The FREIGHT Act is one more step in the right direction toward enacting and implementing a national freight plan that looks at the big picture nationwide and addresses bottlenecks in a coordinated and systematic fashion. Chairman Oberstar’s reauthorization framework was a recent big step; TIGER has been another. The more steps sooner, the better. Even if this moves pre-surface transportation reauthorization, we need to charge ahead; though to be truly comprehensive and functional, our freight and other surface transportation planning should not be done independently.

We continue to hear that America will never have a coordinated, federally-driven freight plan like Canada and other countries. The federal government does not want to pick winners and losers; thereby we all lose. We have to get beyond that thinking or other countries are going to eat our lunch. The globalized world of freight is an international competition that will only get tougher, at the expense of US jobs. I would therefore propose to push even further in the direction that the FREIGHT Act moves, recognizing and investing in the already-established national freight corridors and a strategy to support their enhancement.

A few weeks ago I commented in this blog on the DOT’s 2009 “tarmac delay” rule, which took effect this Spring and offered my view that the rule’s cost-benefit analysis was untenable. Unfortunately, last week’s Virgin Atlantic debacle http://www.bloomberg.com/news/2010-06-24/tarmac-rule-may-be-expanded-to-overseas-flights-after-stranding-incident.html will only add momentum to DOT’s latest effort to extend the 3-hour “limit” for on-tarmac delays to basically all flights -- those of big international carriers and much smaller airlines, alike, to any airport in the country regardless of size. But more significant, perhaps, is the spate of other proposed regulations from DOT. If adopted these would have DOT micromanage airline rates and services (potentially unlawful after the Airline Deregulation Act) and would extend U.S. economic regulation to foreign airlines (potentially in violation of various bilateral agreements).

Let’s start with the extension of the on-tarmac delay rule to international carriers. As the article about last week’s incident linked above reveals and as subsequently confirmed by other news reports, such as, http://www.google.com/hostednews/ap/article/ALeqM5g6g3YsRcnmvw0q5QTz66Hvgpl_1gD9GHOMO00, the airline could not have easily deplaned its supposed “hostages” at the Hartford airport, because the airport was not equipped or staffed to process hundreds of international passengers through customs. As if to emphasize this fact, and remarkably enough, a customs official reportedly threatened to have the passengers arrested if they were allowed into the terminal! (The Department of Homeland Security should acknowledge its role in causing the incident, though I am not holding my breath.) Under the proposed rules, however, the airline would still have been at fault because it had failed to “coordinate” its contingency plan with the airport and with DHS in advance.

Before turning to the rest of the proposed new rules, most of which are bad ideas for both airlines and their passengers, it is worth spotlighting the litigation minefield planted by this rulemaking. The regulation would specify that the Department will consider the failure to comply with any of the customer assurances that are required by the new rules to be contained in customer service plans to be an unfair and deceptive practice under applicable federal law. Another would require these assurances to be much more “specific” and enforceable. To back this up and to convert good customer service into a federal right, elsewhere the rules require that these assurances be incorporated into each carrier’s binding “conditions of carriage” -- the basic contract in place between every airline and its passengers. Another proposed regulation would forbid airlines from ever choosing the forum for lawsuits or dispute resolution and instead require that customers be allowed to sue airlines in any state or local courthouse near their home.

The result?

The reach and now specificity of required customer service plans, in combination with the rest of these new rules, will open the floodgates to damage claims by passengers who sue for “breach of contract” at their local courthouse over almost anything. Under these rules they would need only show that they did not either 1) find the lowest fare available; (2) receive satisfactory notice of delays, cancellations, or diversions; (3) collect their baggage on time; (4) have at least a full day to hold a reservation on one airline, while they shopped on others; (5) get a prompt ticket refund no matter what the circumstance; (6) receive a “proper” accommodation for their special needs during tarmac delays; (7) have all of their essential needs catered to during lengthy on-board delays; (8) experience “fairness and consistency” if a flight is oversold; (9) have enough information about travel itinerary, cancellation policies, frequent flyer rules, and aircraft configuration before purchase; (10) receive “good customer service” from the marketing and code-share partners of the airlines that book on; (11) see sufficient “responsiveness” to their complaints; or (12) know in advance what would be done for them in the event of passenger inconveniences resulting from flight cancellations and misconnections – even if caused by factors outside the airlines’ control.

