suitcase money
7 years ago
 

Should airlines be forced to disclose equal pricing and fees in all channels?

After the display of theatre in Washington last week at the hearings on airline fees we have the usual players all lined up on either side of the equation.

The esteemed members of the panel seemed to want nothing but political points and really didn’t have anything valid to add to the process.

The GDSs and the “consumer side” as represented by BTC all wanted full and equal disclosure but via the GDS.

I also note that the GAO noted the tax issue – finally someone was listening to something I felt needing addressing out a long time ago.

In this matter it would seem that Washington, in the form of the IRS, has made a huge U-turn on the issue of taxation of ancillary fees/revenue items.

suitcase money

Normally, when the US government issues tax guidelines, most practitioners regard that as the interpretation of the law and act accordingly.

In this case the IRS has gone so far as to actually issue a disclaimer (which I am sure was not on the pages originally but I cannot verify that).

This disclaimer makes it clear that these instructions are guidelines only. If ever there was a hint that the US Federal Government finally sees the error of its ways and now wants to tax ancillaries – then this was it.

However, I want to focus on the bigger issue of whether or not the Airlines should be forced to disclose all of its pricing options equally in all channels.

While this may not seem to be the issue in debate, it most decidedly is an underlying one.

Let me be unequivocal. In my view the answer is NO.

The reason is that it creates a dangerous precedent for any supplier who then has to adopt a uniform approach to the market.

Channel-based pricing is as old as the hills. If you can buy soap powder in any channel does the price have to be the same?

Does the information about how to sell it have to be transparent?

If I buy a book online at Amazon vs buying a book at a Barnes and Noble store – do I have to know all the pricing options? What about cars?

And while we are at it how about local taxation – should not the same logic apply to taxation so that the local tax authorities should put a detailed tax guide against every tax charged when the media being used for promotion crosses boundary lines?

To me this is re-regulation of a deregulated industry.

I do not think that it is in anyone’s interest to force display of fees via a particular channel.

To be clear – yes, the airline has an obligation to disclose its pricing on its own channel. This is primarily today its own website.

And this is something that must be done. But it does not mean that the same obligation applies to all channels equally.

Further I believe that any supplier or intermediary should have the right to create its own pricing and not have any external party – government or distribution player – force it into certain behaviors.

The only caveat I suggest is that the actual seller is responsible for disclosing the appropriate fees at the point of sale.

As far as I can tell everyone is in compliance with this requirement.

The US government and its elective branch has its own agenda here. It sees that it made a big mistake in not evaluating the tax implication of unbundled services and fees.

Thus they further compounded their mistake by considering that the unbundling of the airline fees should not be taxable at the federal level. Talk about egg all over one’s face.

Why the government would at a time of revenue short fall would have allowed such a thing is just beyond belief. But they did do this.

In doing so, as some have pointed out, they made airline ancillary fees possibly open to local taxation – something several states had their eyes on.

That would have been a terrible mess. It would have made the issue of hotel taxes (that the OTAs are fighting for pre-paid stays) look like a walk in the part.

The internet has created an environment of transparency that is wonderful. You can run but you cannot hide on the wild wide web.

Many players have emerged to promote this transparency and harness it for the consumer.

Such a proposed process of forcing the airlines to display their full feels in a specific channel such as the GDS would harm innovation not just today but for the future.

We can be sure that as we speak there are many players – existing chaps and some brain working in his back room – coming up with solutions as to how to display fees.

Even Sabre has a web page devoted to the subject that is open to all to see. http://www.exploreflightfees.com/

I don’t want to sound like an apologist for the suppliers. I clearly am not.

They, like any seller, must be required to provide full information to the consumer. Some intermediaries have imposed some very restrictive covenants in the so called full content contracts between GDSs and Airlines.

These clauses require an airline to provide not just full content but also restrict how the content may be administered.

Perhaps the esteemed members of the US Congress should investigate some of these practices, the GDSs have created some incredibly complicated contracts with lots of restrictions for the supply side and equally for the selling side.

Fortunately the consumer is both smart to these issues and not fooled. He can be lazy too. But if he wants to find something he will. And woe betide anyone who gets in his way.

For the petitioners in this matter – namely those who want to see GDS fee disclosure – I believe that everything should be open and transparent but that should be via the web and not exclusively or in a preferred way via the GDSs.

Of course there is an easy way to solve the problem. Let the airlines charge the GDSs for access to the data. That will soon put things in a whole different light.

