Driving the shift is mounting consumer dissatisfaction with airline service and growing exasperation over airlines' fast switch to charging extra fees for services — such as checked baggage and in-flight food — that used to come with the price of a ticket.
Both the Obama administration and Congress are focusing their regulatory efforts on the chronically troubled industry more intently than ever before. So much so that US Airways CEO Doug Parker grumbled publicly earlier this year: "The biggest threat to our viability is government intervention." David Castelveter, spokesman for the trade group Air Transport Association, complains half-jokingly, "We're the most regulated deregulated industry in the country."
In comments filed Thursday in response to a sweeping set of new airline consumer protection rules proposed by Transportation Secretary Ray LaHood, the ATA said its member carriers are generally supportive of LaHood's proposed new rules, with some exceptions.
BACKGROUND: The Transportation Department gets tough
Of course, airlines are easy targets for regulators and legislators, some analysts say.
"The administration and Congress have picked a group for whom there is absolutely no public sympathy," says industry analyst and consultant Darryl Jenkins of the website The Airline Zone. "No matter what you do, if you're the DOT or Congress, you're going to come out looking like a winner 'cause you just whacked someone nobody likes.
"But my real concern is, what is good public policy? I'm afraid that's not really being addressed," Jenkins says.
In 2010 the increased regulatory focus on airlines has led to:
TODAY IN THE SKY: DOT fines United for 'wasting valuable Department resources'
•The Department of Transportation instituting a new rule earlier this year limiting to three hours the length of time passengers can be kept on the tarmac.
•LaHood proposing a raft of new rules that, among other things, would force carriers to disclose all possible fees for services beyond the basic seat on a plane before tickets are bought. Other possible rule changes: restriction on advertising airfares and a ban on peanuts as an in-flight snack. The public comment period on those proposed rules closed Thursday.
•The Federal Aviation Administration imposing huge fines this year on carriers for maintenance and safety rule lapses that did not appear to endanger travelers. That reversed the agency's previous cooperative approach to safety oversight developed during the Bush and Clinton administrations.
•Sen. Jim Webb, D-Va., proposing a bill to make the $7.9 billion in fees collected by airlines last year for services not covered by the ticket price subject to the same 7.5% excise tax as fares.
•The National Mediation Board changing a 70-year-old rule that governs union organizing in the air and rail industries. The change makes it easier for unions to win representation elections at carriers such as Delta, where most employees long have voted to keep unions out.
•The DOT proposing new rules expanding both the number of hours pilots can fly in a day and the number of hours of rest they must get between duty periods, upsetting both airline managers and pilots unions.
"The notion that regulation is creeping back up on us is probably true," says former JetBlue president Russ Chew, who now is managing partner at Nexa Capital Partners, an aviation finance consulting firm in Washington, D.C. "I'm not saying that that's a good thing or a bad thing, but it's in response to political pressure."
And the Regional Airline Association, representing regional carriers, said Thursday in its comments on the proposed new rules that the DOT "should resist imposing industrywide rules in reaction to aberrational behavior or rare incidents caused by weather and other circumstances beyond the control of carriers."
But Transportation Department spokesman Bill Mosley defends the agency's more activist approach, noting that "when Congress deregulated the airline industry, it purposely maintained important provisions to ensure that airlines would provide safe and adequate service and that consumers would not be subjected to unfair or deceptive practices.
"Airline passengers have rights. And the rules we have adopted and proposed are designed to ensure that airlines live up to their obligation to treat people fairly," Mosley says.
Time to get tough?
Consumer advocates say it's past time for the government to get tough on the carriers.
Airlines "are asking travelers to put on a blindfold and hand over their wallets every time they buy a ticket," says Charles Leocha, director of the Consumer Travel Alliance. The alliance is one of three travel consumer advocacy groups behind the MadAsHellAboutHiddenFees.com website and campaign backing LaHood's proposal to make airlines disclose all potential fees through all sales channels.
On Tuesday, the campaign delivered letters of support from more than 300 U.S. and European consumer groups. On Thursday, the campaign delivered a petition bearing more than 50,000 travelers' signatures in support of LaHood's fees disclosure proposal to DOT officials in Washington.