Not satisfied merely with making customer service goals into contractual obligations, in several instances DOT would go further and micromanage the airline-customer relationship in ways that are intended to and will directly affect airline fares by modifying the conditions associated with the sale of tickets. For example, new rules either proposed or under consideration would:

1. Require carriers to reimburse passengers for any bag fees if the bags are not delivered within 2 hours of the passenger’s arrival.
2. Make carriers refund non-refundable tickets if a flight is “significantly delayed” – by 3 hours or more.
3. Refund the ticket price and all ancillary fees charges if the flight is canceled for any reason (including presumably a mechanical problem), even if the passenger is re-accommodated on another flight.
4. Provide a “warning” that a flight is chronically late or routinely canceled – on top of information allowing consumers to figure this out on their own -- before a ticket is purchased. (Of course, because rule no 2 above could easily make this a free flight, consumers might well seek out such flights.)
5. Increase denied boarding compensation to twice the fare level.
6. Require airlines to include all ancillary services in the “full price” shown, to advertise both base fare and the fare with additional services together, and to reprogram their reservation systems to allow consumers to shop for fares with and without ancillary fees. The Department regards it as unfair that web users might have to “wait until the purchase screen to see the total fare.”
7. Extend DOT regulations to the hotel industry, by applying the “full fare” rule to air/hotel bookings made in combination. (The Department is unhappy that some of these packages require but do not advertise that they are based on double occupancy.)
8. Prevent airlines from requiring consumers to “opt out” of ancillary services. (The Department finds the practice of having on a website “a small box that is pre-checked and must be ‘unchecked’ by a consumer in order to avoid the charge . . .” deceptive in many cases.
9. Mandate that code-share partners provide the same ancillary services, at the same price.

Some of these may be laudable as customer service goals. But should they be federally protected rights?

Last but not least, the Department is (again) considering the establishment of “peanut-free buffer zones” on airlines, to deal with the danger supposedly faced by passengers traveling with severe peanut allergies. Now, I don’t want to trivialize the risk these allergies can pose to those persons who suffer from them; but banning peanuts from airplanes in response as a “reasonable accommodation” to such persons makes no more sense than banning them from restaurants, bars, movie theatres and other confined spaces. This is especially true when, as the department readily admits, it has no idea whether the ban would even work because of the -- federally unprotected -- right of other passengers to carry peanuts on board. The rule states:

We are particularly interested in hearing views on how peanuts and peanut products brought on board aircraft by passengers should be handled. How likely is it that a passenger with allergies to peanuts will have severe adverse health reactions by being exposed to the airborne transmission of peanut particles in an aircraft cabin (as opposed to ingesting peanuts orally)? Will taking certain specific steps to prepare for a flight (e.g., carrying an epinephrine auto-injector in order to immediately and aggressively treat an anaphylactic reaction) sufficiently protect individuals with severe peanut allergies? Who should be responsible for ensuring an epinephrine auto-injector is available on a flight – the passenger with a severe peanut allergy or the carrier? Is there recent scientific or anecdotal evidence of serious in-flight medical events related to the airborne transmission of peanut particles?

Regulation is supposed to address market failure. Yet many of the marketplace practices that would be banned by DOT are commonplace in the real world, and many of the rights DOT wants to create simply are not found in normal commercial contexts. Most retail stores advertise loss-leaders in order to entice customers into the store to buy higher-priced products. Should this be unlawful? Many leading websites have small boxes with additional fees that are pre-checked. Should this be banned? Most require you to go to the final screen – before purchase – if you want to calculate the total all-in price, after shipping and handling fees, and taxes. Is that deceptive? Most companies require you to purchase a deeply discounted product and won’t “hold” the price for you while you look around to do better. Is this unfair?

The CEO of Verizon, Ivan Seidenberg, warned at a recent speech to the Economic Club of Washington about the excesses of the executive branch. "We see a host of laws, regulations and other policies being enacted that impose a government prescription of how individual industries ought to be structured”, he said, creating "an increasingly hostile environment for investment and job creation here in this country." Well, that future is already here for the airline industry.

