Editorial: The Regulations That Bind

With the start of the 2012 US presidential campaign, there has been a lot of heated talk about the role of federal government, which is mostly charged with over-reaching and creating more problems than it solves.

The big exception, however, is the airline industry. When it comes to the business of how to get the flying public to their destinations safely, on time, in reasonable comfort and with their bags in synch, then it seems that the only experts are in Congress and government agencies.

In its latest interference with airline operations, the US Dept. of Transportation (DOT) is proposing to greatly expand regulatory reporting requirements for the industry, including mandating that US carriers provide breakdowns of revenue generated by ancillary charges.

DOT wants airlines to report more information on the amount and types of fees collected from passengers, including fees for preferred seat assignments and onboard services, as well as the number of checked bags and mishandled wheelchairs.

Transportation Secretary Ray LaHood says passengers deserve better information about how airlines are performing, particularly when it comes to fees.

Why?

The US airline industry is deregulated, airlines are not a public utility provider, and what passengers care about is understanding how much they will pay and for what. Provided airlines make the price of their airfares clear and are equally upfront about additional fees, the public does not need to know the details of how the overall ticket price fits into an airline’s business plan.

The automotive industry is just one example of how “unbundling” is a common and accepted business practice in consumer marketing. Automobile dealerships typically offer a dazzling array of options on top of the basic, standard, no-frills model: the “sports” model, the “comfort” package, or a host of à la carte options such as better stereo systems, GPS navigation, custom trims and chrome wheels. The buyer makes his or her decision based on what is desired and what fits their budget. Why should shopping for an airline ticket be any different? A passenger can choose the cheapest option that gets them from A to B, perhaps not at the most convenient time or by the shortest route; or they can customize a ticket with additional service options.

Burdening the US airline industry with additional, time-consuming and expensive requirements to detail and report these fees serves no useful purpose. 

But there’s an even more important reason why this proposal should be scrapped: It doesn’t address the things that passengers do care about. Take a look at our passenger self-service survey, based on an exclusive briefing by SITA on the results of its 2011 analysis of feedback from passengers at airports worldwide traveling on 73 airlines (page 30).  The service aspect they overwhelmingly care most about is one that DOT already requires US airlines to report: on-time performance.

As passengers become more tech-savvy and have more access to smartphones and other gadgets, they are unquestionably showing greater interest in using the growing array of self-service options, from online check-in to mobile boarding passes. These are the type of offerings that airlines can choose to provide based on customer demand, using them as competitive differentiators if it makes sound business sense.

The same is true of ancillary fees. An airline’s concern should focus on what makes the best business sense. That is not DOT’s concern.

There’s another twist to the ancillary fees trend that is worth highlighting and is demonstrated by our cover story on Spirit Airlines, a US pioneer in the practice of unbundling (page 24). The Ft. Lauderdale, Fla.-based LCC sparked much controversy—and outraged indignation from lawmakers—when it moved to an ancillary fee business model which now includes charging for carry-on bags that are stored in overhead bins. But as president and CEO Ben Baldanza points out, the way Spirit chooses to operate has not hurt business, even when competitor airlines have not followed suit. Customers who choose Spirit seem to like the ability to pick-and-choose what they are prepared to pay for, while not being charged for services they don’t want.

Passengers who prefer an all-in service can take their money elsewhere; and Spirit knows it. That’s free-market economics at work. And DOT has no business interfering with it.