By unbundling, airlines make a bundle

What’s an airline ticket?

Is it just an agreement to carry you from point A to point B? Or is there more to it?

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Airline executives seem to think that a ticket is a seat on a plane, and that’s all. Lately, the industry has been busy unbundling services that traditionally came with a seat, such as baggage checking, seat reservations and even the ability to pay by credit card.

The benefits to the carrier are clear: An airline can quote a low base fare and then add extras, dramatically boosting its profits.

Take luggage fees, for instance. During the first nine months of 2007, domestic airlines collected $340 million in baggage surcharges. The next year, most major airlines began charging passengers for the first checked bag, lifting the take to nearly $2 billion in the first nine months of 2009. Delta Air Lines led the flock with $550 million in collected baggage fees (when combined with now-merged Northwest Airlines), followed by American Airlines ($346 million) and US Airways ($309 million).

The benefits of those practices are less clear to the consumer. On the one hand, it’s nice to pay only for what you use. So if you don’t want to check a bag, don’t need a confirmed seat assignment and pay with cash, your seat costs less. On the other hand, I know of no airline that lowered its fares after it unbundled its services; it just asked passengers to begin paying for something it used to include in a ticket.

In a way, airlines are also the beneficiaries of our collective assumptions about air travel. Many of us (hint: It’s the ones who refer to flight attendants as stewardesses) remain in denial about airline deregulation. Most of us believe that an airline ticket should still include the ability to check a bag, reserve a seat and get a free drink. Increasingly, it does not.

So who’s right? The airlines are, at least for now. The federal government doesn’t define an airline ticket, and it buys the seductive airline argument that unbundling helps customers.

“The department does not believe that people should be required to pay for things they do not want or need,” said Bill Mosley, a spokesman for the Department of Transportation (DOT). Which isn’t to say that anything goes, he added. “If a carrier tried to charge for something that is essential to a passenger’s air transportation — for example, to check in or to have any seat or to use the jetway — we would argue that the carrier was violating our full-fare advertising rule or was otherwise involved in a prohibited unfair practice.”

Many passengers think that unbundling, as it’s practiced now, is wrong.

Bonnie Roberts, who works for a nonprofit organization in West Palm Beach, Fla., recently booked a flight through the Spirit Airways site from Fort Lauderdale, Fla., to Washington. After she paid for the ticket, the airline hit her with a surprise surcharge: “Every seat — including the middle seat — had a cost of between $8 and $40 each way for a confirmed reservation,” she said. There was also a luggage fee: $19 if she paid online, or $25 at the airport, for the first checked bag.

“When I called to complain about the deception, I was told I had purchased a nonrefundable ticket,” she said.

What if Spirit had quoted her a fare that included a checked bag and a seat on the plane, as some other airlines do? Sure, the fare would have been a little higher, but Roberts wouldn’t have felt hoodwinked. Spirit could still “unbundle” the fare after she made a purchasing decision by allowing her to opt out of checking a bag or reserving a seat, which would lower her price.

Why doesn’t the government define what’s in an airline ticket so consumers can make a more informed purchasing decision? The DOT could conceivably release a so-called “rulemaking” on tickets. That’s the same administrative law maneuver that recently gave us a tarmac-delay rule under which fines can be imposed on airlines that keep passengers waiting in parked planes for more than three hours.

“I believe the DOT has the regulatory power to come out if they wanted to and propose a regulation to cover things like luggage fees, or really any other ancillary fees,” said Jami Counter, a former airline e-commerce executive who is now senior director of TripAdvisor Flights. “If there are abuses down the road, I think you’ll see more DOT or congressional oversight on this issue.”

That could happen sooner rather than later. Sen. Robert Menendez (D-N.J.), who last year introduced the Clear Airfares Act, a law designed to make airline ticket prices more transparent, told me that he might encourage the DOT to consider a rulemaking.

“The bottom line is that from the time they go online to book tickets to the time they’ve left baggage claim, families never really know what fees to expect or what exactly they’re paying for,” Menendez told me.

If there are ways to make sure passengers have a good handle on what they’re paying, he added, “I’m going to consider them.”

(Photo: zerega/Flickr Creative Commons)