Why is flying so expensive these days? A Democratic congressional panel blames “junk” fees.
In a 55-page report, the majority staff of the Senate Permanent Subcommittee on Investigations released on Tuesday its findings after a year-long inquiry into five U.S. airlines’ ancillary fees, which the report said have led to higher costs and worse experiences for consumers and, in some cases, tax avoidance by the airlines.
“Our investigation has exposed new details about airlines exploiting passengers with sky high junk fees,” said the subcommittee’s chair, Sen. Richard Blumenthal (D-Conn.) in a statement. “This report pulls back the curtain on tactics like dynamic pricing that burden travelers and boost airline revenue.”
Executives from the five airlines—American, Delta, United, Frontier and Spirit—will testify at a hearing on Dec. 4. “As we head into the Thanksgiving weekend,” Blumenthal said, “we regret that travelers will be charged millions of dollars in fees that have no basis in cost to the airlines but simply fatten their bottom lines.”
Takeaways from the report
The report, which was based in large part on information provided to the subcommittee by the airlines, found that the practice of “unbundling,” or charging separately for goods and services that were once included in the price of a ticket, has led to billions of dollars in revenue for the airlines, while obscuring and raising costs for consumers.
The five airlines in question “are making more money from seat fees than ever before,” the report asserts, highlighting how such fees didn’t exist at most airlines two decades ago. Now, passengers face extra charges for things like seat selection and additional legroom.
And while ancillary fees are meant to be optional, the report suggests that some fees are charged for aspects of travel that are “not reasonably avoidable,” such as families that include minors sitting together or low-fare passengers having any carry-on baggage.
In some cases, ancillary fees appear to be used by airlines to avoid a federal aviation transportation excise tax of 7.5% of the “amount paid for taxable transportation.” The tax helps to fund the Airport and Airway Trust Fund. Airlines are exempt from paying the tax on separable, nontransportation charges, but different airlines differ on what they consider to be nontaxable charges, resulting in a significant shortfall for the trust fund. Nontaxable charges, however, are meant to fulfill three criteria: that they are “not reasonably necessary to the air transportation itself,” are “optional,” and that the amount charged “bears a reasonable relation to the cost of providing the service.” The report alleges that some airlines charge ancillary fees that do not meet these criteria while also not paying the transportation tax on them.
The report says that all the airlines were reluctant to provide info on the costs incurred to provide fee-based services, telling the subcommittee that they don’t track that information. The report alleges that many fee-based services are in fact unconnected to the actual cost of providing that service, especially in the case of “dynamic pricing,” in which airlines use algorithms to constantly adjust fee prices based on customer data. Such a practice also obstructs customers’ ability to compare prices across airlines, though the report also notes that mergers and consolidations of airlines over the years have already limited consumers’ options and allowed the remaining companies to raise costs across the board, including ancillary fees. Consolidation has also resulted in a worse customer experience, the report says, citing a massive increase in complaints about air travel.
Overall, the report concludes with three recommendations: that Congress require airlines to provide more granular fee data to the Department of Transportation and strengthen requirements for airlines to be transparent to customers about fees; that the Department of Transportation investigate and punish potential abuses of incentive-based collection of ancillary fees, citing how Frontier and Spirit airlines have paid gate agents a commission for spotting passengers who may have violated airline bag policies and forcing them to “pay a bag fee or miss their flight”—a practice the report says “may inappropriately encourage abuse of discretion”; and that the Treasury Department ensure that the transportation tax rules are uniformly “understood and enforced,” particularly when it comes to airlines’ ancillary fees.
How the airlines have responded
Delta and American Airlines referred TIME to industry lobby group Airlines for America, which dismissed the report as “just another holiday travel talking point” in a statement. “The report demonstrates a clear failure by the subcommittee to understand the value the highly competitive U.S. airline industry brings to customers and employees.”
Airlines for America argued that “a la carte” rather than “one-size-fits-all” pricing benefits consumers and has “democratized” air travel by lowering costs so that Americans of all income levels can afford to fly because they are offered a choice of services that they can forgo “based on their own needs and desires.” The group added that all its members “comply with all laws and regulations, including those on taxes and fees. Any suggestion otherwise is uninformed and inaccurate.”
Delta also provided a separate statement, saying that it “has voluntarily responded to the Subcommittee’s sweeping requests, including providing documents and information, responding to numerous rounds of requests and follow-ons, and providing a senior level employee and subject matter expert at the Subcommittee’s request for a lengthy interview to discuss ancillary fees” and that it “looks forward to the continued dialogue with the Subcommittee including appearing at next week’s hearing.” Delta added that, “next to safety,” its “number one priority is taking care of our people and our customers and includes our commitment to providing a choice of fare products that best meets our customers’ specific travel needs.”
In separate statements provided to TIME, Frontier and Spirit, the two “ultra low cost carriers” (ULCC) of the group, appeared to acknowledge their airport practices addressed by the report. Frontier said its gate agent incentive policy is meant “to ensure compliance with bag size requirements so that all customers are treated equally and fairly, including the majority who comply with the rules,” while Spirit similarly said that its “airport policies ensure Guests are treated fairly and equally.” Both airlines also said they comply with IRS rules.
Frontier added that its “unbundled services model has democratized air travel, enabling millions of individuals, families, and small businesses who otherwise would not or could not afford to travel the opportunity to travel by air. It has also had the additional competitive effect for consumers of inducing other airlines, particularly non-ULCC airlines, to reduce their fares and to introduce new, lower-fare products into the marketplace.”
United Airlines declined to comment.