Should airlines be re-regulated?

The days of a freewheeling, lightly regulated airline industry, in which a carrier can charge whatever fees and fares it pleases, may be nearing an end.

A confluence of events is pressuring government regulators to take action that, depending on your point of view, will make air travel less expensive or interfere with a free market, driving ticket prices higher.

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Soaring airfares and passenger discontent are stoking the long-dormant embers of regulation in Washington. Last week, they resulted in a request by a prominent airline-traveler advocacy organization for regulations limiting fees for changes and cancellations in foreign air travel and to demands by a leading business travel organization for the Department of Transportation to investigate fuel surcharges. Together, those twin efforts could set the stage for a serious and concerted push to rethink the government’s oversight of the commercial aviation sector.

The latest plunge of the airline-regulation roller coaster is worth following, says Edward Hasbrouck, an industry-watcher.

“Given how lax the DOT has been in policing its existing rules, such as those on fuel surcharges, I expect DOT will argue that airlines can make these fees as high as they like, as long as they are clearly disclosed,” he says.

That is, unless enough passengers speak up. And they might. This month, DOT issued its 2014 airline report card, which showed service complaints had risen by 17.9 percent last year, to 15,532, up from 13,176 a year before. Fliers haven’t been this unhappy with airlines since 2001, when they filed 16,508 complaints with the government.

At the same time, North American airlines are expected to post a $11.9 billion profit for 2014, up from $5.8 billion a year before. Part of the reason is that the government green-lighted several mergers — including between American Airlines and US Airways — which reduced some competition. Another reason is the dramatic drop in fuel prices, which so far hasn’t translated into lower fares.

Under those circumstances, it’s likelier that consumers will “support watchdog organizations that advocate for them with agencies like DOT,” Hasbrouck says.

One of them is FlyersRights.org, the organization largely responsible for regulations that limited the amount of time airlines could keep passengers waiting on a plane. Last Wednesday, it asked regulators to make a rule imposing “reasonable regulations limiting the extent of change and cancellation fees in foreign air transportation.” It also asked authorities to reconsider its antitrust exemptions given to international airline alliances.

Airlines charge between $200 and $750 to change a ticket, which FlyersRights.org contends is unreasonable. It wants change fees capped at $100 unless an airline can show higher costs.

“In most instances, the airline bears no burden from passengers changing flights,” says Paul Hudson, FlyersRights.org’s president. “Quite the opposite.”

He notes that passengers typically have to pay the differential in price for the new flight along with a hefty change fee. Yet the costs associated with shifting a passenger’s electronic reservation from one flight to another are “minimal,” and the effect of changing that passenger from what is typically a cheaper to a more expensive ticket, coupled with a change fee, amounts to a windfall profit for the airline.

“As a result, such change fees end up being a profit source for airlines, not a reasonable reaction to cover the actual costs,” he says.

A second initiative, launched last Tuesday by the Business Travel Coalition (BTC), urges the government to investigate the sizable fuel surcharges on many itineraries, which it claims violate a 2012 guidance that those surcharges must be tied to the actual cost of jet fuel and that how they’re calculated must be explained to customers.

According to Kevin Mitchell, the BTC’s president, airline executives have said they plan to keep high fuel surcharges because demand is high, and they price to demand, not to costs. This, despite justifying the surcharges by citing rising jet fuel costs in the first place.

“Why are U.S. airlines keeping fuel surcharges, and keeping them so high?” he asks. “Because they can.”

Mitchell is hoping for quick enforcement action by the DOT. He says the agency contacted him within “minutes” of receiving his e-mail, which could signal that they know the time for action has come.

“This might suggest they know there is a problem and they could be poised to take enforcement action,” he says. “All it would likely take to get airlines’ attention is one enforcement action.”

Similarly, a proposed rule could force airlines to voluntarily reduce or cap their change fees, and could even affect domestic ticket charges. In 1999, the last time airlines were faced with a significant amount of re-regulation (a year when 20,495 consumers complained to the government about bad airline service), they responded with a voluntary program called “customers first,” a set of promises to treat their passengers better.

Opponents of regulation contend that more rules would interfere with a free market and increase ticket prices. Victoria Day, a spokeswoman for Airlines for America, a trade organization for domestic airlines, called the DOT investigation “unnecessary.”

“Fuel is airlines’ largest and most volatile cost, and for more than four years, oil averaged more than $100 a barrel,” she says. “For just four months fuel prices have been lower and, not unexpectedly, are rising again. Individual carriers determine whether to add fuel surcharges to international fares, and U.S. carriers comply with all related rules.”

