, but we do get
complaints from a lot of people that are unhappy with fees.
They just are.
[The information follows:]
Mr. Duncan. All right. Thank you very much, Mr. Chairman.
Mr. Costello. I thank the gentleman.
Mr. Moore and Mr. Mitchell, you heard Mr. Baldanza say that
Spirit fully discloses all of their fees online. You don't
agree with that, do you?
Mr. Moore. My perspective would be that the, and I have
shopped Spirit.com. It is a more arduous process than I would
like as a consumer. I have to pick my city pair. I then get
what I feel like is a fare that I can rely on and then I find
out that there are taxes and fees that get added on top of
that. That is not the ancillary fees we are talking about, just
basic security fees, those kind of things, that weren t
disclosed initially.
And then I am going to have to put in my personal
information on where I live, all that kind of stuff, to
actually get what I believe is the true price. And then after
all of that, I find out that there might be a seat fee, and
that actually might take place after I have paid. It is
troublesome to me as a consumer.
Mr. Costello. Mr. Mitchell?
Mr. Mitchell. Mr. Chairman, the way I would answer that is
that I think Spirit should be free to unbundle until the cows
come home and price to their heart s content. But so long as a
carrier is in a GDS and providing agencies with fare data, they
need to provide complete data, and they need to do it in a way
that is very transparent.
I think the marketplace will reward or punish Spirit
Airlines based upon how they conduct their business.
Mr. Costello. And that is what we hear from consumers is
that, look, they set the prices and, as you said, they are
setting fees. Just tell us what we are getting. What is the
price going to be, so we don't have to spend a half hour or an
hour shopping around on a website.
As I see it, as you said, Mr. Mitchell, that the first
airline who jumps out there and does this and shows a 30
percent increase over the cost in comparison to other airlines,
they are not going to do it voluntarily and they are not going
to do it in a uniform manner that consumers can easily
understand, unless they are required to do it.
Now, would you disagree with that?
Mr. Mitchell. I would agree with that 100 percent. I am
going to file with the DOT a comment on behalf of a major
corporation whose travel manager came here last month with a
family friend and took a flight from Boston to L.A. The
surprise at the airport on baggage fees increased their total
trip cost by 20 percent.
He went back to Belgium and looked through the GDS to find
any mention whatsoever of these fees. He went back to the
travel management company and looked. There was no mention
anywhere. And this is a professional corporate travel manager.
If it can happen to him, what does that portend for the average
consumer?
Mr. Baldanza. Mr. Costello, may I make a comment?
Mr. Costello. Yes.
Mr. Baldanza. Thank you.
The booking process that Mr. Moore described for
Spiritair.com was accurate as of six months ago, but Spirit has
invested hundreds of thousands of dollars to change our website
to where today you don't go through the arduous process he
described, which again was accurate as the way we used to work.
Today, the process is very simple and fully disclosed.
Mr. Costello. Wouldn't it be in the best interests of your
consumers, your passengers, as well as Southwest and every
other airline out there, if there was a uniform way of posting
prices, if they go to Spirit or they go to United or Delta or
Southwest Airlines, all the same, easy to find and easy to
understand. Isn't that in the consumer s best interest?
Mr. Baldanza. Well, it may be, and that is interesting. I
would like to be able to buy a refrigerator that way, too, when
I go to Sears and know what it costs me at Lowe's and at Home
Depot. The reality is that different airlines offer different
things to customers, and that diversity is a wonderful thing.
The world would't be a great place if every airline were
like Spirit. I would also argue it would't be a great place if
everyone was like Southwest. The world is a better place
because customers have the choice of airlines like Spirit and
Southwest and many, many other airlines.
Mr. Costello. One of the problems when it comes to pricing,
though, is that many people do not understand what their
choices are; and number two, that they are getting services
that they didn t know; paying for services that they didn t
know that they wanted, nor did they ask for.
So I think I have made my point and I think you have made
your point.
Final question. As I think all of you know, we passed in
this Committee and out of the House of Representatives an
airline safety bill where we increased the requirements for
pilots, both in training and in number of hours in the cockpit,
and also a number of other things, flying conditions.
Just out of curiosity, since we have both of you here, what
is the starting pay, the entry level pay for a first officer
with Spirit Airlines, the unbundled?
Mr. Baldanza. I don't know the starting pay. I can give you
the average pay, and we tend to be a pretty low seniority
airline. So our average first officer is about three years
senior with the airline, and last year they earned about
$70,000 a year on their W-2. Our average captain is about eight
years senior and last year earned about $145,000 on their W-2.