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Timothy O'Neil-Dunne

About the Writer :: Timothy O'Neil-Dunne

Timothy O'Neil-Dunne is the managing partner for venture firm VaultPAD Ventures– an accelerator devoted exclusively to Aviation Travel and Tourism.

VaultPAD also is the parent company for consulting firm, T2Impact. Timothy has been with TNooz since the beginning, writing in particular aviation, technology, startups and innovation.

One of the first companies to emerge from the accelerator is Air Black Box. a cloud-based software company providing airline connectivity solutions and in production with airlines in Asia Pacific.

Timothy was a founding management team member of the Expedia team, where he headed the international and ground transportation portfolios. He also spent time with Worldspan as the international head of technology, where he managed technology services from infrastructure to product.

He is also a permanent advisor to the World Economic Forum and writes as Professor Sabena. He sits on a number of advisory and executive boards

 

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  8. Jonathan

    “But my basic thesis is that it is the channel’s job to provide the transparency.”

    If anyone else is acting as a point of distribution, how are they supposed to provide correct pricing information if the airline, which sets the prices, does not provide that information to them?

    “It’s not a case of being pro-consumer or pro-supplier, it’s really about the nature of a market.”

    That’s completely ridiculous. Consumers want complete information for effective comparisons with the least effort possible. Suppliers want to deny them this information so they can’t make easy comparisons, which enables them to charge higher prices without losing market share. You really MUST achieve at least a basic understanding of economics before expressing opinions. Micro-economics (unlike macro-economics) is the closest thing to a settled science that exists within the humanities. No one on either side of the political spectrum even debates this stuff anymore.

    “Recognition that it isn’t always a dive to the bottom pricing model – there are valid reasons why a consumer will purchase through one channel or another.”

    Yes, those reasons are: 1) because effective competition exists and well-informed consumers rationally choose the best price/quality combination product available, or 2) because suppliers conspire to withhold price information so as to prevent efficient comparisons, forcing consumer to spend an inordinate amount of time in the shopping process. If the suppliers are forced to divulge their pricing information via the GDS, NOTHING prevents them from going on to differentiate their product in a way that encourages consumers to spend more. But if they face perfect competition and they try to raise prices without offering greater quality, they will feel the disciple of the market strike down on them like the fist of God. As it should be.

    You really DO have to choose whether you’re pro-consumer or pro-monopoly. It’s digital, whether or not you can admit it to yourself.

     
    • Chris Bird

      I obviously didn’t express myself clearly. When I say the nature of a market, what I mean is exactly what Jonathan says. In a market there are tensions. The supplier to the market will (often) wish to deny information to the market so comparisons are hard to make, purchasers want the opposite. So the tension that exists in the market is exactly that tension between suppliers and purchasers.

      When you introduce an (external) channel the relationships do become more complex and then the type of channel becomes important. So if the channel has taken possession of the inventory (e.g. conventional retail), then the value changes hands at least twice. Once when purchased by the retailer, and once when purchased by the ultimate buyer. The retailer makes its share (usually) by marking up the items. At that point the consumer has the opportunity to get close to perfect pricing information. An application like shopsavvy on my phone will allow me to scan a barcode and then I will be told where the lowest cost onstance of the item is. I can then make a choice.

      However, when there is more of a broker model, the relationship is different. When I as a consumer transact through a broker, the broker is usually reimbursed in one of 2 ways. Either in “commissions” from the supplier, or through “fees”. So in this brokerage model it is much easier to hide information. Especially in a relatively complex transaction where it isn’t clear what one is getting for one’s money. The travel pricing models are much more like a broker model, and that model is too opaque.

      Of course those models are gross simplifications.

      While micro-econimcs may be “the closest thing to settled science”, allowance must be made for value obtained in the transaction which is not entirely monetary. If it were, why would Harrods or Neimann Marcus exist? The cachet of carrying a Harrods bag may outweigh the price premium over buying the same thing at Walmart. Of course the real rational approach would be to make a Harrods bag out of bits of logo obtained on the web, and then shop at Walmart. Unless of course you were trying to portray your self as a careful shopper.

       
      • Jonathan

        What does any of that have to do with whether it’s better for consumers if suppliers are forced to disclose all pricing information to consumers equally clearly through all channels? That is the one and only question. A government which forces the suppliers to make that information available to be easily provided to consumers via all channels is a pro-consumer government. A government which doesn’t is pro-oligopoly, and consumers suffer from not being able to quickly make an efficient decision and go on with their lives.