Perry Flint, a spokesman for the International Air Transport Association, a trade group, has echoed those sentiments. When DOT reviews the FlyersRights.
org petition, he said, IATA is confident it “will conclude that the market is working and that there is no basis for regulation in this area.”

Robert Poole, director of transportation policy for the Reason Foundation, a libertarian think tank, admits he’s annoyed by high airline change fees.

“But my general impression is that the DOT should leave hands off, consistent with the principles of the Airline Deregulation Act of 1978,” he says. “I’m worried that DOT intervention regarding international change fees could be the beginning of a slippery slope toward re-regulation.”

Should airlines be re-regulated?

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41 thoughts on “Should airlines be re-regulated?

  1. I’m not an advocate of airlines being re-regulated. However, I would certainly like to see it unlawful to force fees for something the consumer doesn’t necessarily want (hotel resort fees) or fees for things that don’t make sense (a fuel “surcharge” that exceeds the total cost of fuel). Rather than re-regulate airlines, how about forcing some ethics on business (and while we’re at it – I haven’t seen you do this lately – but you have most certainly done it often enough to warrant the comment – require journalists to use headlines that are not misleading. What’s the difference between an airline using a “fuel surcharge” to get extra money and a journalist using a misleading headline to get people to read an article?)

  2. Airlines are one of the most heavily regulated industries in the United States, up there with alcohol.

    ‘Deregulation’ meant only an end to government dictating which airlines could fly what routes, and at what price.

    Regulators set prices high enough to ensure that airlines earned a profit. All but two airlines opposed deregulation.

    Interesting that you end with a quote from Bob Poole WORRYING that regulation could come precisely because it would be a bad thing.

    Don’t kid yourself into thinking that re-regulation of airlines (schedules and pricing) would somehow be good for consumers. As before, expect regulatory capture and a scheme benefiting the carriers and not consumers. And don’t forget that it was Ted Kennedy who championed an end to that regime as a consumer advocate. Indeed, though airlines may annoy prices are far far lower than they were during the regulated era.

  3. Meh; calling something a “fuel surcharge” instead of a “fare” is a distinction without a difference. Unlike Europe, it’s always been the case that fuel surcharges are included in the advertised price of the ticket. The amount of said charge vs. the “fare” doesn’t really matter to consumers at all.

    As far as change fees? I think that the idea of a change fee makes sense; but the current “flat” rate for making a change still months in advance is silly and needlessly customer-hostile. Instead they should structure it like cruise lines, starting with a $0-nominal (i.e. $15) fee well in advance, and escalating to an increasing percentage of the fare as departure is approached, until the ticket becomes non-changeable. This might have the advantage of raising the same total amount of money, while making more sense.

    I WOULD advocate, however, for the refunding of baggage fees should the bag not arrive on the same (or earlier) flight as the passenger. It’s bizarre in the extreme that they don’t issue a bag-fee refund for delivering the bag late (or losing it!)

    I don’t think the number of complaints lodged against the DOT is really a valid measure of anything; it could be nothing more than search engines being better at pointing consumers towards the DOT website when they have an airline complaint.

  4. I get it why people may initially say yes – there’s some cathartic relief there, “.. finally someone has taught them – a heartless corporation – a lesson…” if you will… but… I think you can’t have it both ways. By that I mean you can’t have the “pluses” of regulation, but also sidestepping any/all of the “minuses” that inherently come with most decisions like this.

    I am not a fan at all of re-regulation.. I think on balance,a deregulated market is a nett better proposition.. this does not say that it’s perfect – far from it… but IMHO re-regulation of the entire market, would provide a nett negative situation than we have now.

    … and I measure that not only in terms of fares and fees, but also thru things like flight options, and such..

  5. There are ways to re-regulate that might keep fares in check. Most of all, we need more competition so maybe start-up airlines could be given incentives and tax breaks, existing airlines could be given similar benefits while they retrofit their aircraft to provide a decent amount of space for each passenger, and foreign airlines could be licensed to fly US routes that are currently barred to them. A basic regulatory standard might include EU 261-level compensation for delayed and cancelled flights, one checked bag per passenger, more seat room, free carry-on, no fees for babies and pets, and transferable tickets that can be cancelled or rescheduled at an affordable rate. And then, now that locks on cockpit doors prevent hijackers from taking control of an aircraft, we need to do away with the TSA and bring airline security back to the pre-9/11 standard. If the airlines can’t make a profit then, it might be time to nationalize them and run them as a not-for-profit public service.