Rather than specifying and mandating “good customer service” -- an absurd form of federal regulation – the Department should look at ways to remove the regulatory burdens, government failures and taxes that impede the profitability of the U.S. airline industry and that prevent most airlines from earning a decent (or any) return on their capital. The companies will then figure out how to retain their customers.

Andy Steinberg

http://www.martindale.com/Andrew-B-Steinberg/25226837-lawyer.htm

Consumer Rule II
Summary of Proposals

1. Tarmac Delay Contingency Plans

A. Expand the pool of carriers that are required to adopt and adhere to tarmac delay contingency plans to include foreign air carriers operating to and from U.S. with at least one aircraft with 30 or more passenger seats.
B. Expand the airports at which airlines must adhere to the contingency plan’s terms to include small hub and non-hub airports, including diversion airports.
C. Require notification regarding the status of the tarmac delay (i.e., notify passengers every 30 minutes of reasons for tarmac delay).
D. Require coordination of plan with Transportation Security Administration (TSA) and U.S. Customs and Border Protection at any U.S. airport that is regularly used for that carrier’s international flights, including diversion airports.

2. Tarmac Delay Data

A. Require the 18 largest U.S. carriers (i.e., reporting carriers) that are already required to provide tarmac delay data for their domestic scheduled flights to provide such data for their public charter service and international flights.
B. Expand the pool of carriers that must file information with the Department regarding tarmac delays from just the 18 largest U.S. carriers to U.S. carriers and foreign carriers that operate any aircraft with 30 or more passenger seats.

3. Customer Service Plans

A. Expand the pool of carriers that are required to adopt, follow and audit customer service plans to include foreign air carriers operating to and from U.S. with at least one aircraft with 30 or more passenger seats. Foreign carriers are not currently covered by the rule.
B. Establish standards for the subjects carriers must cover in customer service plans (e.g., allowing reservations to be held at the quoted fare without payment, or cancelled without penalty, for at least twenty-four hours after the reservation is made).

4. Contracts of Carriage

A. Require carriers (U.S. and foreign) to include their contingency plans and customer service plans in their contracts of carriage.
B. Require foreign carriers to post contracts of carriage on their websites which is already required of U.S. carriers.

5. Response to Consumer Problems
A. Expand the pool of carriers that must respond to consumer problems to include foreign air carriers operating to and from the U.S. with at least one aircraft with 30 or more passenger seats (i.e., monitor the effects of irregular flights on consumers; inform consumers how to file a complaint with the carrier, and provide substantives responses to consumer complaints within 60 days). Foreign carriers are not now covered.

6. Oversales

A. Increase the minimum denied boarding compensation (DBC) limits to $650/$1,300 to account for actual CPI increase since 1978. (The last increase about 2 years ago only doubled the 1978 limits of $200/$400 to $400/$800.)
B. Implement an automatic inflation adjuster for minimum DBC limits every 2 years.
C. Clarify that DBC must be offered to “zero fare ticket” holders (e.g., frequent flyer award tickets) who are involuntarily bumped (fare paid by passengers with zero fare ticket for calculating DBC is the lowest cash, check, or credit card payment charged for a comparable class of ticket on the same flight).
D. Require that a carrier verbally offer cash/check DBC if the carrier verbally offers a travel voucher as DBC to passengers who are involuntarily bumped.
E. Require that a carrier inform passengers solicited to volunteer for denied boarding about its principal boarding priority rules applicable to the specific flight and all material restrictions on the use of transportation vouchers in lieu of cash.

7. Full Fare Advertising

A. Enforce the full fare advertising rule as written (i.e., ads which state a price must state the full price to be paid). Carriers currently may exclude government taxes/fees imposed on a per-passenger basis.
B. Clarify the rule’s applicability to ticket agents.
C. Prohibit carriers and ticket agents from advertising fares that are not the full fare and impose stringent notice requirements in connection with the advertisement of “each-way” fares available for purchase only on a roundtrip basis.
D. Prohibit opt-out provisions in ads for air transportation.