Mr. Costello. But you don't know what the starting salary
is of the first officer that is hired?
Mr. Baldanza. The starting wage rate and how that
translates to their W-2, I don't have that information with me
right now, but we can certainly provide that.
Mr. Costello. We would request that information.
Mr. Ridley?
Mr. Ridley. Chairman Costello, that is not my area of
expertise, but we will get you the answer as soon as possible.
Mr. Costello. I understand the business model where we
have, I think in your written testimony, Mr. Baldanza, you say
that since 2007 when we adopted our ultra low-cost carrier
business model, our goal has been to provide basic quality air
transportation at the lowest possible cost. I understand what
that means.
My concern is about safety, and that is why I am interested
to know at the lowest possible cost, what are your airline and
other airlines paying a starting First Officer, the entry
level. We found with a number of regional carriers that in at
least one instance that we know of that the First Officer was
hired and paid less than $20,000 a year. I am certain that is
not the case at Southwest and hopefully it is not at Spirit,
but I would like to have that information if you would supply
it to the Committee staff.
[The information follows:]
The Chair now recognizes Mr. Petri.
Mr. Petri. Thank you.
I just had one question, which probably reveals my
ignorance about the web information is collected and works and
so on, but I think it is mainly directed at Mr. Moore as to
why, if Mr. Baldanza s airline is posting all this information
on its website and presumably other airlines post it in maybe
somewhat different formats and so on, the burden shouldn t be
on you to just visit their websites every day or upgrade it and
say what is available. And if you want a matrix and that
airline does not provide that information, put an X there or
something and the public would be informed, but they would then
have the diversity of choice.
Or is this a legal issue? Are the lawyers for you saying
you want it provided by the airline so that if there is
confusion or some difference, the liability is on them and you
can show a piece of paper or something? Is this what we are
really talking about? Because the information is there on
different websites, so it must be someone is trying to shift
legal liability to the airlines from themselves who wants to
present that information.
Or am I misrepresenting the situation?
Mr. Moore. I appreciate the question, Mr. Petri.
It is one of those things where I look at it, and I don't
look at it as a legal issue at all. I do look at it as a
question of complexity. When you have 600 airlines in the world
that have their schedules in Sabre, and to actually try to go
out and gather all this information in a very laborious
fashion, it would be incredibly challenging to try to keep that
stuff fresh because as soon as you do, it has been made stale.
Things change.
And the other thing that makes this incredibly hard or
impossible, basically, is that these charges are often applied
and then many times aren t, and that level of granularity is
just not made available on the website. So if one of Mr.
Mitchell s corporate customers has negotiated away a baggage
fee, well, that is not posted on the website. We have no means
to know that.
It is an imperative of the airline to provide that
information because we have no knowledge of that level of
granularity. And particularly that those things might apply at
very low fares, but perhaps they don't apply at the higher
fares. And the fees are applied for seat fees, but perhaps not
baggage.
It is a level of granularity that could never be gathered
by going out and trying to get it from the carrier websites.
Mr. Petri. Excuse me, I am serious, but I thought there
were search engines and that half the websites are being hit
automatically by Google or someone and they have ways of
updating this practically instantaneously. And people may want
to change their business model, and if you had to go through a
government regulatory process, it could take months. And there
are seasonal differences.
Do you buy a new airplane that may have different
requirements as to what type of bundling or unbundling would be
appropriate? I mean, this could retard a lot of flexibility in
the industry if it is not handled right. Or am I
misunderstanding the situation?
Mr. Moore. I would believe it actually introduces the
flexibility that we would need to allow a consumer to shop in
the way they want. When you think about some of the stuff I was
discussing earlier around how a consumer can suggest up front,
I am an elite frequent traveler on United, as an example, and I
am flying from New York to L.A.
And with that, I go and shop. Well, perhaps I am not elite
on anybody else. The fees that might apply to me, those aren t
available on the website. I don't know that. They are certainly
not applicable to me. And particularly the fact that they may
be applied for one corporation or not, just based on the
negotiated agreement that I have with those.
There is no level of specificity that would be required in
order for that shopping mechanism to really work for the
traveler. It is just way too much data that changes far too
rapidly. When you think about the way a consumer shops, and
this speaks to something you were talking about earlier, Mr.
Chairman, fully half the consumers that shop in the online
space buy at the lowest fare, and it is a curve on total price.
So in other words you get to about 70 percent of travelers,
they will have bought within 120 percent or 130 percent of the
lowest fare, but half of those people, if they have missed that
$20 charge that may have been incurred, they might have made a
very different decision.