  6. Before we talk about re-regulating the airlines, let’s try eliminating the crony-capitalist government intervention that the industry still enjoys. This should start with getting rid of the cabotage laws entirely. If Etihad or Virgin can offer better service LAX-JFK than our domestic carriers, then let it be so.

    Then let’s stop using government authority to enforce airline rules, such as in the Skiplagged suit. I’m surprised that Chris has not commented on this one already, but it concerns a web entrepreneur who runs a site that lists airline routes where customers can save on hidden-city fares. United and Orbitz are trying to bully him out of business in a suit that should never have been accepted by any court, because he is using only public information, rather than tapping into private databases.

    And in those cases where a flight attendant having a bad day gets a passenger thrown off a flight and handed over to local police, the police should be able to make the same field determination of probable cause (by getting witness stories, etc) that they do on the streets of their own jurisdictions. After the first occasion or two when such analysis results in a flight crew spending a night in jail for filing a false report, the abuses will stop cold.

  7. You question is very poorly worded and is probably confusing to the average layman. Airlines have never not been “regulated” as they have a number of restrictions placed on how they operate from tarmac delays to how they handle distressed passengers.

    The “deregulation” that occurred in 1978 dealt with the government effectively controlling both who flew a certain route and how much they could charge. The removal of that “regulation” has resulted in an increase in the number of new carriers which has helped to keep prices lower. It also allowed airlines to adopt the hub and spoke model, translating into more efficient use of aircraft and again helping keep prices lower.

    The better question is not whether we need “re-regulation” but how do we change or add to the existing framework to solve issues like the many rising fees and surcharges that have gotten out of control recently.

  8. Actually, fuel surcharges (or “carrier-imposed surcharges” as they are now called) have to be included in advertised fares here in Europe too and this has been the case longer here than in the US. Not sure where you got your idea from that they do not.

  9. It’s frequently suggested that airlines should only be allowed to charge “the actual cost” of making ticket changes. Three comments.

    (1) Taking Paul Hudson’s point to its logical conclusion, surely then airlines should also only be allowed to charge “the actual cost” of checking a bag, “the actual cost” of the ticket, and “the actual cost” of an upgrade ($0 in the last case). In other words they should not be allowed to make a profit. Really?

    (2) The purpose of change fees is not (or at least not only) to compensate carriers for the direct costs of the change, but also to discourage travellers from making excessive or frivolous changes, and to encourage those passengers who think they might need to make changes to buy a more expensive fare with a lower or no change fee to begin with.

    (3) How on earth are you meant to figure out “the actual cost” of having staff, trained at the carrier’s expense, in an office somewhere, to deal with change requests?

  10. “The days of a freewheeling, lightly regulated airline industry…” I nearly choked on my coffee when I read that. The airline industry is still very heavily regulated by the federal government; just because a few facets respond to quasi-market forces does not make it “lightly regulated.”

  11. In addition to regulating change fees and fuel surcharges, the DOT desperately needs to regulate seat width and pitch. It’s getting ridiculous. Would ticket prices go higher? (Can they go any higher?) Probably, minimally, but at least people would travel in decent conditions.

  12. Too damn late! With airlines merging, they have more clout with government “pals” than ever.
    Everyone wanted cheap airfares & the airlines obliged. Then the various ways to increase their profits. Want a comfortable seat, want to travel with baggage, fuel costs rising, oops need to change flights? ALL A LOT EXTRA. Airlines have responded to the consumers’ requests for cheap air travel & look where we are now.
    Add to this the airport fees, car rental fees, resort fees & the chicanery they have to raise even more money & the whole experience is less than inviting. Having said this, the government will only screw things up in favour of these HUGE companies. They, after all pay taxes & therfor their salaries.
    What really needs to happen is people boycotting an airline or two, & the same for the other travel industries, & advocates join together with this boycott.
    Maybe this might work, but it will never happen, & so getting the government involved will not matter a darn. IMHO!

  13. To be fair, I’d say the difference is that it doesn’t cost anything to read Chris’s article. You can check it out and decide for yourself if it’s misleading without spending a cent.

  14. The only possible regulation should be minimum standards needed for safety and security. Beyond that, flying is not a necessity.

