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Great Debates: Do New Airfare Rules Help Or Hurt Consumers?

First Posted: 03/ 6/2012 11:45 am   Updated: 03/ 6/2012 11:57 am

In February, the Department of Transportation enacted new rules requiring airlines to reveal all mandatory taxes and fees. The new rules will force airlines to advertise prices that include taxes and fees, in an effort to add transparency. Prior to these rules being instated, airlines could tout low "base fares" and leave out any government-mandated taxes, security fees or additional airport charges.

Some airlines, including Spirit, have been slow to adjust, and have even called out the government. The day the new law was passed, Spirit Airlines sent an email to customers saying "New government regulations require us to HIDE taxes in your fares.” Senator Barbara Boxer then slammed Spirit Airlines for "deceiving" the American flying public.

In a letter to the airline, Boxer said, "What the rule says is that you have to tell your customers the full cost of a ticket. It prohibits Spirit or any other airline from advertising fares 'that exclude taxes, fees or other charges since the major impact of such presentations is to confuse and deceive consumers.'"

Travelzoo's US web editor Andrew Young told The Huffington Post at the time that "For the consumer, at first, they may have to recalibrate a bit what they consider a flight deal. It's not that prices are going up, prices are just being displayed differently."

Yet, Spirit CEO Ben Baldanza disagrees. Baldanza tells The Huffington Post that the new DOT rules "ignore deregulation."

So what do you think?

Welcome to a new Huffington Post platform called “Great Debates.” In this new forum, we will pit two bloggers against each other—in this case Spirit CEO Ben Baldanza and Airfarewatchdog's George Hobica—to tackle this question that affects the American public.

Join the debate below and see if Ben or George change your mind.

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New airfare rules help consumers.

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Who makes the better argument?

George Hobica Syndicated travel journalist and founder of Airfarewatchdog.com

You'd never know it from their famously-cheeky (and sometimes offensive) fare sale campaigns (this one, from June, 2010 in the aftermath of the Gulf of Mexico oil spill, was especially tactless), but Spirit Airlines is pretty grumpy these days.

 

Spirit is the airline that the flying public loves to hate. They love it because it frequently has the lowest fares on any given day, sometimes by hundreds of dollars. They hate it because of all the fees -- fees for checked bags, fees for carry-on bags, fees for using their website, and "just because we can" fees, such as their recently-introduced "unintended consequences" fee.

What's that? Unintended consequences? That's a $4 fee, added to all round-trip fares, that Spirit dreamt up in response to a new rule allowing consumers to book airfares and hold the price for up to 24 hours without penalty or payment, as long as the reservation is made seven or more days ahead of travel. Spirit claims that allowing passengers to hold seats that they may have no intention of buying will prevent the airline from selling the seats to passengers who want them, and will eventually lead to higher costs for the airline and thus for the flying public.

So because Spirit is so concerned about higher costs to the flying public, they're adding $4 to every fare purchased, which, of course, will lead to higher costs to the flying public.

Got that? I didn't either.

Spirit was also mightily irked by the new D.O.T. rule requiring airlines to reveal all mandatory taxes and fees in advertised fares as well as earlier in the online search process. That threw cold water on Spirit's barrage of online and emailed fare campaigns touting $3, $9, $16 and similarly low advertised fares, which left out not just mandatory government fees and taxes, but also Spirit's well-hidden $33.98 "passenger usage fee" added to each fare bought online.

Passenger usage fee? What's that you ask? Some nefarious government tax? Nope. Just $34 that goes to Spirit's bottom line, sneakily bundled under a general "taxes and fees" heading attached to each fare, along with the usual mandatory airport and government fees and the aforementioned "unintended consequences" fee. The only way to avoid the "passenger usage fee?" Contrarily, you have to book your ticket at the airport with a live agent, which means a cab ride or parking fee, plus your time, which Spirit knows will end up costing consumers just as much as the fee itself.

In addition to all these non-optional fees, there's a shopping list of "optional" fees. A carry-on bag costs up to $40 each way. A checked bag can cost as much as $43 if paid for at the airport counter and that's only if it weighs 40 pounds or less; heavier than that and fees ranging from $25 to $100 each way kick in. (Most airlines allow you to check up to 50 pounds before "excess weight" charges apply.) And there are charges for seat assignments, too.

Oh, and the seats. Spirit's Airbus A320 aircraft have a "seat pitch" of 28 inches; compare that to JetBlue's 34 inches on the same aircraft (those six extra inches between rows are the difference between having your knee in your face or not).

So why does anyone fly Spirit? A lot of people don't. But to be fair, even with all these fees calculated in, whenever I compare Spirit's fares on a given route and day with those of other airlines, Spirit charges less -- sometimes a lot less -- especially if you book directly on Spirit's website (rather than via Kayak or Travelocity), and even more so if you apply one of their frequent $24, $35 and $50 promo codes.

