When it comes to air travel, bundled services are never best for consumers
Originally published in The Hill
Fees have become a part of the American flying experience in the last decade or so. As airlines compete to appeal to flyer desires for low-cost, driving-competitive travel they have looked to unbundle the travel experience. Those who carry heavy bags, change or cancel reservations if they buy nonrefundable tickets, or want extra amenities that had previously been included in all ticket prices are instead given the option of purchasing these extras a la carte.
This has proven unpopular among those who wish for higher quality, higher ticket cost flying experience that marked the era of flying before deregulation. Government officials have responded to this demand with legislation. At the moment the Senate Commerce Committee is debating the Fair Fees Act, which would limit all fees charged by an airline to the actual cost to the carrier to provide those services. Fairness would be measured by a variety of factors, including ability to fill canceled reservations, processing and labor costs, and the carrier’s ability to anticipate the average number of cancellations.
While such a rule may appear to be consumer-friendly, the reality is that it threatens the affordability for those who just want to get from point A to point B without the extras that some travelers demand. Heavy bags add to the weight of the plane, requiring more fuel. Fees for extra bags discourage travelers from overpacking and using their luggage to avoid shipping goods. This decreases the amount of space the average flyer takes up, lowering costs and potentially allowing more room in the cabin as cargo holds decrease in size in favor of more cabin and overhead bin space.
Yet the proposed changes to cancellation and change fees may be the most damaging. Airlines rely on having their planes as full as possible across their networks to provide service to communities — large and small — across the country. If, as proposed, fees are lowered to the cost of administering the changes, there would be a substantial increase in the number of changes and cancellations.
Contrary to the hopes of many airline re-regulators, such changes have the potential to decrease industry competition as larger carriers are more able to handle the uncertainty this brings than smaller or younger airlines.
With this comes a lower likelihood for airlines to fly into markets that could generate large amounts of uncertainty. This could describe markets where airlines are competitive with driving, flights of an hour or so where people might book a flight, cancel for trivial cost, and drive depending on factors like weather or their personal weekly schedule. With more uncertainty, airlines would need to raise ticket prices to maintain the profits they need to buy new planes or invest in other capital goods that keep them in the air in the long run.
Low cost airlines from Frontier and JetBlue to the international Ryanair have democratized flying with their lower cost, lower amenity services built around fees for premium amenities. The fees on these services allow the airlines to keep the average cost of tickets lower, allowing them to reach consumers that previously could not afford to fly. Rules that effectively preclude this business model would result in less people being able to fly.
It is clear that some fliers value a higher level of service when they fly, and they can still attain that level of service — by paying for it, either by choosing airlines that bundle those services into the cost of a ticket or by purchasing those additional services with their ticket. Most consumers, however, seem to prefer being able to fly at a lower cost and do without other amenities. Airlines have discerned these preferences and arranged their pricing schemes accordingly. Imposing blanket regulations that dictate pricing schemes is a solution in search of a problem.
Nick Zaiac is a policy analyst at the Maryland Public Policy Institute, a nonprofit group dedicated to promoting limited government.