[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]






                              AIRLINE FEES

=======================================================================

                               (111-127)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                                AVIATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             July 14, 2010

                               __________


                       Printed for the use of the
             Committee on Transportation and Infrastructure















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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia,   JOHN L. MICA, Florida
Vice Chair                           DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon             THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois          HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of   JOHN J. DUNCAN, Jr., Tennessee
Columbia                             VERNON J. EHLERS, Michigan
JERROLD NADLER, New York             FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida               JERRY MORAN, Kansas
BOB FILNER, California               GARY G. MILLER, California
EDDIE BERNICE JOHNSON, Texas         HENRY E. BROWN, Jr., South 
GENE TAYLOR, Mississippi             Carolina
ELIJAH E. CUMMINGS, Maryland         TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa             TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania             SAM GRAVES, Missouri
BRIAN BAIRD, Washington              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              JOHN BOOZMAN, Arkansas
MICHAEL E. CAPUANO, Massachusetts    SHELLEY MOORE CAPITO, West 
TIMOTHY H. BISHOP, New York          Virginia
MICHAEL H. MICHAUD, Maine            JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri              MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California      CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois            CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii              LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota           CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York          VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona           BRETT GUTHRIE, Kentucky
CHRISTOPHER P. CARNEY, Pennsylvania  ANH ``JOSEPH'' CAO, Louisiana
JOHN J. HALL, New York               AARON SCHOCK, Illinois
STEVE KAGEN, Wisconsin               PETE OLSON, Texas
STEVE COHEN, Tennessee               TOM GRAVES, Georgia
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
MICHAEL E. McMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
JOHN GARAMENDI, California
HANK JOHNSON, Georgia

                                  (ii)



                        Subcommittee on Aviation

                 JERRY F. COSTELLO, Illinois, Chairman

RUSS CARNAHAN, Missouri              THOMAS E. PETRI, Wisconsin
MICHAEL E. McMAHON, New York         HOWARD COBLE, North Carolina
PETER A. DeFAZIO, Oregon             JOHN J. DUNCAN, Jr., Tennessee
ELEANOR HOLMES NORTON, District of   VERNON J. EHLERS, Michigan
Columbia                             FRANK A. LoBIONDO, New Jersey
BOB FILNER, California               JERRY MORAN, Kansas
EDDIE BERNICE JOHNSON, Texas         SAM GRAVES, Missouri
LEONARD L. BOSWELL, Iowa             JOHN BOOZMAN, Arkansas
TIM HOLDEN, Pennsylvania             SHELLEY MOORE CAPITO, West 
MICHAEL E. CAPUANO, Massachusetts    Virginia
DANIEL LIPINSKI, Illinois            JIM GERLACH, Pennsylvania
MAZIE K. HIRONO, Hawaii              CHARLES W. DENT, Pennsylvania
HARRY E. MITCHELL, Arizona           CONNIE MACK, Florida
JOHN J. HALL, New York               LYNN A. WESTMORELAND, Georgia
STEVE COHEN, Tennessee               JEAN SCHMIDT, Ohio
LAURA A. RICHARDSON, California      MARY FALLIN, Oklahoma
JOHN A. BOCCIERI, Ohio               VERN BUCHANAN, Florida
NICK J. RAHALL, II, West Virginia    BRETT GUTHRIE, Kentucky
CORRINE BROWN, Florida
ELIJAH E. CUMMINGS, Maryland
JASON ALTMIRE, Pennsylvania
SOLOMON P. ORTIZ, Texas
MARK H. SCHAUER, Michigan
JOHN GARAMENDI, California
DINA TITUS, Nevada
JAMES L. OBERSTAR, Minnesota
  (Ex Officio)

                                 (iii)