    Of course, part of the problem is that we depend on the government to build airports, thus artificially limiting the number of landing slots at any given location. And since it’s virtually impossible for a private entity to build a new airport anywhere near a concentration of customers, then we are stuck with what we have. And therefore, we are stuck with the airlines we have – there’s no way for a new start-up to compete in the auction for slots and keep fares low.

  15. Unless you are going to state what regulations the government should put in place the question doesn’t mean anything.

  16. “$750 to change a ticket”?! That can’t be right, can it? Yup. I just Googled it, and for certain Star Alliance international flights… 750 bones. Obscene. :-(

  17. In the general market place, we have consumer protection laws at both the Federal and State levels.

    Everything from the Fair Credit Reporting Act, Truth in Lending, Fair
    Credit Billing Act, Fair Debt Collection Practices Act, the Magnuson-Moss
    Warranty Act, and the Credit Card Accountability & Responsibility
    Disclosure Act.

    Such protections are minimal or absent in the airline industry mostly because of successful lobbying by Airlines for America, one of the chief industry lobbying groups.

    I don’t mean to draw exact parallels between the consumer protection regulations and airlines, but to show that in the past, Congress has been more sensitive to general merchandise and other services than it has to airline travel. Airlines have a cozy relationship with members of Congress and their staff, (mainly perks of privilege) which make lobbying efforts fall on very sympathetic ears.

    Airlines have become like a public utility, and as such should be regulated to eliminate many practices which are aimed at profit rather than the public it serves. Like utilities, (such as electric and gas) there aren’t many options to make the
    market really competitive.

  18. The problem with regulations is government imposes even more fees! Who gets to pay for those? Airlines as a business (no matter how unfair it is) already have tons of fees, which is why they nickel and dime everything anyway. Ex charge for WiFi, well, Gogo and government need to get paid too–so regulating would cause more government fees!!!! Government wins, airlines loose, passengers loose (cause they’re paying the same prices because of government fees anyway) And when rules are broken, passengers don’t get the money, government does (ever stuck on tarmak?)

  19. Drawing eyes with a misleading headline can skew readership numbers and cost advertisers more.
    I like to read the site generally and I have not been shy about commenting, but I have never liked the times when there are misleading headlines in a sensationalist fashion meant to draw the eye when the actual story isn’t what happened in the headline at all.

    Although fuel surcharges cost money, what is really the difference between a misleading headline and a mislabeled surcharge?

  20. Asking if they should be “re-regulated” makes it seem like you’re saying there are no regulations in place at all. Your article goes on to mention that there are in fact regulations, they just aren’t enforced as stringently as they were designed. It’s disingenuous to blame “de-regulation” when in fact the DOT and other branches of the federal government have been lax in their enforcement. Piling on more regulation that won’t be enforced will have zero effect – enforcing the laws and regulations already on the books would be a great start.

  21. The public pays to build, operate, and maintain airports and control air traffic. The government (we) have a duty to regulate the industry so that it serves the public interest.

  22. There is effectively no competition in a ticket change, so profiteering is an abuse of a monopoly position. Calculating the marginal cost of changing ticket information is trivial.

  23. what an insanely stupid concept. Can’t people remember what the fares were before deregulation ? & no competition at all.
    If you don’t like a particular airlines policies, vote with your wallet. That will give them the message, but I suspect people love the unbundled airfares, but don’t want to pay any extra charges. you can’t have it both ways.
    Don’t like change fees, simple, don’t change your flights or pay higher fares, which allows free changes (those fares are a lot higher)
    If fuel surcharges go, total fares probably won’t change at all, just the breakdown.
    + remember most big airlines hedge their fuel & are therefore probably not getting the full price break on fuel costs, as drop has been so dramatic.
    Seriously, what next the airfare police ? Another huge & totally useless bureaucracy.
    Some idiot tried to have the fuel watch police here in Oz. It costs tens of millions of dollars & did absolute nothing (SFA). Yet another huge waste of our money.
    In USA you have far too many police as it is.
    If it wasn’t for TV wouldn’t have a clue what NCIS is.
    The TSA is also the laughing stock of the world. When will you guys get rid of it.
    It doesn’t make travel in USA any safer, just slower & more expensive (someone has to pay for this nonscience)
    Be very careful what you wish for. Regulation would probably favour the big boys. It’s the little guys who keep the big guys honest.