In a recent survey co-sponsored by the alliance, two-thirds of travelers said they were surprised at the airport by extra fees that were not included in the ticket price.
Former Transportation secretary James Burnley doesn't buy that.
"The press has done a very good job of highlighting the fact that fees are being imposed on every service you can think of that airlines offer beyond a seat and seatbelt," says Burnley, who served under President George H.W. Bush and is now a policy consultant to airlines and other transportation companies.
"If (consumers) can figure out how to buy a ticket and get to the airport, and how to get through security, they ought to be able to figure out that there are going to be fees for services these days," Burnley says.
But Kevin Mitchell, head of the Business Travel Coalition, which represents corporate travel managers, says it is critical that there be a rule requiring full disclosure of fees by whatever airline, website or agent is selling the ticket.
"There's zero chance that the airlines are going to voluntarily provide that information," says Mitchell, whose coalition is also a MadAsHellAboutHiddenFees.com co-sponsor.
"The first airline that does will be at a huge price disadvantage. Their fares will look 15% or 20% or 30% more expensive than their competitors'," Mitchell says.
That's probably true.
Airlines began unbundling so-called ancillary services from their basic fare prices two years ago, during the worst financial downturn in industry history. They knew they had to keep their posted fares low to compete for the majority of customers who have proved by their buying behavior that they'll choose a different carrier to save as little as $5 on a round-trip fare.
Yet they also had to find ways to increase revenues to return to profitability. Charging separate fees for checking bags or for providing a number of services that used to be covered by the ticket price allowed them, in effect, to introduce a de facto fare increase without actually raising their posted prices to non-competitive levels.
Tough to comparison shop
In fact, most carriers already disclose their fees on their own websites, where consumers can't easily compare them with prices offered by competing airlines. But they don't provide that same information to the Global Distribution System used by both conventional and online travel agencies to help their customers comparison shop.
A federal rule requiring all airlines to standardize their information might solve that problem. But some carriers object to being required by the government to present their information in a prescribed format to third-party vendors, such as the Sabre and Travelport Global Distribution Systems used by travel agents.
"Our position is that we are transparent," the ATA's Castelveter says, referring to airlines' current policies regarding the display of fee information on their own websites. "And we are working on becoming even more transparent just as fast as we can."
Double-edged problem
For travel consumers, the government's increased regulatory focus on the airline business can cut two ways. New regulations or laws often effectively address specific complaints but can have unintended consequences, too.
The tarmac delay rule is an example.
Since it was implemented, the chances that anyone will be kept onboard a plane for more than three hours during a ground delay — always statistically extremely low — is now almost nil. The threat of a $27,500-per-passenger fine against any airline that allows it to happen all but ensures that it won't happen.
In July, there were just three instances of domestic flights stuck on the ground for more than three hours with passengers aboard, according to airline data reported to the DOT. But there was a 20% increase in the flight cancellation rate as airlines chose to abort flights rather than risk big fines for excessive ground delays. (The actual number of flight cancellations in July was smaller than in July 2009. But there was unusually good flying weather this July in New York, the biggest source of delays in the nation.)
So the question is, which is better for most travelers: being delayed, uncomfortably so, for more than three hours but eventually reaching the destination, or having the flight canceled and scrambling to find an available seat on another flight at a time when planes are 80% full on average?
Meanwhile, opponents still warn that the three-hour tarmac rule will lead to a lot more travelers having their flights canceled than ever were inconvenienced by lengthy ground delays.
Whether the rule change actually leads to that probably won't be known until next winter or spring, when bad weather could play havoc with airline schedules.
Jenkins, who has been feuding publicly with the DOT over the three-hour ground delay rule, warns that the government's new activism will lead to a more adversarial relationship between the industry and regulators that won't serve either side — or consumers — well.
"This is probably the most hostile administration we've ever seen toward airlines," he says. "They're aggressively reaching out to find any excuse they can to punish (airlines). They're moving toward a European form of regulation where both the regulated and regulators are hostile toward each other. And that's about as bad a situation as we had previously with lax oversight of airlines."
Read Full Article »