Will the Government Hide More Taxes and Fees in Airfare?

On Thursday, a new law by the Department of Transportation requiring airlines to include mandatory government taxes and fees in advertised airfares went into effect.  The new law is aimed at making a more transparent marketplace for plane tickets.  However, some in the industry are concerned that the new law will raise ticket prices by allowing the government to place even more taxes and fees on consumers.

The new law allows flyers to see the final price of the ticket immediately.  Customers will no longer have to wait until the final confirmation screen to see the total fare on a plane ticket.  All airline companies such as United Continental (NYSE:UAL), JetBlue (NASDAQ:JBLU), Delta Air Lines (NYSE:DAL) and US Airways (NYSE:LCC) will all be effected by the new law.  However, some companies are trying to ground the new law.

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Southwest Airlines (NYSE:LUV) and Spirit Airlines (NASDAQ:SAVE) are asking the U.S. Court of Appeals for the District of Columbia to block the proposed change.  Ben Baldanza, CEO of Spirit Airlines explains, “Spirit is all about disclosure and complete transparency, what we don’t like about this rule is this is backwards in transparency because it forces airlines to hide government taxes and fees inside the fare rather than break them out clearly for consumers.  We see this as a really sneaky and somewhat unethical way for the government to force new taxes on consumers without consumers realizing it.”  Although advertised airfares can be misleading, customers were still able to see how each itemized cost tallied into the final price of the ticket before booking the flight.  Under the new law, the advertised price will be the final price, but customers will not know how much is going to Uncle Sam.

Southwest spokesman Chris Mainz says, “Our main objection is that there is no justification for treating air travel differently from just about everything else that consumers purchase.  For example, they pay for the price of goods and services and then pay tax.  That’s how everything is advertised, as the price of the item separately from the tax on that price. Forcing airlines to include taxes will also make air travel look more expensive when in reality it’s not.”  According to recent studies, government taxes and fees account for about 20 percent of the cost on an average plane ticket.  Furthermore, airlines are now having to direct resources on implementing the new law, a move that will likely trickle down to consumers.

The new all-in-one ticket price will also apply to online service companies like TripAdvisor Inc. (TRIP), Expedia Inc. (NASDAQ:EXPE) and Priceline.com Inc. (NASDAQ:PCLN).  In addition to the change in advertised ticket prices, airlines can no longer increase the price of a ticket after it’s been sold and will have to inform passengers if a flight will be more than 30 minutes late.  Passengers will also have the option to change or cancel a reservation within 24 hours of initial booking (as long as the ticket purchase is made at least a week ahead of departure).

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To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com