8. Baggage and Other Fees and Related Code-Share Issues

A. Require U.S. and foreign air carriers that maintain a website accessible to the general public to prominently disclose on the homepage of such website any increase in the fee for checked or carry-on baggage or any change in the free baggage allowance for checked or carry-on bags.
B. Require U.S. and foreign air carriers that issue e-ticket confirmations to passengers to include information regarding their free baggage allowance and/or the applicable fee for a carry-on bag and the first and second checked bag on the e-ticket confirmation.
C. Require U.S. and foreign air carriers that have a website accessible to the general public to disclose all optional services that have fees to consumers through a prominent link on their homepage that leads directly to a listing of those fees.
D. Request comment on requiring carriers to provide up-to-date information on all ancillary fees to global distribution systems to make sure the information is available to both Internet and “brick and mortar” travel agenties.

9. Post-Purchase Price Increases

A. Ban the practice of post-purchase price increases.

10. Flight Status Changes

A. Require reporting carriers to promptly notify passengers in the boarding gate area that is open for that flight of changes to their domestic scheduled flights as a result of delays or cancellations (notification method may be by a verbal announcement, display board, etc).
B. Require reporting carriers to promptly update all domestic scheduled flight information under their control at airports regarding changes to the status of particular flights as a result of delays or cancellations.
C. Require reporting carriers to promptly update flight status details available on their websites and through their telephone reservation systems.
D. Require a ticket or gate agent of reporting carriers to provide, upon request, up-to-date information on changes to a carrier’s scheduled flights as a result of delays or cancellations.

11. Choice-of-Forum Provisions

A. Prohibit U.S. and foreign air carriers from limiting a passenger’s forum to a particular inconvenient venue. (Specifically permit consumers to file suit wherever a carrier does business, which generally includes where the consumer lives/bought the ticket.)

12. Peanut Allergies

A. Solicit comment on three options to providing greater access to air travel for persons with peanut allergies:
1. Banning the serving of peanuts and all peanut products by both U.S. and foreign carriers on flights covered by DOT’s disability rule;
2. Banning the serving of peanuts and all peanut products on all such flights where a passenger with a peanut allergy is on board and has requested a peanut-free flight in advance;
3. Requiring a peanut-free buffer zone in the immediate area of a passenger with a medically-documented severe allergy to peanuts if passenger has requested a peanut-free flight in advance.
B. Solicit comment on whether it is preferable to maintain the current practice of allowing carriers to serve peanuts on aircraft without any restriction.

13. Effective Date

A. Solicit comment on a final rule that we adopt taking effect 180 days after its publication in the Federal Register.

The dollars involved in buying airline tickets are often significantly larger than other consumer purchases and the feeling that travelers are being misled by airlines on pricing is growing in intensity. Heightened Congressional, regulatory, media and industry concerns are going to drive policy changes -- perhaps the debate about the NPRM should be framed around which changes are essential and which ones go too far. The NPRM could be overreaching in some areas, but price transparency requirements are smart policy in BTC’s view, and perhaps could become the model for other industries

The federal government is inclined to provide detailed consumer protections in commercial air transportation because unlike nearly all other industries consumers have no rights under state laws to seek redress for abysmal treatment because of federal preemption -- a doctrine the airlines fight hammer-and-tongs to defend and expand. Moreover, under federal law (49 USC Section 41712) consumers do not have a right to sue for bad service. In the NPRM, DOT recognizes the uniquely vulnerable position of air travelers.

Likewise, the issue of the "all in" price has become an enormous concern to corporate travel managers. The idea that we could be heading toward a Ryan Air model of $5 "fares" and everything else is an add-on destroys the ability of travel managers to do realistic apples-to-apples comparisons and manage their programs, including benchmarking performance with peer companies. (See excellent 6/8/10 USATODAY piece here.)

Importantly, as the airline sector becomes more concentrated, and choice is diminished, the need for better consumer information grows so that passengers are better informed about remaining competitive options. Passengers need to be armed with better information as a means of enhancing competition and offsetting to at least some degree the loss of competition resulting from mergers and alliances. The NPRM seeks to address this concern.

The very fact that there is airline push-back against sharing fee data with global distribution systems and travel agencies should serve as a red flag to consumer advocates and DOT. It is an insufficient answer that airlines will make the data available somewhere when consumers might not choose, for any number of good reasons, to use the channel that the airlines might want them to use. Passengers have a legitimate reason for seeking neutral data sources and a concentrated airline sector should not be empowered to impair the data flow to such neutral sources.