        The “pro-consumer/anti-consumer” question has nothing to do with fairness or impartiality. It may in fact be “unfair” to businesses to make them cough up information they don’t want to provide through a channel they’d like to eliminate. But we are all consumers (we have no choice in the matter while we’re alive) before we are producers (we can shift our efforts to produce different things as market needs change) and life is better for all members of society when we make things as easy as possible for consumers by fostering competition among suppliers. This is true regardless of the nature of supplier/broker/retailer interactions.

         
  9. Jonathan

    “I do not think that it is in anyone’s interest to force display of fees via a particular channel.”

    With this one statement you slip from acting naive/silly to actively disingenuous. Have you EVER had ANY economic theory AT ALL? If you sat through more than a month of any introductory economics class you would realize that perfect information is one of the characteristics of perfect competition, which all suppliers seek to avoid and which all consumers thrive on. I understand why SUPPLIERS don’t want to have to provide transparency…it prevents them from charging monopoly/oligopoly prices. But consumers always benefit from accurate price comparison information, and if government has any role at all in regulation it is to create conditions for improved competition to help consumers make smart decisions.

    The benefit to suppliers of nontransparent pricing is that it raises the search cost to consumers by enabling the suppliers to deceptively conceal much of the true cost of a ticket until after substantial consumer effort has been invested in the search.

    “I don’t want to sound like an apologist for the suppliers. I clearly am not.”

    If you don’t want to sound like an apologist for the suppliers, then don’t BE one. If the suppliers aren’t required to provide full fee disclosure via the GDS, then precisely how are online and offline agents supposed to have that information available to furnish to consumers at the time of transaction, in the case of Online Travel Agencies several hundred times per second?

     
  10. Chris Bird

    There is some bait and switch here. The question is should Airlines be forced to disclose pricing in all channels? The question really should be, should the total price that a consumer will pay be disclosed through the channel the consumer chooses? The soap powder analogy is right. We have abolished (for the most part) Resale Price Maintenance – where the manufacturer set the price and no one could undercut it.

    However, as the consumer, when I choose to shop through various channels, I expect to have available all the information, so I can make an informed choice. Especially where the add-ons are mandatory. So If Travelocity and Orbitz both offer me a price, I would expect each to tell me what exactly is included in the price, what the total I am going to pay (at the time of price shopping) and what extras I can optionally buy. If I have to pay it, it should be in the price.

    Of course this does complicate things, so for example, an airline could do a deal with a particular agency that it abolishes fees on trips booked through the agency. So for example, when I buy through that agency I will not be charged a bag fee.

    It is indeed a rats’ nest. But in the end it is the channel that controls the pricing and the channel has the full disclosure responsibility.

     
    • Timothy O'Neil-Dunne

      So a little clarification here from my side. I am absolutely pro-consumer. I take this for granted that everyone else is too and hoped that particular perspective was not necessary. I did so state that this is a requirement to expose all fees and taxes fairly. Personally I like the European approach – far simpler and easier and I am amazed that the US hasn’t actually adopted this approach. But in typical NIH fashion the US wont adopt a European solution.

      As to the charge of being pro-supplier. I am most definitely not. BUT I do defend the right of the supplier to set his own pricing and his own way of displaying it. I dont like the idea of the Government getting involved in that process. Perish the thought!

      Frankly we all know that airlines are all about making their product as opaque as possible. More power to them. The web is about open. So I believe that anyone has the ability to go about working their way. I want to think that the market will force behavior. Just look at Southwest – they are actually gaining market share by not going down the “fees” route.

      I dont agree with Chris Bird in saying that the channel controls the pricing. I believe the supplier ultimately controls the pricing – or the consumer who is willing to pay for it. I do however agree that the channel has to be responsible for the way things are priced. However to have to go to Congress to get that done seems to be way over the top.

      Cheers

      Like I said – lots of agendas.

       
      • Chris Bird

        I have written a longer post on my own blog on this. But my basic thesis is that it is the channel’s job to provide the transparency. If the airline is acting as a channel, then it has that responsibility.

        Airlines and other suppliers have the responsibility of providing the cost of the good/service to the channel. The channel has the responsibility of deciding how to price that good/service to the market.

        With a cozy relationship between the providers (airlines), the channels (travel agencies among others), and the regulators there are all sorts of opportunities for mischief.