And so there is a level of information that is just going
to be lost that consumers would benefit from tremendously and
would actually change the products they may be buying because
they are better informed. It is just too much information to
try to be gathering laboriously all the time.
Mr. Petri. Anyone else have any comment on that?
Mr. Mitchell. Yes, Congressman.
The ATPCO, the airline-owned company that distributes all
these fares to the GDS s and is in a position to distribute the
fees, they have identified 100 ancillary fees. That is what
they are ready to go to market with.
So if you do the possible combinations just with one
airline, you do the math 100 times 100, that means that a
consumer has a possibility of 10,000 combinations for that one
airlines; perhaps 9:00 o clock to 11:00 o clock on a Wednesday
morning. If you are comparing against nine other airlines, that
is 100,000 possible combinations.
This is orders and orders and orders of magnitude more
complex than anything this industry has ever known or faced
before. And it strongly begs for the technology and the
standards to get into place so that the consumer has the full
disclosure he or she needs.
Mr. Costello. I thank Mr. Petri.
Mr. Mitchell, you in fact state in your testimony that
airlines often have a strong incentive to mislead consumers on
prices.
Mr. Mitchell. Mr. Chairman, that is correct. Whether it is
trying to look in the GDS and the travel agent as if you are
matching a Southwest or an AirTran, or whether it is just
simply misleading the consumer to think he or she has an all-in
price, and then they get to the airport and they are surprised.
But in addition to that, this is the no man s land for
consumer protection. Mr. Baldanza mentioned going to the store
for a refrigerator. Well, luckily for him and the rest of us,
we are protected in large part by the FTC. The FTC has no
oversight responsibility here and the consumer has no rights or
legal remedies because of Federal preemption, which the
airlines have fought and championed and fought to expand.
So that is central to this idea that the consumer needs
protection here.
Mr. Costello. Well, we know that there is one person at the
witness table that recently went through and examined all of
the airlines and the fees that they charge, and the GAO
submitted this report to us.
So I would ask Dr. Dillingham, was it a simple process to
go and understand what fees each airline charges? You just went
through this, you and your staff. Is it pretty simple for the
average consumer to understand?
Mr. Dillingham. Mr. Chairman, the GAO cannot own up to it
being a simple process. But we were able to identify those fees
that we in fact show in the handout that we passed to you.
Mr. Costello. With a highly professional staff.
Mr. Dillingham. Yes, with our highly professional staff.
Mr. Costello. Not the average consumer.
Mr. Dillingham. Not the average consumer, absolutely. We
agree that the permutations can be never-ending. So we are on
the side of making it completely accessible and transparent for
the consumer.
Mr. Costello. And that is the goal of what we are trying to
achieve here, and I think what Senator Menendez and his
amendment, what he is trying to achieve is transparency so
people understand and know what they are getting for the money
and they can compare one price to another and what their
options are.
Mr. Petri, do you have any further questions?
If not, I will ask very quickly if anyone on the panel has
anything to add before we close out the hearing.
Mr. Ridley?
Mr. Ridley. Mr. Chairman, I just cannot let it lie here.
While we are on record that we believe in greater transparency,
I cannot sit here and be lumped among all airlines that believe
where there is confusion, there is a chance for profit. I would
argue that where there is simplicity, there is a chance for
profit, and that is the tack Southwest has taken. So I don't
want to be lumped in with all my brethren in Mr. Mitchell's
description.
Mr. Costello. Anyone else?
Mr. Baldanza. I would as well, Chairman, thank you.
I would like to say that this has been extremely
interesting to us and I think the whole industry. And while
there may be differences among Spirit and many other airlines
in fees that measure generally in the tens or twenties of
dollars, the real outrage we think at Spirit should be on the
fares where the differences measure in the hundreds and
thousands of dollars.
And when customers are asked to pay enormously high fares
and taken advantage of because the supply-demand relationship
or their inability to be flexible takes advantage of them, that
is a more outrageous situation for consumer exploitation than
charging of fees.
Mr. Costello. And that is an issue for a different hearing.
Mr. Baldanza. That is right.
Mr. Costello. Let me just thank all of you for being here
today and offering your testimony and answering questions of
the Members of the Subcommittee.
And Mr. Rivkin, I hope you will go back and pass on to the
Secretary and the Administrator as well that we encourage the
Department to stay on schedule and to move quickly with their
rulemaking.
Mr. Rivkin. I certainly will.
Mr. Costello. With that, this Subcommittee stands
adjourned.
[Whereupon, at 4:31 p.m., the Subcommittee was adjourned.]