  24. I find that when I have issues, a simple phone call can often fix it. Maybe it’s because I fly a lot with them, but I find Delta and American to flexible some times when I least expect it. The only issue that I have, the one of American not providing special meals any more, is unlikely to be fixed by regulation. Yes change fees have gone up, on the other hand fares have come down and they now are required to show the actual price of tickets (including taxes). I also have found over the years that as I have matured from seeing airlines as an entity that owes me to seeing them as a partner that helps me to get where I need to be, I’ve become much happier with the service that I get. Most of the time the service is spoiled is when idiot employees (that probably would get fired if their managers were watching them) misbehave – and that doesn’t happen very often.

  25. Regulation in the 21st century does not have to mirror previous airline regulation. Airlines could still be free to set fares and fly chosen routes. What would now be regulated are the practices of each airline that relate to it’s passengers. Regulation could affect matters like ticket rebooking/cancellation fees, minimum seat pitch and compensation of passengers for delayed or canceled flights. It’s time to forget the old face of regulation and look forward to a set of rules that will serve the needs of today’s traveling public.

  26. I don’t think anyone cares about regulation of schedules and fares. Unbundling fares has turned out pretty well, until they started with the BS like paying to select a seat next to your young child. The airlines’ actions seem to be crying out for regulation. The ability to be comfortable in your seat or make a change to your ticket at a reasonable cost is what needs regulation.

  27. I am confused by the vote in favor of regulation. Do these people actually feel that regulation will be pro-consumer in the current congress? The only regulation of the airline industry we are likely to get from any congress will not do anything to help the passengers, only to help airlines.

    Example? Look at the Wright Amendment passed way back in 1979. This restricted commercial flights out of Dallas Love field to only the states touching Texas after DFW was built. It was an attempt by American Airlines and their friends in government at the time to force Southwest to move to the then new DFW hoping to drive Southwest out of business. This law was finally repealed in phases over the past few years. DFW is at max capacity and cannot be expanded, yet AA and the local government still did not want to give up the restrictions on flights from Love. The amendment was only “repealed” after the total number of gate allowed at Love were reduced by nearly half and a guarantee that international flights will never be allowed there. Forcing more customers to take flights out of DFW where operational costs are higher have cost passengers unknown millions over the years.

    Or how about the law going around last year that would allow airlines to advertise fares without the taxes and fees? The backers of this bill claimed it would provide “transparency” to the passengers so they could get a better idea of the cost of flights. While not necessarily harmful to passengers, how is hiding the total cost of a plane ticket from a passenger helpful?

    This is the type of airline “regulation” you will see from government. I can do without it.

  28. Change fees (like service, bag fees, FF clubs) are factors that informed consumers take into account when booking, so competition kicks in at that point.

    If calculating the cost of doing a change is trivial, run me through how you’d do it.

  29. Define regulated! There are many factors that you have not taken into consideration. Fuel. Costs are based somewhat on fuel costs. Southwest was sooooooooo lucky years ago that they had hedged the cost of fuel at it’s then lowest price for again at that time the longest contract ever signed. Low fuel, lower prices. That’s one of the reasons that airfares have not dropped today, airlines guessed wrong again on fuel. Poor service. – In place thru the FAA (don’t moan). Cancellation on the day of flight, at the airport, while you are en-route, YESSSSSSSSSSS, lets initiate some controls and compensation. Cancellation policies are up in the air and are always going to be on a case by case situation with the winner being the airlines. Fees, again the airlines win.
    The single greatest lost that I have noticed in the decades of de-regulation is the fare clause. To change any fare for any airline required a tariff filing of 2 weeks in advance. I would be happy to dee that once again.

  30. I agree about the distinction without a difference on fuel charges – except for one area – commissions paid to travel agents. A commission is only paid on the fare, not on surcharges – so airlines want to keep fares low and surcharges high to make more money out of agent-booked tickets.

  31. Is there still a way to get to Europe by boat simply as a means of conveyance and not as a floating resort? And I would argue that sometimes it’s necessary to get to another continent in less than a week’s travel time. I’m shocked that you don’t think so.

  32. I’m trying to think of a life-threatening emergency that can only be resolved by a trip to Europe, but I’m coming up with nothing. Can you suggest something?

  33. I guess the impending death of a beloved relative doesn’t qualify as worthy to you because it won’t change life or death.

  34. Airlines should not be re-regulated.
    The airline industry should be highly left to its own dynamics. Of course, supported by advocacy groups, watchdog organizations, and appropriate interference of relevant governmental agencies. The purpose of the possible support is making sure that healthy practice of the market forces is in place.

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