Comments on the Proposed Rule Transparency of Airline Ancillary Fees and Other Consumer ...

381 Pages·2014·7.77 MB·English

September 29, 2014
Docket Management Facility,
U.S. Department of Transportation,
1200 New Jersey Ave., SE, Room W12–140,
Washington, DC 20590–0001
Re: Docket DOT-OST-2014-0056
Dear Sir or Madam:
Enclosed is the filing of Airlines for America (A4A) in response to the Notice of Proposed Rulemaking
titled “TRANSPARENCY OF AIRLINE ANCILLARY FEES AND OTHER CONSUMER PROTECTION
ISSUES,” Docket No. DOT-OST-2014-0056 (the NPRM).
The A4A filing is in three parts, as follows:
 Part I are comments that address the subject identified as “Disclosure of Certain Ancillary Fee
Information through All Sales Channels” (79 Fed. Reg. 29974-29980; proposed section 399.90)
 Part 2 is the Report of Professor Daniel L. Rubinfeld, Compass Lexecon, on the Initial Regulatory
Impact Analysis accompanying the NPRM with respect to the proposal to require “Disclosure of
Certain Ancillary Fee Information through All Sales Channels” (79 Fed. Reg. 29974-29980;
proposed section 399.90)
 Part 3 are comments that address the other subjects covered by the NPRM
Together, these three filings comprise A4A’s comments on the NPRM. A4A’s comments in Parts 1 and 3
rely on and incorporate the Rubinfeld Report (Part 2).
Thank you for considering our views. Please contact the undersigned if you have any questions.
Very truly yours,
David A. Berg
Senior Vice President and General Counsel
Airlines for America
Part 1: A4A GDS Comments on the
Proposed Rule; Transparency of
Airline Ancillary Fees and Other
Consumer Protection Issues
BEFORE THE DEPARTMENT OF TRANSPORTATION
WASHINGTON, D.C.

)
In the matter of
)
)
TRANSPARENCY OF AIRLINE
) Docket DOT-OST-2014-0056
ANCILLARY FEES AND OTHER
)
CONSUMER PROTECTION ISSUES;
)
PROPOSED RULE
)

COMMENTS OF AIRLINES FOR AMERICA ON THE DISCLOSURE OF
CERTAIN ANCILLARY FEE INFORMATION TO CONSUMERS
Communications with respect to this document should be sent to:
DAVID A. BERG
Senior Vice President & General Counsel
DOUGLAS K. MULLEN
Assistant General Counsel
Airlines for America
1301 Pennsylvania Ave., N.W.
Washington, DC 20004
[phone]
[email protected]
[email protected]
TABLE OF CONTENTS
Page
I. Introduction & Summary ...........................................................................................................1
II. Requiring Display of Ancillary Service Fees Through All Sales Channels Is
Unnecessary, Beyond DOT’s Statutory Authority, and Too Costly in
Comparison To Any Benefits the Requirement Might Provide.................................................2
A. DOT Has Already Decided Not To Directly Regulate GDSs, and No
Justification Exists To Change That Position ........................................................................2
B. DOT Lacks Compelling Evidence of Significant Consumer Injury
Regarding Current Fee-Disclosure Practices To Justify Taking Further
Regulatory Action Targeting Airlines and Ticket Agents .....................................................6
1. Existing DOT Regulations and Market Forces Have Led To Enhanced
Fee Disclosure Practices, and Further Developments Are Helping
Consumers.........................................................................................................................7
2. The Rulemaking Record Does Not Establish Current Fee Disclosure
Practices Are Causing “Substantial Consumer Injury” ..................................................13
3. The “Basic Ancillary Services” Identified in the NPRM Are Optional
Services Incidental, Not “Intrinsic,” To Air Transportation ...........................................18
4. Enhancing Comparison Shopping Is Not a Legitimate Justification for
Promulgating Additional Fee-Disclosure Rules for Ancillary Services .........................19
5. DOT Lacks Authority To Dictate the Terms of the Airline Distribution
System .............................................................................................................................20
C. By Reducing Consumer Options and Highlighting Irrelevant and
Misleading Information, the Costs of More Demanding Fee-Disclosure
Requirements Will Outweigh Any Benefits ........................................................................21
1. The NPRM Fails To Acknowledge the Full Costs of DOT’s Proposals .......................21
2. DOT May Not Reasonably Assume Unquantified Benefits Will Shift Its
Net Negative Cost-Benefit Analysis ...............................................................................27
III. Although DOT Has Not Specifically Proposed a Transactability Requirement,
Any Such Requirement Would Increase Harm To Consumers Without Any
Offsetting Benefits ...................................................................................................................28
IV. Conclusion ...............................................................................................................................30
BEFORE THE DEPARTMENT OF TRANSPORTATION
WASHINGTON, D.C.

