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Politics and Pricing – a match made in hell.

April 28, 2014


The flap over how to display air fare offers in USA.
Money and Airfares
There is a proposed law in the USA called H.R.4156 more formally “Transparent Airfares Act of 2014” which amends the current law now on the books and passed in “2012 49 U.S. Code § 41712 – Unfair and deceptive practices and unfair methods of competition”. More commonly called the Shuster/De Fazio Law.
The original law can be found here: the wording of the new act can be found in the US Congressional record. here: Don’t worry too much I have pulled out the respective texts – see sidebar below.

Why the flap?

Last year three US airlines (Southwest, Spirit and Allegiant) ironically all categorized as low cost carriers, had a court fight with the US Dept of Transportation of the provisions of 49 U.S. Code § 41712. Read the Bloomberg article here:

The US Airlines association now known as A4A also supported the case and has been prominent is driving new rules and/or regulation that would permit airline pricing to be more like conventional pricing. In the USA – the prices for general retail products, are presented as not tax inclusive. Airlines however must show all fares, fees and taxes into a total all in price. The purpose of the revision would presumably permit the airlines to display different forms of prices leading with a base price.

The folks sponsoring this bill are from the committee who regulates the airline industry. It seems to be a reasonable and relatively minor change. However there are many people who are against it. Here is a smattering of the rhetoric: and here is the Opinion o the Gry

How is it done in other countries – the best example is the European Legislation. This is contained in several statutes but the clearest example is Regulation 1008/2008 I have copied in the relevant working into the sidebar.

In my view the big issue is that the airlines want to be treated like other product categories and to price with a base price of less than the total price to be paid by the individual. This is not sinister and a conscious effort to trick the consumer but it will likely lead to more confusion by the consumer. Diving a little bit into the arcane nature of airline pricing – we find that the lumping of fees and taxes is frequently done together. The complexity of fees and “near taxes” which are not really taxes but are called fees and taxes gives the impression that they are indeed a regulatory imposed charge is false. They are not taxes. Indeed some are displayed as Taxes and yet separately fees and taxes. For an allegedly de-regulated marketplace the sale of travel products is probably one of the most complex and heavily taxed regime’s in the world.

It will get worse.

The introduction of ancillary charges including seats and bags will add even more complexity to the task of the consumer to figure out how much he is going to pay for that trip. Should that be allowed? I believe that as long as there is a clear bottom line price laid out for the consumer for a viable product then the mechanism for pricing should be clear and simple. The fact that regulators love to tax the traveller – as its an easy collection market will make the consumer base subject to more and greater tax burden is inevitable.

Frankly at the end of the day – Governments should get out of the complexity and collect a single tax and reduce the tax burden of collection. Then a simple regulation set of 2-3 taxation charges would be met by the consumer with open arms.


SIDE BAR – The relevant text from the current law and the proposed change.

For the purpose of the story I have pulled out the text of the existing law and the relevant section on airfare price disclosure:

Section 1 – Existing law.

c) Disclosure Requirement for Sellers of Tickets for Flights.—
(1) In general.— It shall be an unfair or deceptive practice under subsection (a) for any ticket agent, air carrier, foreign air carrier, or other person offering to sell tickets for air transportation on a flight of an air carrier to fail to disclose, whether verbally in oral communication or in writing in written or electronic communication, prior to the purchase of a ticket—
(A) the name of the air carrier providing the air transportation; and
(B) if the flight has more than one flight segment, the name of each air carrier providing the air transportation for each such flight segment.
(2) Internet offers.— In the case of an offer to sell tickets described in paragraph (1) on an Internet Web site, disclosure of the information required by paragraph (1) shall be provided on the first display of the Web site following a search of a requested itinerary in a format that is easily visible to a viewer.

Section 2 New law

The new law’s entire text is:
a) Full Fare Advertising- Section 41712 of title 49, United States Code, is amended by adding at the end the following:
`(d) Full Fare Advertising-
`(1) IN GENERAL- It shall not be an unfair or deceptive practice under subsection (a) for a covered entity to state in an advertisement or solicitation for passenger air transportation the base airfare for the air transportation if the covered entity clearly and separately discloses–
`(A) the government-imposed taxes and fees associated with the air transportation; and
`(B) the total cost of the air transportation.
`(A) IN GENERAL- For purposes of paragraph (1), the information described in paragraphs (1)(A) and (1)(B) shall be disclosed in the advertisement or solicitation in a manner that clearly presents the information to the consumer.
`(B) INTERNET ADVERTISEMENTS AND SOLICITATIONS- For purposes of paragraph (1), with respect to an advertisement or solicitation for passenger air transportation that appears on an Internet Web site, the information described in paragraphs (1)(A) and (1)(B) may be disclosed through a link or pop-up, as such terms may be defined by the Secretary, that displays the information in a manner that is easily accessible and viewable by the consumer.
`(3) DEFINITIONS- In this subsection, the following definitions apply:
`(A) BASE AIRFARE- The term `base airfare’ means the cost of passenger air transportation, excluding government-imposed taxes and fees.
`(B) COVERED ENTITY- The term `covered entity’ means an air carrier, including an indirect air carrier, foreign carrier, ticket agent, or other person offering to sell tickets for passenger air transportation or a tour or tour component that must be purchased with air transportation.’.
(b) Limitation on Statutory Construction- Nothing in the amendment made by subsection (a) may be construed to affect any obligation of a person that sells air transportation to disclose the total cost of the air transportation, including government-imposed taxes and fees, prior to purchase of the air transportation.
(c) Regulations- Not later than 120 days after the date of enactment of this Act, the Secretary shall issue final regulations to carry out the amendment made by subsection (a).
(d) Effective Date- This Act, and the amendments made by this Act, shall take effect on the earlier of–
(1) the effective date of regulations issued under subsection (c); and
(2) the date that is 180 days after the date of enactment of this Act.

How is it done in other countries – the best example is the European Legislation. This is contained in several statutes but the clearest example is Regulation 1008/2008

Section 3

EU regulation 1008/2008 Section 16 states:

Customers should be able to compare effectively the prices for air services of different airlines. Therefore the final price
to be paid by the customer for air services originating in the Community should at all times be indicated, inclusive of all
taxes, charges and fees. Community air carriers are also encouraged to indicate the final price for their air services from third countries to the Community.

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