Will a new bill hold the travel industry accountable?

Imagine a world where your cruise line or airline pays you if it fails to keep its schedule, you aren’t penalized for a canceled reservation if your hotel is able to resell the room and ticket change fees are related to the actual cost of changing your flight schedule.

Impossible, right?

There’s something about travel that’s profoundly unfair. It’s hard for the average traveler to articulate, beyond saying it just feels wrong. For example, if you’re late for a flight, you lose your entire ticket. If an airline is late, it doesn’t even have to pay a penalty. In fact, its contract of carriage — the legal agreement between you and the airline — specifically says the airline doesn’t have to keep its own schedule.

And take a look at how airlines are punished. American Airlines recently paid $250,000 in Department of Transportation penalties for failing to offer timely refunds to its customers.

Consumer advocate Ben Edelman ran the numbers and found that American’s fine was laughably small; the latest DOT fine came to roughly .00000625 of the airline’s annual revenue, by his calculations. For the average American, that would be like getting a 35 cent speeding ticket.

“It’s pocket change,” Edelman says.

Turn the tables, though, and look at the how airlines punish passengers when they change their plans. Let’s say you want to reschedule a trip. A ticket-change fee can cost anywhere from $200 for a domestic ticket to a whopping $750 for international fares, a steep penalty that can exceed the value of the ticket. Airlines collected an eye-popping $2.9 billion in ticket-change fees last year.

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“Penalties for ticket changes should be decreased,” says Jonathan Farley, a mathematician from Rochester, N.Y. He and other passengers say the double standards — we can cancel a trip, you can’t — should be removed and a more uniform standard applied. Which is to say, if a travel company calls off a cruise, flight, or tour, it should face similar consequences to the passengers who change their plans.

Ashley Raiteri, the chief information officer of AirHelp, a company that helps secure compensation for delayed airline passengers, notes that European consumer protection laws already compel airlines to take financial responsibility for delays and cancellations. “It is true that there is an imbalance,” she says. “And the balance ought to be shifted.”

Hotels also have double standards. If a resort can’t honor a reservation, state innkeeper laws typically allow it to cancel your reservation without consequences. Many hotels will, as a courtesy, voluntarily send you to another property and pay for a one-night stay, but they are not required to by law, and they sometimes don’t. Yet they punish guests by charging a full night if they cancel their reservations or change their travel dates. And let’s not even start on the one-sided contracts that airlines, car-rental agencies, cruise lines and tour operators force you to agree to. One set of standards for them, another for you.

There are two schools of thought about reducing this inequity. One holds that market forces can pressure travel companies into creating fairer and more customer-friendly policies. For example, US Airways stopped including soft drinks in its fares several years ago after its passengers protested and competitors refused to follow the move. The other is that only the government can address this issue, especially given the lack of competition in some businesses.

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I belong to the second school: Common-sense legislation that requires everyone to live by the same rules might help right the balance.

One possible solution is the proposed Forbid Airlines from Imposing Ridiculous Fees Act of 2016, which would prohibit airlines from imposing fees that are unreasonable or disproportionate to the costs incurred by the air carrier — specifically, fees for changes, cancellations and checked baggage. It also set federal standards for establishing a reasonable fee. The bill, introduced last spring by Sen. Edward J. Markey, (D-Mass.) is still working its way through the system, most recently being proposed as an amendment to the Federal Aviation Administration reauthorization bill.

The sentiment behind the bill is sound: You can’t hold yourself to one standard and your customers to another. And that is true not only for airlines but for the rest of the travel industry. There’s something almost patriotic about making the rules apply to everyone.

In the meantime, there are steps travelers can take to protect themselves. Cat Holladay, a small-business consultant based in Gainesville, Fla., says that her favorite workaround is joining frequent-flier or frequent-guest programs, which can lessen the penalties. When you need to change your plans, she says, “loyalty matters.” Selecting the right travel insurance policy can also protect you in the case of unexpected trip interruptions.

More drastic measures include driving instead of flying and staying with friends rather than at hotels. But if the invisible hand of market forces isn’t making the travel industry fair, then maybe thoughtful regulation can offer travelers a helpful hand.

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Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or check out his adventures on his family adventure travel site. Contact him at chris@elliott.org.

  • finance_tony

    “Imagine a world where …you aren’t penalized for a canceled reservation if your hotel is able to resell the room..”

    So you cancel your reservation. You had a suite, and the hotel is able to upgrade a member with status, who booked a regular room online, to your suite. Now that person’s room is available, but it was booked with points+cash, and the new occupant of that room was a guest who booked it through Expedia. How much are you “penalized?” Was the hotel able to resell your room? How does one propose this is tracked?