)
In the matter of
)
)
TRANSPARENCY OF AIRLINE
) Docket DOT-OST-2014-0056
ANCILLARY FEES AND OTHER
)
CONSUMER PROTECTION ISSUES;
)
PROPOSED RULE
)

COMMENTS OF AIRLINES FOR AMERICA ON THE DISCLOSURE OF
CERTAIN ANCILLARY FEE INFORMATION TO CONSUMERS
Airlines for America (“A4A”)1 submits these Comments in response to Provision 2 in the
Department of Transportation’s (“DOT”) Proposed Consumer Rulemaking Regarding Enhancing
Airline Passenger Protections 3, as explained in its May 23, 2014 Notice of Proposed
Rulemaking.2 Provision 2 of the NPRM is entitled “Disclosure of Certain Ancillary Fee
Information to Consumers,” and DOT refers to it as the “GDS Issue.” 79 Fed. Reg. at 29,970.
In addition to the points made in these Comments, we incorporate by reference, and attach
hereto, the comments previously submitted by A4A (then known as Air Transportation of
America, Inc.) in response to the notices of proposed rulemaking in Docket Number DOT-OST-
2010-0140-1881 (Sept. 23, 2010) and Docket Number DOT-OST-2007-0022-0250 (Mar. 9,
2009). See Attach. A at 51-53 (discussing GDS market power) & Attach. B at 43-45 (discussing
costs of updating GDS-to-airline links).3
I. Introduction & Summary
A4A urges DOT to not impose new regulatory requirements on the locations at and methods by
which U.S. airlines and travel agents disclose fees for so-called “basic ancillary services.” DOT
correctly characterizes this proposal as a “GDS issue”: under any formulation, DOT’s proposed
requirements would entrench the market power of Global Distribution Systems (“GDSs”), along
with their outdated technology and high cost structure, to the detriment of consumers. As
explained in Part II.A of these Comments, DOT has repeatedly avoided calls to directly regulate
the airline distribution system and has instead relied on market competition and the antitrust laws