        It’s not a case of being pro-consumer or pro-supplier, it’s really about the nature of a market. Recognition that it isn’t always a dive to the bottom pricing model – there are valid reasons why a consumer will purchase through one channel or another.

         
        • Timothy O'Neil-Dunne

          @Chris – can you send me your email address at your convenience – I would like to offer an explanation on the vagaries of Airline Pricing. Cheers – Timothy

           
          • Chris Bird

            I would, but the email address at the top of your id doesn’t seem to work 🙁 I got a bounce when I tried to use it. No explanation, Just “Delivery to following recipients failed” followed by your address…

             
        • Timothy O'Neil-Dunne

          timothyo@t2impact.com

           
  11. Dennis Schaal

    For clarification purposes, the following, according to the House Committee on Transportation and Infrastructure, is what the DOT is proposing in its proposed rule:

    “To address these issues and to help passengers determine the full price of air travel (the airfare, which includes government taxes and fees, plus ancillary fees for services), the NPRM [Notice of Proposed Rule-Making] solicits public comments on whether two prices should be provided with respect to an advertised airfare: (1) full fare, including all mandatory charges (i.e., anything the passenger must pay to fly); and (2) “full fare-plus,” which DOT tentatively proposes to mean the full fare plus baggage fees and fees for carry-on items (the costs of which were traditionally included in ticket prices).

    “The DOT is seeking comment on whether the second price – the “full fare-plus” – should include all services that traditionally have been included in the prices of the ticket, as opposed to just those services relating to the transport of baggage, and what exactly such services would include.

    “In the alternative, the DOT is seeking comment on whether sellers of air transportation should be required to display on their Web sites information regarding optional fees selected by the passenger when conducting a query and information on the passenger’s “full price,” which would be tailored based each passenger’s indication of his or her needs.

    “The DOT further proposes to amend its current price advertising rule to prohibit carriers and ticket agents from automatically including “opt-out” provisions in price advertising. According to the NPRM, the DOT has found that some sellers of airline tickets add, into the total price of air transportation, fees for ancillary services, which the consumer “is deemed to have accepted unless he or she affirmatively opts out of the service and related charges. These optional fees, for items such as seat selection, are preselected for the passenger and added to the total fare, without the passenger affirmatively selecting the add-on.

    “Additionally, the DOT’s NPRM proposes to require carriers to disclose all applicable fees, including those for ancillary services, through a prominent link on each carrier’s Web site that leads to a listing of all fees for optional services.

    “The NPRM also indicates the DOT may require carriers to provide up-to-date, comprehensive fee information to the operators of Internet Web sites that sell airline tickets and to travel and ticket agents.”

     
  12. Dennis Schaal

    Timothy: I think you are creating a “straw man” argument.

    You say: “Channel-based pricing is as old as the hills. If you can buy soap powder in any channel does the price have to be the same?”

    No one is saying that the pricing has to be the same on all channels.

    The problem being addressed is that consumers face a bewildering lack of pricing transparency at the point of sale — regardless of the channel.

    If the fare does not include the checked bag fee, a fee to secure an aisle seat or a travel agency service fee, then airlines and intermediaries should be forced to disclose those fees up-front.

    In that way, consumers might be able to make a semblance of an apples to apples comparison.

    That is what Congress rightfully is trying to address.

    You write: “The only caveat I suggest is that the actual seller is responsible for disclosing the appropriate fees at the point of sale.”

    I don’t care if it is the airline or the seller which has to disclose the fees — as long as there is transparency and consumers aren’t getting hit with a big surprise when they see how much they are being charged.

    Sorry, buddy, but regardless of your intent, you are coming across as pro-supplier and anti-consumer.

    When Sabre was creating Travelocity and there was outrage among travel agencies and others about it, a very smart person said to me: never forget the consumer.

    I think that lesson holds true about pricing transparency, as well.

     
    • Hrush

      “Sorry, buddy, but regardless of your intent, you are coming across as pro-supplier and anti-consumer.”

      Um, have you ever met Timothy? Clearly anyone that states people should have to pay an airline in order to move the *airline’s* inventory has all four limbs planted firmly in the “pro-supplier” camp.

       
  13. Happy Hotelier

    Hah I like the suggestion of charging GDS for access to the data!

     
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    […] This post was mentioned on Twitter by Kevin May, Turisdata. Turisdata said: Should airlines be forced to disclose equal pricing and fees in all channels?: After the display of theatre in… http://dlvr.it/2nQ2J […]

     
 
 

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