The NPRM should not have been necessary. But like the 3-hour tarmac rule, the airline industry does not have a vision or strategy for putting customer interests first, including building collaborative bridges with consumer groups and other stakeholders.

Not content with putting into effect a tarmac delay regulation which will increase airline passenger misery by making flight cancellations far more likely, the U.S. DOT is now proposing a large-scale expansion of alleged “consumer protections” for air travelers. While I agree with Bob Crandall that some fine-tuning of disclosure requirements may well be warranted, the rest amounts to the kind of micro-management we had in the bad old days of CAB regulation, pre-1978.

Economists are virtually unanimous that airline deregulation has been a good thing for air travelers. Year-in, year-out, passengers are saving tens of billions of dollars per year, thanks to deregulation having replaced a heavily regulated public utility model with open-entry competition. Some of what we now call “legacy” airlines could not cope with the new competitive model and are now just memories—e.g., Braniff, Eastern, National, Pan Am, and TWA. Open entry and lack of economic regulation allowed a fledgling low-cost carrier (LCC) model to expand from the small scale of intra-state markets in California and Texas into large-scale national operations that now offer price competition on something like two-thirds of all air routes—e.g., AirTran, Allegiant, JetBlue, Southwest, and Spirit.

And despite the mergers and global alliances that some fear are cartelizing the airline industry, airline analysts are in pretty strong agreement that whatever service cutbacks may arise from mergers will likely be filled by LCCs expanding into additional markets.

Given that today’s airline market is highly competitive and likely to remain so, it’s hard to see why the federal government should be introducing significant economic regulations in the name of consumer protection. Specifying how and when gate agents must talk with passengers about delays is the kind of micromanagement that we should have left behind with the CAB. DOT even proposes regulations concerning peanut allergies. As a life-long sufferer from this allergy, I’ve learned to take my own precautions, thank you. I neither need nor want the U.S. DOT imposing new costs on my fellow passengers to protect me from contact with peanuts.

What the federal government should be doing is two things (besides making sure of full disclosure in airline pricing and customer communications). First, to reduce the causes of airline delays, it needs to return to former Secretaries Mineta and Peters emphasis on congestion reduction. Speeding up the NextGen ATC system and implementing congestion pricing at the most-congested airports are the two most critically important reforms to reduce congestion.

Second, federal policy must work to remove remaining barriers to competition still embedded in certain airport/airline practices, such as exclusive-use gates and majority-in-interest clauses in long-term lease agreements (which give incumbent airlines what amounts to a veto over added space for new entrants).

Someone once wrote that the best response to offensive speech is more speech, not censorship. Likewise, the best response to consumer problems with airlines is more competition, not micro-management.

Traveling by air is ever-more defined by rules and bounded by regulations. While some of those strictures are necessary, there is also a point at which yet another set of rules creates an even more confusing and contentious environment. The infamous episode in Rochester, MN was such an event. One of the reasons cited for the "imprisonment" was the lack of TSA screeners to allow for reboarding. Did not anyone notice that the supply of WMDs available to passengers using the terminal bathroom at 10pm was probably just about nil? Yet the threat of a fine or breach of TSA regulations apparently was a consideration that closed the avenue to rational thinking.

There can be little doubt that both airlines and passengers are guilty of misrepresentation in various circumstances, but the plethora of rules only increases the probability that rote will be substituted for a search for a workable and mutually beneficial situation.

I was on a flight some years ago when a fellow passenger had a small soda in a paper cup tucked into the seat pocket. The flight attendant was adamant that it be surrendered prior to taxi as it was government policy to protect us from such dangerous objects in case of an emergency. Meanwhile, the passenger's seat mate held a hardcover book that weighed a number of pounds and, as a projectile, was far more dangerous. But there was no rule about books.

As we focus more intently on rules as a blanket solution to every ill, there is less probability of rational solutions that provide a better outcome to all involved in variable problems.