1 A4A Airline Members are Alaska Airlines, Inc.; American Airlines, Inc.; Atlas Air, Inc.; Delta Air Lines, Inc.;
Federal Express Corp.; Hawaiian Airlines; JetBlue Airways Corp.; Southwest Airlines Co.; United Continental
Holdings, Inc.; United Parcel Service Co.; and US Airways, Inc. A4A’s Associate Member is Air Canada, which
joins in these Comments.
2 See Notice of Proposed Rulemaking, Transparency of Airline Ancillary Fees and Other Consumer Protection
Issues, 79 Fed. Reg. 29,970 (D.O.T. May 23, 2014) (“NPRM”).
3 Southwest Airlines does not join in the A4A comments concerning the disclosure of basic ancillary fees.
Southwest’s position on this issue is set out in its own comments filed in this docket.
and principles to lower prices and to give consumers more options. That approach is the correct
policy, and there is no justification for DOT to depart from it.
As Part II.B explains, consumers already have ready access to the information DOT now seeks to
further highlight – access that the industry has fully provided in response to existing regulatory
requirements and to the pressure of a robust competitive market. Those existing industry
disclosure practices are not unfair or deceptive practices under the Airline Deregulation Act
(“ADA”). Further, those practices are not causing any injury to consumers, and neither the
NPRM nor the record discloses any basis for DOT to conclude otherwise. DOT therefore lacks
statutory authority to impose new fee-disclosure requirements.
Even if DOT had authority to promulgate its proposed rules, DOT has failed to justify the
massive costs they would impose. Part II.C of these Comments describes why, as DOT has
already conceded, the costs of its new regulatory proposal outweigh any quantifiable benefits;
and DOT’s estimates of those costs are in any event significantly understated because they fail to
account for lost consumer time and consumer confusion that would result from its fee-related
proposals, the problem of entrenching incumbent GDSs against competition, and the cost of
forcing airlines to build new infrastructure to accommodate outdated and inefficient systems.
DOT’s assumption that asserted unquantifiable benefits will overcome the negative valuation of
the proposed rule is unrealistic and unreasonable.
DOT should abandon this unjustified new regulatory effort and instead focus on the proposals in
the NPRM that would provide a net benefit to passengers, such as its proposal to impose certain
customer service requirements on ticket agents that mirror the services already provided by
airlines.4
II. Requiring Display of Ancillary Service Fees Through All Sales Channels Is
Unnecessary, Beyond DOT’s Statutory Authority, and Too Costly in Comparison
to Any Benefits the Requirement Might Provide
A. DOT Has Already Decided Not To Directly Regulate GDSs, and No
Justification Exists To Change That Position
DOT has long recognized that GDSs possess market power in their relationships with airlines.
See, e.g., Computer Reservations System (CRS) Regulations, Dkt. Nos. OST-97-2881 et al., 69

4 These Comments are directed primarily to DOT’s specific proposals to require disclosure of fees for so-called
“basic ancillary services” in Proposed § 399.85(b) and Proposed § 399.90 Option A and Option B. See NPRM, 79
Fed. Reg. at 30,000-02. A4A urges DOT not to adopt any of these provisions. The NPRM also includes roughly 30
open-ended questions related to the GDS issue such as whether “carriers and agents [should] be required to display
all possible advance seat assignment fees, or a range, or the fee for each seat assignment available at the time of the
search for a particular city-pair?” Id. at 29,978. A4A has attempted to answer those questions in its Comments, but
further notes that the extreme complexity and open-ended nature of those questions underscore the difficulty of
creating a regulatory structure that could accommodate the vast number of options that airlines might wish to offer
and consumers might wish to buy.
2
Fed. Reg. 976, 989 (D.O.T. Jan. 7, 2004) (“GDS Deregulation Order”) (“Each CRS therefore
continues to have significant market power based on the travel agents to which it has exclusive
access.”). Customer groups, often large corporations, rely on third-party travel agencies to
manage their corporate travel spending programs. Travel agents, in turn, rely almost exclusively
on GDSs to obtain fare and flight information, to make the booking, and to issue tickets. Each
travel agent usually has access to the fare and flight information from only one GDS. As a
result, each GDS controls airline access to a distinct group of traveling customers representing a
large share of airline revenue, and airlines have traditionally needed to participate in each GDS
to obtain access to each of these distinct customer groups.
Because each GDS provides access to a different customer group, the GDSs (Sabre, Travelport,
and Amadeus) are not substitutes for one another. That is to say, if an airline is not participating
in Sabre, it cannot use Travelport to reach the customers of a travel agent that uses Sabre. Thus,
each GDS has market power over airlines that want to sell tickets to their customer bases and can
charge supracompetitive fees for each flight segment booked via that GDS. As a consequence,
distribution of airline tickets through a GDS costs the airlines substantially more than
distribution through the airlines’ websites.5 In addition, as DOT knows, the GDSs have imposed
restrictive contract terms on the airlines. Those terms limit the airlines’ ability to develop and
expand alternative means of distributing their services through travel agencies, including the
requirement that airlines provide the GDSs with access to “full content” – meaning the ability to
sell every fare the airline offers, even if it would be economical for the airline to offer that fare
only to alternative distribution channels that are less costly or more efficient.6 This situation is
different than what DOT envisioned in its GDS Deregulation Order. In that order, DOT
anticipated that airlines would be able to compete with GDSs and travel agent outlets using
“web-only” fares and that the distribution market would see new entrants. See 69 Fed. Reg. at
977.
Airlines have not historically been dependent upon GDSs as a distribution channel for ancillary
services, and the airlines’ “full content” contractual obligations to GDSs typically have not
extended to those ancillary services. As the supply of and demand for ancillary services has
increased, the GDSs have often sought to negotiate for access to this content. In recent years,
many airlines and GDSs have successfully negotiated agreements that enable the GDSs to