    I think the options of refundable and nonrefundable work quite well in hotels.

  • AJPeabody

    Logically, the price of a non-refundable ticket or room cost should be set by comparing the nominal full fare with the nonrefundable cost plus expected penalties plus expected income from reselling the cancelled service. I suspect that the reason for the wide disparity between fully refundable and nonrefundable is that there is considerable income from those factors, as well as significant shortfall in income from late cancelled full fare reservations where the service is sold at a discount.

    Removing the various penalties from a nonrefundable cost will require that cost to be increased to balance the books.

  • Michael__K

    It doesn’t need to be that complicated. Divide the costs of the rooms which were ultimately unoccupied because of cancellations by the number of guests who canceled. Car rental companies already have to track similar scenarios if they need to prove “loss of use” to an insurance company.

    Increasingly, the fully nonrefundable option does not even exist beyond some number of days before arrival.

  • finance_tony

    I’m sure you wouldn’t be upset if part of the cost of a corner suite booked one day out was attributed to your cancellation of an interior, no-view room booked six months in advance, right? (IOW, yes, it is complicated)

  • Michael__K

    If you are okay with the hotel already having a policy today which punishes a 6-month prior cancellation and a 1-day prior cancellation equally, then why would it be a problem if that part remains unchanged?
    The simple approach is that each customer gets the same percentage of their room price back, after subtracting the cost of the rooms ultimately unoccupied because of cancellations.

  • finance_tony

    And yet that has nothing to do with “you aren’t penalized for a canceled reservation if your hotel is able to resell the room” which is the point in the post I discussed in my very first reply.

    But as you always need to have the last word, go ahead.

  • Michael__K

    How does it have nothing to do with it? If the hotel is able to resell all the canceled rooms, everyone gets their money back. If the hotel sells some of the canceled rooms, then instead of arbitrarily picking winners and losers, then everyone gets the same share back.

  • Bill___A

    Although it is entirely possible to compose a law which kept things fair for travel vendors and passengers/customers alike, the chance of one getting passed is slim to none. There are too many special interest groups, things don’t get done, or some small regulatory change which is simple gets hailed as some major victory.

  • taxed2themax

    I think if the article is going to extrapoliate AMR’s fee relative to their income, then perhaps it might be equally good to see what $200 (the minimum quoted fee in the article) looks like against what the US’ BLS shows under the May 2016 National Occupational Employment Statistics as being the average for all occupations (codes 00-0000), that being $49,630 which then says $200 is roughly equal to 0.00402 of the annual revenue… While far more than AMR’s .00000625 figure, I think it also does somewhat show the fee’s annualized impact by the passenger side too.

  • Bill

    I think his point was, I reserve a room for $100, you reserve one for $200, and someone else reserves one of $1000, and none of us show up. The hotel sells “a room” for $175. Your logic suggests each of the three of us are penalized (100+200+1000-175)/3, or $375. That’s a pretty steep penalty for a $100 room.
    This process seems very easy to track in a B&B with a half dozen rooms with conspicuous categories (single, double, etc). But it gets complicated when the room categories vary over many layers, people being turned away might be the night before, or three weeks earlier, or even a walk up that evening.
    It comes down to a contract. You contract with a hotel to make a room available for your exclusive use. Then you don’t use. Contract law generally stipulates they met the terms of the contract by having the room available, and you backed out. You pay.
    I agree when the hotel doesn’t meet the contract, there needs to be similar consideration given.

  • Bill

    I think it would be more accurate to compare it to a late fee on a utility bill (more like $20). Thus, the impact of paying your electric bill is 0.000402. The $250K is, after all, a late fee!

  • Bill

    There are assorted logical issues here.
    1. It is absurd to compare fines to annual revenue. Aside from ignoring the obvious gap in “revenue” and “profit” or margin, this suggests a person “wronged” by a large airline is more harmed than his twin wronged in the same way by a small airline. It extrapolates to a poor person is hurt greater than a wealthy person, so maybe the penalty should be based on the effect on the victim? How does that get measured? Is the goal to provide a financial dissuasion from wrongdoing, or to exact a painful revenge resulting in financial harm? Is the goal to hurt the shareholders of publicly traded companies so that it weakens the company’s ability to do business at all? Who exactly wins in this scenario?? Not the customer. Not the economy. Not the business.
    2. I certainly agree that it is unacceptable for a provider (hotel, car rental, airline, etc) to fail to provide a product (room, car, “seat”) as contracted and then do nothing, it gets rather sticky when we add all sorts of conditions to it. There is a reason the contract of carriage does not specify timing. Maintenance happens, and it SHOULD! Weather happens. Traffic happens (airport, arrival/departure, en route, etc). If the airline were responsible for every minute change to schedule, it would need to roll that into the cost of the ticket. Prices go up. If a delay costs $X per passenger, and there is a broken seat, the airline can fix the seat and pay everyone, or not fix the seat and pay only one person. That’s fine unless you are the person.
    3. The economy can either be “cost based” or “value based”. Cost based means everything (the fare, the fees, etc) are ALL tied to the cost of providing that product. That requires regulation. The US deregulated the airline industry in 1978. Value (or market) based, is based on what people will pay for a product. That’s why a room in the downtown hotel is one price on Tuesday and another price on Saturday. One price in June and another in February. Communism tried to make things cost based. Capitalism aims for value based. We can’t have both. Which do you want?

