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Flights of fancy: making sense of airfares and ancillary charges

by Kevin Rafferty

HONG KONG — The dogfight between American Airlines and the online travel agencies that used to be its business partners has important global implications for online ways of doing business. Unfortunately, the real loser will be the person that both sides say they are scrapping for, the airline passenger.

Without action by wide-awake consumer advocacy groups and vigorous attitudes by governments in defense of contract law, competition and pricing, traveling, especially across national borders, is going to get more expensive and troublesome.

American Airlines ended its contract allowing Orbitz, the smallest of the big four U.S. online travel agencies, to display its fares on Orbitz’ site after American wanted to use its own technology.

Expedia then refused to renew its own contract with American, claiming: “American Airlines has shown that it intends to do business with travel agencies through a new model that is anti-consumer and anti-choice. (The move) will result in higher costs and reduced transparency for consumers, making it difficult to compare ticket prices and options with offerings by other airlines.”

American Airlines retorted that it is determined to give passengers — or consumers, as travel merchants now call them — the best deal.

One reason for the fight is cost. Fees paid to agencies via global distribution systems are about $4 per flight segment. It costs about 3 to 4 percent for airlines to sell tickets on their own sites versus 10 to 12 percent using agents.

Gerald Arpey, president of American Airlines, who started as a financial analyst with the airline, said in 2009 that the airline would like to see intermediaries and customers pay for access to the airline’s products “rather than our paying them to distribute our product.”

But virtual capture of the customer is equally important. American’s new “Direct Connect” reservation system claims to build an airfare that fits the passenger’s preferences, including such things more leg room, a special seat or early boarding. But it is hard to compare prices when the price only appears at the end of the deal when all the special preferences have been sorted out. It is also tedious and time-consuming to do that for every airline for every flight.

Far better to use an online agency to compare prices for flights across all airlines. But this has become more difficult since airlines vigorously started “unbundling” fares to charge for everything previously part of the ticket.

Airlines in the U.S. routinely charge for a checked bag — and some of them charge for bags carried on board — as well as for food and even for soft drinks. They have a panoply of extra charges for everything and anything for switching from a delayed flight to changing the date of a flight. And they are making $10 billion a year and rising for “ancillary charges.”

American Airlines may be ahead only in one aspect. United Airlines, freshly amalgamated with Continental, is pushing potential passengers to use its website for bookings, claiming that there are no hidden fees. Passengers in business class were offered paper napkins directing them to use a united.com/traveloptions site to get special deals such as early boarding, access to lounges or “premier meals.” Who would have thought that airlines dare make money from their legendary meals?

Asian airlines, apart from budget carriers, still keep the deal that the ticket fare includes a checked bag of up to 20 kg in economy, 30 kg in business and 40 kg in first (or a piece system on flights to the U.S.), and free food and drink on board. But Asian airlines are also pioneering new ways of making money. The old days of paper tickets issued by one airline, which could usually be endorsed to another carrier within the validity of the ticket, disappeared more than a year ago.

In their place passengers have the convenience of a paperless ticket, but it ties them to the airline that has issued it with increasingly heavy penalties for changes. Airlines are beginning to take unfair advantage of their unequal bargaining power. If you book online with Cathay Pacific or Singapore Airlines or other carriers, you will be asked first what is your home base. This can be crucial. Tickets booked for travel from Japan are typically two to four times more expensive than equivalent tickets starting in Hong Kong or Singapore, and it is difficult to get cheaper tickets without booking 14 or more days in advance.

A major money-spinner for the airlines is in “allowing” changes, but at a high price. In the latter days of paper tickets, only cheapest economy fares attracted a penalty for changes, specifically spelled out on the ticket. But U.S. airlines now charge $100 to $150 for making any change, though the fees are often not charged for business class tickets or for an airline’s frequent flier.

Asian airlines are taking a tough line. A careful search of the Cathay Pacific U.K. site reveals that there is a new “business standard” return fare from London to Hong Kong of £3,957 plus taxes. (The “business flex” fare is £6,469.) A careful search of the fine print reveals that changing the date, even before travel, costs £250 for the “standard” fare.

A friend got stung in booking two business class tickets on an Asian airline, from Bangkok to India and to Hong Kong. He belongs to the top tier of the airline’s frequent fliers, but when a sudden death of a close friend led him to seek a change by one day in the flights, the airline demanded a fee of 22 percent of the price of the ticket. It claimed that the fee was “clearly stated” and involved “rewriting” of the ticket.

It is doubtful, in normal parlance, that the change of a single digit on a ticket could be considered “rewriting,” especially since there is no pen or paper involved. As to the “clearly stated” charge, there was only a general reference in the “terms and conditions” that extra charges by government and others may apply. The only specific reference came in the airline gobbledygook printed below the itinerary after the ticket was issued. Work it out: ENDORSEMENTS: FLT DTE CHANGE WZIN VLDTY FOC/ NOSHOW/ REFUND THB2000 ENDORSEMENTS: VLD FLT DTE SHWN/ REBKG THB 2000 NOSHOW THB5000/ NONREF

One of the tickets had a penalty, but the other did not. An Asian lawyer working in consumer affairs for the business department of a European government said: “This is hardly a fair contract. Was the passenger clearly shown the penalties before paying the money?”

But how and where and to whom can a passenger apply for redress? In this case, the passenger, a citizen of country A, resident in country B and taking the airline of country C going from D to E and F, has few options.

On the Internet, there is no equality of bargaining, it is take it or leave it. Indeed, some airlines, when they note an interest by a potential passenger, raise the fares. It is time for governments to look again at consumer protection on the Internet. Ticking a box agreeing to blanket “terms and conditions” should not become an airline’s excuse to rip off passengers.

Kevin Rafferty is editor in chief of PlainWords Media.