5 GDS abuses remain the principal obstacle for market forces in airline distribution. For example, Sabre has
prohibited one new market entrant, Farelogix, from directly connecting airlines to travel agents’ Sabre-controlled
systems. See, e.g., Travelport joins Sabre in ending Farelogix developer agreements, available at
http://www.tnooz.com/article/travelport-joins-sabre-in-ending-farelogix-developer-agreements/ (last visited Sept.
28, 2014) (For the record, all online articles and websites cited in these Comments are provided in Attachment C.);
see also Report of Dr. Daniel L. Rubinfeld at Part V.A (Sept. 29, 2014) (“Rubinfeld Rep.”). Unfortunately, the
proposed rules do nothing to address those abuses.
6 See Brett Snyder, Why You So Rarely See Web Fares in the US, The Cranky Flier (Aug. 25, 2014),
http://crankyflier.com/2014/08/25/why-you-so-rarely-see-web-fares-in-the-us/.
3
distribute ancillary content. Some airlines have been able to use the GDSs’ desire for access to
ancillary content to bargain for concessions on booking fees – lower booking fees that, because
of the intense price competition among airlines, translate into lower ticket prices for consumers.
Negotiations between airlines and GDSs over ancillary services benefit consumers for another
reason. As described more fully below, GDSs have agreed to develop new technologies for
accessing and distributing content for airline products and services. These new technologies are
more flexible and robust than the older technologies on which the GDSs rely to access and
display basic fare and flight information. These new technologies enable the airlines to price
their products and services in a dynamic way and enable the information to be displayed to travel
agents and consumers more effectively. GDS concessions on both pricing and technology were
the product of commercial negotiations, in which the airlines had the option (and a market
incentive) but not the obligation to provide ancillary content to the GDSs.
If DOT were to mandate that airlines provide content to the GDSs, either by express requirement
as provided in Option A, or as a practical consequence of Option B,7 it would remove that entire
topic from the negotiating table and would permanently empower GDSs in their negotiations
with airlines. The Department would, in essence, deputize the GDSs. In the past, DOT has
recognized that GDS contract provisions that require an airline to “provide all fares as a
condition to participation may . . . constitute unfair methods of competition because they
unreasonably limit each airline’s ability to choose how to market its services. That would
buttress the [GDS]’s market power.” GDS Deregulation Order, 69 Fed. Reg. at 999. The GDSs
are unsurprisingly the greatest proponents of DOT’s current proposals, which would require
airlines to provide valuable content to them through regulation rather than negotiation.
DOT acknowledged in its Passenger Protection II Rulemaking the danger of “unintended
consequences” of a rule entrenching GDS market power, “particularly given the sensitive nature
of the market and the negotiations currently taking place between carriers and the GDSs.”
Enhancing Airline Passenger Protections, 76 Fed. Reg. 23,110, 23,150 (D.O.T. Apr. 25, 2011)
(“Passenger Protection II” or “PPII”). DOT recognized a similar sensitivity when it
deregulated GDSs in 2004. At that time, DOT acknowledged that Congress gave it “no
comprehensive oversight authority over airline distribution” and concluded that, because airlines
had divested their GDS ownership, ending GDS regulation would “produce the best results for
consumers over time.” GDS Deregulation Order, 69 Fed. Reg. at 978. Accordingly, DOT