  • Michael__K

    In your example, if a hotel sells a room for $175 then with the approach I suggested everyone would get a little more than 13% back 175/(100+200+1000). If instead you prefer to do it by cancellation time, then the person who canceled first gets their money back.
    I’m not even suggesting we pass a law which makes this mandatory. Just pointing out that implementing something like what Chris suggested — voluntarily or otherwise — does not need to be super complicated (especially if you don’t think rewards programs are super complicated).
    BTW, contracts are subject to all sorts of implicit provisions and presumptions based on state laws, which can give consumers more rights than they realize. Although air carriers enjoy unique and considerable exemptions from implied contract provisions under our courts’ interpretation of the Airline Deregulation Act.

  • IGoEverywhere

    There are already options in place to have no penalties. You simply pay the price for the fully refundable fares. I believe the cost to be 3 x’s more than a super saver, so throwing away a ticket and starting over again is sometimes cheaper. The traveling public brought this upon themselves, so I have little to no sympathy for their complaints.
    There were 6 airfares in 1965 that applied to 99% of all airlines:
    1) First Class
    2) One way
    3) Roundtrip
    4) Family Plan
    5) Active Military
    6) Children discounts
    Then People’s Express enters into the mix with their wonderfully low garbage fares with no changes no refunds. Now the legacies can’t handle the pressure and start the never ending battle of the fare wars. At first it was use it or lose it, then emergencies were allowed (too many liars so that was removed), and whoo hoo, penalties to change evolved. We did it ourselves.
    We demand cheap fares, but want to have no rules associated with those fares.
    What’s that about cake and eating? No, you cannot have it both ways
    The only slight breath of fresh air in the airline business is Southwest; they don’t charge any penalties to change your ticket, just the difference in todays cost of the ticket.
    Hotels, cruise ships, tour companies all believe in one single conclusion. YOU SHOULD HAVE PURCHASED INSURANCE!

  • Bill

    You hit the nail on the head. Insurance is gambling scheme whereby the underwriter bets that some percentage of policies will make a claim, and then charge a little more than that percentage, hoping to average out ahead.
    People are expecting airlines/hotels/cruiselines to pay for all of the customers’ issues. Got sick? Refund. Plans changed? Refund. Missed connection? Refund. They basically expect the service provider to cover their own insurance. The provider can do that if they essentially add that “premium” to the basic price. THAT is the difference between “refundable” and “non-refundable” fares…the “insurance cost” of not getting that revenue replaced.
    But we want low prices and full service, and compensation at no extra cost.
    If you want insurance, buy it. If you don’t, don’t expect the airline to provide it for free by refunding for everything that goes wrong in your schedule…AFTER you bought the “non-refundable” ticket!

  • cscasi

    I did see that on one post, so not “always”, eh? At least there were more up votes than just his one time which may just have been a mistake.

  • Michael__K

    All 3 of his comments had a self-vote at the time I replied.

  • James

    Congratulations on misreading the article — it isn’t about whether passengers should get insurance, or what is a fair charge for canceling a hotel reservation. It is about getting parity between the parties.

    If a hotel can cancel you without a penalty, then why should it be allowed to assess a penalty when you cancel?

    If airlines suffer no penalty for failing to meet schedules, why should you be penalized for being late to an airport?

    If cruise lines can unilaterally change their schedules without compensation, why should you be penalized for canceling a cruise?

    One solution is to eliminate these fees — another solution is to require airlines to compensate for late flights (a la EU 261.) Require hotels that cancel reservations to provide alternate accommodation. Require cruise lines that change itineraries to provide compensation, up to allowing passengers to get full refunds.

  • cscasi

    Perhaps. I can only count what I can see at the time I posted the above; and it is still the same; one.

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