It's simple. Love them or hate them, for many people in these struggling times, Spirit is all they can afford. It's either Spirit or stay home or drive (and with gas prices hovering at $4 a gallon, it's sometimes cheaper to fly Spirit than hop in the old jalopy). And you can avoid most of the fees if you have to. Pack light and small so that your carry on fits under the seat in front of you (no charge for this). Don't ask for an advance seat assignment. Buy your fare at the airport. Apply a promo code to wipe out the passenger usage fee.

It's not pretty, it's not comfortable and sometimes I think Spirit's whining is just another way to get free publicity. But, with airfares rising, Spirit is growing and in this era of airline consolidation it's the closest thing we still have to a true low-cost airline. Sorry, Southwest, that's not you anymore.

Ben Baldanza CEO & President, Spirit Airlines

Congress deregulated the airline industry in 1978, creating dramatically lower prices and diverse service options for consumers. As an airline made possible by deregulation, Spirit's goal is to offer the lowest base price and let customers choose other services they want.

Two new federal rules that ignore deregulation -- "tax-inclusive pricing" and "free 24-hour holds" -- target airlines and clearly hurt consumers as they mandate less transparency, hide taxes, and will cost millions that inevitably will be passed on to consumers.

The tax-inclusive, or so-called "full-fare" rule, requires airlines to quote fares including government-imposed taxes and fees. This upfront bundling hides how much goes to the government and how much to the airline, with taxes and fees able to be shown only "not prominently" in a separate location. Nobody ever bought at Spirit.com without knowing all taxes and total airfare before making a purchase. At Spirit, sometimes government taxes are more than the fare itself. Studies show hiding taxes make it easy for government to raise taxes further.

Media, echoing government representations, have misinformed the public by saying "the price you now see is the price you'll pay." This is simply not true for most travelers on any airline. Only government-mandated taxes and fees are now required to be shown in the upfront fare. All US airlines offer optional services for a fee for things like overweight baggage, seat assignments, pets, and unaccompanied minors. These optional services certainly change the final price from the first one seen.

On many trips, consumers also rent a car or stay in a hotel, which do not include taxes upfront. Why special rules just for airlines? If the government keeps this misguided rule, consumers can expect more taxes to be hidden in more things they buy, paving the way for still higher taxes.

The 24-hour hold rule appears consumer friendly, but comes at a big cost the government ignores. Airline seats "spoil" like a gallon of milk if not sold. Letting customers hold inventory without paying reduces seats available for sale to others. Customers can "churn," or temporarily hold a seat without paying for it, keeping it out of inventory even longer.

Some counter this by saying "but this rule doesn't apply within seven days of departure." But who commonly books trips inside seven days? Mainly large corporate business customers. Leaving primarily the middle-class and small business travelers who won't get seats or be forced to pay more to cover the added costs of this refund rule. Airlines will carry fewer customers overall, costs will be spread over fewer people, and everyone will pay more. Before DOT imposed this rule, some airlines permitted such cancellations. If this was important to a passenger, they could choose that airline - such choice was the goal of deregulation. But millions of passengers were happy to get a lower price on a non-refundable ticket.

Spirit believes in low fares. Our optional pricing structure has saved customers millions by allowing them to pay only for what they want. Many fly Spirit who could not afford to fly on other airlines -- and our "optional pricing" model creates this opportunity.

Spirit has lowered its base fares every time a service has been unbundled for an optional fee. The total price, fare plus fees, paid on Spirit today has grown at a significantly smaller rate than total prices on other airlines and far less than increases in fuel costs. Disclosure is about showing what you pay, which Spirit does very clearly and consistently. But disclosure should also be about showing what you can avoid paying for things you don't need. This happens a lot on other airlines, but not on Spirit.

Spirit has a good relationship with government officials and Congress -- many have complimented our innovations, low fares, and compliance. The DOT has good intentions for the public, but on these issues they simply misfired. Many who oppose our view have no real concern to keep fares low for ordinary consumers, but are looking out for large corporate interests. Their vision ensures individual consumers and small businesses will pay significantly more for air travel. It's shameful these special interest groups are attacking Spirit, a low-cost airline looking out for the little guy.

The airline industry is an important catalyst for economic activity. The consequences and costs of these rules, and others on the way, ripple through our Nation's economy and cost Americans jobs. Making air travel more expensive hurts the broader economy.

Spirit believes by ignoring Congressional intent to deregulate airline prices and services, today's government regulators are pushing us back to unnecessary and costly regulation in an effort to homogenize the industry. Consumers should vote with their feet and not be told by the government what product features they must accept at any cost. Let's reduce regulations that burden the economy and the public the industry serves.

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Filed by Kate Auletta  |