7 As the NPRM correctly acknowledges, DOT’s proposed Option B will likely require airlines to continue to rely on
GDSs to distribute airline fee information “as a practical matter.” 79 Fed. Reg. at 29,977. DOT’s Initial Regulatory
Impact Analysis (“RIA”) similarly and rightly assumes that airlines will be forced to continue to use GDSs
regardless of whether DOT adopts Option A or Option B (even though, as explained below, the RIA significantly
underestimates the costs of that use). See Initial Regulatory Impact Analysis for Proposed Consumer Rulemaking
Regarding Transparency of Airline Ancillary Fees and Other Consumer Protection Issues at 69 (D.O.T. Apr. 16,
2014).
4
decided to let most of its GDS rules lapse and “not to adopt rules governing the use of the
Internet in airline distribution.” Id. “Airline deregulation has provided lower fares and better
service for consumers, in part by enabling new firms to enter the airline business. . . . The
deregulation of the [GDS] business should also benefit consumers, even though we cannot
forecast how it will play out.” Id.; see Order, Complaints of United States Travel Agent Registry
Against Delta Air Lines, Inc. United Air Lines, Inc. American Airlines, Inc. Continental Airlines,
Inc. Northwest Airlines, Inc. Violations of 49 U.S.C. § 41712 et al., Dkt. Nos. OST-98-4776
et al., Order 2004-6-17, 2004 WL 1380503, at *4 (D.O.T. June 21, 2004) (“[A]s a general matter
we have consistently read the pro-competitive policy directives in 49 U.S.C. § 40101 as allowing
each airline the same freedom to choose the channels and the terms for distributing its services
that firms in other unregulated industries enjoy.”). Since 2004, Congress has not suggested that
DOT should change course, even though it has elsewhere demonstrated that it knows how to
protect particular segments of the air transportation system when it wants to. See, e.g., 49 U.S.C.
§ 41731 (small community air service program); id. § 41719 (requiring air service termination
notices in certain circumstances); id. § 41761 (regional air service incentive program); id.
§ 41705 (protecting travelers with disabilities).
DOT’s current proposals would return to a regime of regulating airline distribution through
GDSs, despite the absence of “compelling evidence” of consumer deception or unfair
competition. See Order of Dismissal, Petition of Rulemaking of Joel Kaufman re Ticket Change
Penalties, Dkt. No. OST 2003-14334, Order 2003-3-11, 2003 WL 23097368, at *1 (D.O.T. Mar.
18, 2003) (“Ticket Change Penalties Order”). Worse, DOT’s proposal would regulate in a
manner that would strengthen the negotiating position of entrenched market players (the GDSs)
at the expense of players exposed to fierce price competition (the airlines), and therefore at the
expense of consumers. Those proposals are therefore a significant change from DOT’s
deregulation decision in 2004 and from its decision not to reintroduce heavily intrusive
regulations in 2011. Should DOT adopt such a proposal, it has an obligation to supply an
explanation for this dramatic change in position. See, e.g., Greater Boston Television Corp. v.
FCC, 444 F.2d 841, 852 (D.C. Cir. 1970) (“[A]n agency changing its course must supply a
reasoned analysis indicating that prior policies and standards are being deliberately changed, not
casually ignored.”); FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009); Motor
Vehicle Mfrs. Ass’n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
41-42 (1983); Philadelphia Gas Works v. FERC, 989 F.2d 1246, 1250-51 (D.C. Cir. 1993). That
obligation is especially strong here, because GDSs’ market power has not subsided since
deregulation.8 And, even without considering this market power, DOT has conceded that the
mandate it is considering has “significant costs” that outweigh the quantified benefits. See infra
Part II.C.

