As the holiday travel season approaches, customers have been grumbling about additional fees that airlines are tacking on for flying during Thanksgiving, Christmas and other peak periods. With all the attention that ancillary fees have received lately, it is no surprise that government would eventually get involved to investigate. But a Congressional inquiry may only result in increased prices for some travelers.
Last week, a New York Times article reported that Rep. James Oberstar (D – MN) has initiated a Congressional investigation into airlines’ ancillary charges in addition to a base fare. Oberstar believes that airline fees are only a “backdoor way to raise ticket prices.”
The “backdoor” analogy assumes that consumers are naive and do not respond to changes in pricing. The airline fee issue has gained widespread attention in the media and in travellers personal conversations. Given this and the fact that many fees are clearly delineated on airlines’ Web sites, travellers are likely to incorporate any necessary fees into their estimated total cost of travel. Instead of a consumer-minded focus, the inquiry seems to be based on a desire for revenue. Airline fees, unlike the carrier’s base fare, are largely untaxed.
While there are normative questions as to whether an airline should be able to evade taxes in such a manner, if an airline is using fees to avoid paying certain taxes, then the result would be a lower price of travel for many consumers. This is because, the airline is, in effect, putting aside a portion of the travel price as tax free.
The other part to this issue also ties into the reason that I do not see airline fees as the monster that many others do. If an airline were to abolish its fees, then it would have to raise its prices in order to meet a certain revenue target. Thus customers who do not use the services that are being charged for (such as someone who only brings carry on luggage) ends up benefiting from a lower fare. Thus the tax-free revenue stream would keep fares even lower for many consumers.
If Congress ends up taxing baggage fees, the result is certain to be higher charges for consumers. If airlines decide to keep the fees, they will be forced to increase them in order to pass some of the tax along to consumers. If the taxes do not make the fees worthwhile anymore, however, airlines will simply raise their ticket prices to account for the revenue source. In either case, some consumers will see their price of travel go up with the instution of new charges .
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