Rough landing for airfare price rule

120213_spirit_airlines_ap_605.jpg

Which airfare is more transparent: one that combines the base fare and taxes or one that discloses the taxes separately?

That question is central to a battle that has divided the airline industry, lawmakers and the Department of Transportation.

A rule requiring airlines to include all taxes and fees in price quotes went into effect last month, and things have gotten bumpy in flight.

Low-cost carrier Spirit Airlines immediately initiated a campaign asserting the government is hiding taxes in fares. Its website “Keep My Fares Low” says the Obama administration has more in mind than helping consumers.

“If the government can hide taxes in your airfares, then they can carry out their hidden agenda and quietly increase their taxes,” Spirit’s website states. “Yes, such talks are already underway,” it adds.

The airline industry often argues it is taxed at inordinately high rates, and other facets of the travel industry are not yet subject to including taxes and fees in quotes provided to consumers. According to industry group Airlines for America, the tax burden on a $300 round-trip ticket has risen from $22 to $61 since 1972. That includes a 7.5 percent federal excise tax, a flight segment tax, a Sept. 11 security fee and passenger facility charges.

Along with Allegiant and Southwest, Spirit filed suit against the rule in November.

Spirit, which before the new rule offered enticingly low pre-tax fares to attract customers, has even added a $2 DOT “unintended consequences” fee to its tickets, in response to another DOT rule that requires airlines to hold their fares for 24 hours after booking.

“Rather than coming up with new and unnecessary fees to charge their customers, airlines should focus on providing fair and transparent service — that’s what our common-sense rules are designed to ensure,” said Transportation Secretary Ray LaHood in response to Spirit’s $2 DOT fee.

Spirit’s PR gambit has upset Sen. Barbara Boxer (D-Calif.). She sent Spirit CEO Ben Baldanza a letter urging the airline to “send a clarifying email to your customers and remove the misleading information from your website.” Spirit has not: Prominently displayed on its website is still a warning about the regulations.

“The American people have the right to know what they’re paying for a ticket. Spirit’s campaign is deliberately misleading and will fall flat on its face,” Boxer said in an email to POLITICO.

“We are disappointed in her letter. We would normally expect senators to encourage First Amendment protection,” a Spirit spokeswoman said at the time. “We have always shown taxes before someone purchased. They now want them hidden. It is wrong and we will fight for consumers.”

The smaller, nonlegacy carrier is fighting the government in as cost-effective a manner as possible, earning media exposure with its campaign. Baldanza told BusinessWeek that because the airline can’t afford representation with A4A, it has to take its case to the public.

DOT said Spirit’s effort is misguided: A letter from DOT general counsel Robert Rivkin informed Spirit’s general counsel Thomas Canfield that airlines can be as transparent as they want to be in their fees, and slammed the airline’s pre-rule pricing system.

“Deceptive presentations that highlight a low ‘base fare’ (such as the $9 fares advertised by Spirit that include neither government taxes nor Spirit’s own nonoptional fees) mislead and confuse consumers,” wrote Rivkin on Jan. 26. “Spirit would be free to add the statement ‘fares include $XX.XX in taxes and government fees’ in all its fare advertising, provided it did so in a nondeceptive manner.”

The Business Travel Coalition also speculates Spirit’s campaign will backfire, saying it “will likely cause members of Congress to enact significantly expanded airline consumer-protection legislation in the future.”

But the first congressional action may be to block DOT’s rule.

In the House, Rep. Tom Graves (R-Ga.) has gathered more than 30 co-sponsors on a bill that would require that taxes and fees “be disclosed clearly and separately from the base airfare.”

“We all expect the federal government to be very transparent in that there’s a price for airfare plus taxes and fees. That’s great, now let’s see them all — don’t embed them in one price,” Graves told POLITICO.

Graves thinks DOT’s rule is designed to hide its assorted taxes and said consumers are smart enough to figure out the final ticket price even if those fees appear later. “Consumers are very capable of making decisions when they have all the facts,” he said.

Fliers should be angry at the government, not the airlines, Graves said. “The cost of their product, the service they’re providing is upfront. Now if the consumer wants to get upset that [airfare] doubles in cost because all of a sudden you’ve got federal taxes and fees involved, … then you get mad at the federal government.”

A4A also hopes to reverse the pricing rules. Spokesman Steve Lott said in an email that his organization wants “DOT to return to its previous regulation, which does not artificially distort the base price of an airline ticket, and ensures that customers always know exactly how much they are paying in federal aviation taxes and fees before they decide to purchase.”

Southwest Airlines also opposes the advertising rule, though not other pieces of DOT regulations that Spirit is challenging, like the 24-hour holding rule. Southwest supports the content of Graves’s bill but has “not been involved with Rep. Graves on drafting or introducing his bill.”

“Under the previous rule, taxes and fees were transparent to the consumer because they were stated separately in a clear and easy to understand manner. In contrast, the new rule requires airlines to hide taxes and fees in the advertised fare,” a spokeswoman said in an email. “Southwest Airlines is the low fare airline that doesn’t charge all of the hidden fees that the other airlines charge, and we’re all for transparency for the customer. One of the biggest problems with the DOT rule is that it does not address all of those hidden fees.”

Rep. Andy Harris (R-Md.), a co-sponsor of Graves’s bill, said the idea is to still prominently display fees and taxes and include the total price.

“The average consumer is just going to go well, ‘that’s what the airlines charge.’ But in fact, people ought to know just how high those taxes and fees are,” Harris said. “It makes it too easy to hide the taxes and fees[with] the current regulations.”

Graves’s bill has been referred to the House Transportation and Infrastructure Committee, where Chairman John Mica (R-Fla.) has his hands more than full with the long-term transportation bill.

“I haven’t looked at it, I’ve been slightly distracted,” Mica quipped in response to a question about Graves’s bill.

The idea of blocking the DOT regulation failed to hitch a ride on the Federal Aviation Administration bill that Congress sent to President Barack Obama last week, and other opportunities, like the payroll tax extension, may be few and far between for something this controversial.

“I am for full disclosure in advertising. I think the American people should know if they’re going to purchase an airline ticket [for] the true cost, not just the advertised cost but the true cost in taxes, fees and everything,” said Illinois Rep. Jerry Costello, the top Democrat on T&I’s Aviation Subcommittee. “I could go on and on and tell you other things, but full disclosure is the bottom line. The consumer deserves that.”