8 If anything, ongoing antitrust litigation indicates that GDSs’ market power over the past decade has grown. See
U.S. Airways, Inc. v. Sabre Holdings Corp., No. 1:11-cv-2725-MGC (S.D.N.Y.); In re Online Travel Co. (OTC)
Hotel Bookings Antitrust Litig., -- F. Supp. 2d --, 2014 WL 626555 (N.D. Tex. Feb. 18, 2014).
5
This fundamental flaw in DOT’s proposals would not be cured merely by the added regulatory
step of requiring that GDSs with an existing distribution agreement not charge a separate fee for
the distribution of ancillary fee information. See NPRM, 79 Fed. Reg. at 30,001-02 (Proposed
§ 399.90(g) Options A & B). Because, “as a practical matter,” carriers will still be forced to
comply with the proposed rule through GDSs, see id. at 29,977, the rule is an unwarranted and
harmful intrusion into the marketplace. Making matters worse, as soon as those existing GDS
agreements expire, the proposed regulation would deprive airlines of one of the few bargaining
tools they have with GDSs – the ability to bargain over information about ancillaries. The
resulting increase in distribution costs will harm carriers and consumers.
B. DOT Lacks Compelling Evidence of Significant Consumer Injury Regarding
Current Fee-Disclosure Practices To Justify Taking Further Regulatory
Action Targeting Airlines and Ticket Agents
DOT has suggested that new fee-disclosure requirements for ancillary services would be justified
because travel agents’ and air carriers’ current methods of disclosure are “unfair or deceptive”
under the ADA. 49 U.S.C. § 41712; see NPRM, 79 Fed. Reg. at 29,970. The record contains no
basis for any such conclusion and therefore no basis for further DOT action in this area.9 The
NPRM’s analysis of the market is concededly incomplete and outdated.
In assessing the contents of the record, DOT must satisfy a demanding standard before it can
exercise its authority under section 41712. A practice is only “deceptive” under section 41712 if
it is likely to “mislead” reasonable consumers. Order Dismissing the Complaint and Denying
Petition for Rulemaking, Rulemaking Petition of Association of Discount Travel Brokers on
Frequent Flyer Programs and Awards, Dkt. Nos. 46280 & 47539, Order 98-5-60, 1992 WL
133179, at *6 (D.O.T. June 4, 1992) (“Frequent Flyer Order”); see also Southwest Sunsites, Inc.
v. FTC, 785 F.2d 1431, 1435 (9th Cir. 1986) (explaining that “deception” under the related FTC
Act is “a representation, omission or practice that is likely to mislead the consumer acting
reasonably in the circumstances, to the consumer’s detriment”) (internal quotations and emphasis
omitted). A practice is “unfair” if “it violates public policy, is immoral, or causes substantial
consumer injury not offset by any countervailing benefits.” Frequent Flyer Order, 1992 WL
133179, at *8.
Free-market competition is a countervailing benefit, and “[t]he marketplace is normally expected
to be self-correcting because consumers are relied upon to survey the available alternatives,
choose those that are most desirable, and avoid those that are inadequate or unsatisfactory.”
Unfair or Deceptive Acts or Practices, 74 Fed. Reg. 5498, 5502-03 (Treas. Jan. 29, 2009)

9 The NPRM and RIA are arbitrary and capricious and therefore violate the Administrative Procedure Act because
the (1) estimated costs far outweigh any speculative benefits (2) Department has failed to justify its change of
position, by now seeking to regulate distribution channels (3) Department fails to identify consumer injury. 5
U.S.C. § 706(2)(A).
6