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Court halts enforcement of new airline fee disclosure rules

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Court halts enforcement of new airline fee disclosure rules
Research
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Gary Leff Chief Financial Officer | View from the Wing

In April, the U.S. Department of Transportation (DOT) issued a new rule mandating airlines and ticket agents to fully disclose all add-on costs for baggage, changes, and cancellations upfront at the first instance of displaying itineraries and fares. The rule also requires airlines to automatically and promptly refund passengers when services like checked baggage and Wi-Fi are not delivered as promised.

Airlines sued to stop the rule, and the U.S. Court of Appeals for the 5th Circuit has issued an injunction suggesting that the carriers are likely to prevail on the merits and suffer irreparable harm if the rules go into effect in the meantime. DOT itself estimates the cost to comply with the new rules in the hundreds of millions. The full court will hear the case.

The rule aims to enhance transparency, but some argue it may add complexity rather than clarity. "For most passengers, at best it’s additional clutter on the screen likely to fade into the background," said one observer. Consumers cannot opt out of these fee displays unless they certify that no one on their reservation will travel with a carry-on bag or checked bags.

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Some argue that fees are already well-disclosed. "First checked bag fees have been in place for 16 years and everyone knows to expect them," noted another commentator. However, there have been instances where airlines did not adequately disclose fee changes. For example, JetBlue quietly raised bag fees twice this year without immediate public notice.

The new rules could potentially increase wait times for customer service calls as agents would need more time to read out required fee information. DOT does not assume airlines will add call center agents to address this issue, which could exacerbate telephone hold times.

The government has specified certain fees that must be disclosed while omitting others, such as oversize or overweight baggage fees, which vary by airline policies. Critics argue that fixing these disclosures in place does not account for changing fee structures over time.

A major point of contention is whether the benefits of the rule outweigh its costs. DOT claims that consumers will save over half a billion dollars annually by avoiding overpayment in airline fees due to increased transparency. However, critics challenge this assertion, arguing that DOT's estimated savings primarily come from reduced time spent searching for fees during ticket purchases.

Critics also suggest that instead of enforcing conformity through standardized fee displays, encouraging competition would better serve consumer interests. "It would be better to focus on information on seat width and pitch available, quality of Wi-Fi... meal service etc." argued one industry analyst.

While there is support for requiring refunds when services are not provided as promised, many believe that standardizing how specific charges are displayed across all platforms may stifle competition and innovation within fare search processes.

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