DOT’s proposal would solve a major problem with the rules issued last December by providing passengers at small and non hub airports the same rights against long tarmac delays as travelers at the largest airports. I bet most people did not even realize that passengers at 316 U.S. airports were not specifically covered by the regulations that took effect on April 29. More than a year ago, when the initial tarmac delay rules were proposed, ACI-NA has strongly urged DOT to require each airline to coordinate its contingency plans with all of the airports it served, not just the 66 large and medium hubs. The proposal would also ensure that passengers flying on foreign airlines in the United States are protected. We applaud DOT for recognizing that the effects of delays are the same no matter what airport you’re traveling through or whether you are flying on a US or foreign airline. Airports do not believe there is any justification for only protecting a portion of the traveling public.

The Department of Transportation has proposed changes intended to resolve or at least ameliorate some of the common complaints of passengers. These are common sense solutions made necessary by the airlines’ failure to be consistent or transparent in many of their practices. Such behavior in the past has provoked strong reaction from consumers, and the Department has responded. I believe this is an appropriate role for government to play. For government to "stay out of it" would only produce greater inequities in the provision of air travel.

The airlines have complained about the consequences of the tarmac delay rule, citing the possibility that carriers would cancel flights if they feared there might be a delay that would result in airlines having to pay passengers. The first thing to say is that this is probably an overstatement. The second thing to say is that it is entirely too early to make an assessment of the consequences since the rule has been effect such a short time, BUT no such result has been observed to date.

I will be interested in the reaction of the foreign carriers to the application of the tarmac rule for their operations at US airport.

I’m not sure that it’s fair to posit that the airlines are victimizing anyone, or that consumers need "protection" from the airline industry.

The proposed rules are of two types. Some seek to be sure that consumers have an opportunity to get all relevant information before committing to a purchase. Others seek to alter the economics of industry practices in ways which may benefit some individuals but will likely increase costs for travelers overall.

It is hard to fault those who want businesses of all types, including airlines, to provide customers with complete information. Many businesses seem willing to be less than fully straightforward in advertisements and other public communications, and we would all be better off if every consumer understood all the terms and conditions, and the price, of each product or service before consummating a transaction.

Take cellular phone bills, for example. An offer of x minutes of use for y dollars generates a bill that is lots higher than the advertized price because of an astonishing array of taxes and fees, none of which are mentioned in either advertising or by the representatives who book new customers. Consumers would be better and more fairly served if the fees and taxes applicable to a given service package were part of the stated price.

Requiring airlines to publicize baggage fees and be clear about ticket prices seems entirely reasonable, but it is not clear why special rules should apply only to the airline industry. Moreover, since the airlines now offer a la carte packages that include many different product features – transportation, baggage handling, airline club access, particular seat choices and other items – unduly restrictive rules may make it impossible for the industry to make consumers aware of the many choices available.

Rules which seek to alter the economics of industry practices will simply drive up prices for everyone who travels for the benefit of those travelers who benefit from the rule in question. Increasing the amount that must be paid to those bumped from flights is a good example. Airlines must overbook to compensate for travelers who make a reservation and do not appear; failing to do so would force the airlines to say "no" to those seeking a reservation more often than is necessary and would increase the number of unoccupied seats, which would reduce revenues and drive ticket prices up.

For example, if an airline is operating a 100 seat aircraft on a particular flight and 10 people regularly fail to appear, the airline will accept 110 reservations. If it did not, the last 10 people from whom reservations are accepted would be told the plane is full, and if the usual 10 people fail to appear, the flight would operate with only 90 seats actually occupied. Thus, 10 people who wished to travel would be unable to do so and the airline’s revenue would be reduced by what the last 10 passengers would have paid.

When the no show/overbooking forecast works out perfectly, no one gets bumped and the plane takes off full. Sometimes, however, more than 100 of the 110 who are booked appear, and in those cases, the airline pays compensation to those bumped. The amount of the compensation is factored into the overbooking equations. If the required bumping penalty goes up, the number of reservations accepted will decline to compensate for the increased cost of the bumping risk. Either way – whether from decreased revenue or increased cost – the airline will lose relative to today’s practice. The only way in which it can recover the loss is to increase ticket prices.

As the discussion goes on, everyone needs to understand that the airline industry must become profitable sometime soon. Unless that happens, our aviation facilities and aviation services will continue to decline in quality.