                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Baldanza, Ben, President and Cheif Executive Officer, Spirit 
  Airlines, Inc..................................................     2
Dillingham, Dr. Gerald, Director of Civil Aviation Issues, U.S. 
  Government Accountability Office...............................     2
Mitchell, Kevin, Chairman, Business Travel Coalition.............     2
Moore, Kyle, Vice President, Marketing, Sabre Holdings, and on 
  behalf of the Interactive Travel Services Association, American 
  Society of Travel Agents, Consumer Travel Alliance.............     2
Ridley, Dave, Senior Vice President, Marketing and Revenue 
  Management, Southwest Airlines.................................     2
Rivkin, Robert S., General Counsel, U.S. Department of 
  Transportation.................................................     2

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Cohen, Hon. Steve, of Tennessee..................................    40
Costello, Hon. Jerry F., of Illinois.............................    41
Mitchell, Hon. Harry E., of Arizona..............................    48
Oberstar, Hon. James L., of Minnesota............................    49
Petri, Hon. Thomas E., of Wisconsin..............................    53

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Baldanza, Ben....................................................    61
Dillingham, Dr. Gerald...........................................    72
Mitchell, Kevin..................................................   132
Moore, Kyle......................................................   138
Ridley, Dave.....................................................   152
Rivkin, Robert S.................................................   158

                       SUBMISSIONS FOR THE RECORD

Baldanza, Ben, President and Cheif Executive Officer, Spirit 
  Airlines, Inc., response to request for infmoration from Hon. 
  Costello, a Representative in Congress from the State of 
  Illinois.......................................................    33
Dillingham, Dr. Gerald, Director of Civil Aviation Issues, U.S. 
  Government Accountability Office, supplementary report 
  entitled, ``Commercial Aviation, Consumers Could Benefit from 
  Better Information about Airline-Imposed Fees and Refundability 
  of Government-Imposed Taxes and Fees''.........................    82
Ridley, Dave, Senior Vice President, Marketing and Revenue 
  Management, Southwest Airlines, response to request for 
  infmoration from Hon. Costello, a Representative in Congress 
  from the State of Illinois.....................................   035
Rivkin, Robert S., General Counsel, U.S. Department of 
  Transportation, response to request for information from Hon. 
  Duncan, a Representative in Congress from the State of 
  Tennessee......................................................    29

                        ADDITIONS TO THE RECORD

Consumers Union, William J. McGee, written statement.............   164
FlyersRights.org, Kate Hanni, Executive Director and 
  Spokesperson, written statement................................   167
National Business Travel Association, written statement..........   176





 
                        HEARING ON AIRLINE FEES

                              ----------                              


                        Wednesday, July 14, 2010

                  House of Representatives,
    Committee on Transportation and Infrastructure,
                                  Subcommittee on Aviation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:04 p.m., in 
room 2167, Rayburn House Office Building, the Honorable Jerry 
F. Costello [chairman of the Subcommittee] presiding.
    Mr. Costello. The Subcommittee will come to order. The 
Chair will ask all Members, staff, and everyone to turn 
electronic devices off or on vibrate.
    The Subcommittee is meeting today to receive testimony 
regarding airline fees. I intend to give a brief opening 
statement and then call on Mr. Petri to give an opening 
statement or his remarks.
    I might mention that we are going to have votes at 2:45. We 
were just notified. So what I think I will do is first welcome 
everyone to the hearing today. Secondly, I want to especially 
recognize and thank the families of Colgan Flight 3407 for 
being with us today and for their steadfast support for 
improving pilot training and safety in the industry.
    With that, Mr. Petri, in order to move things along so that 
we can get to our witnesses, I will enter my entire statement 
into the record. But before I recognize you for your opening 
statement, I would ask unanimous consent to allow two weeks for 
all Members to revise and extend their remarks and to permit 
the submission of additional statements and materials by 
Members and witnesses.
    With that, my entire statement will appear in the record 
without objection.
    The Chair recognizes Mr. Petri.
    Mr. Petri. Thank you very much, Mr. Chairman. And to 
demonstrate how effective your leadership of this panel is, I 
will ask unanimous consent that my statement be entered into 
the record.
    Mr. Costello. Without objection, so ordered.
    Obviously, we are trying to get to the witnesses to hear 
your testimony before we are interrupted for votes; that is why 
we have entered our statements into the record.
    Let me now recognize our witnesses today. First, Dr. Gerald 
Dillingham, who is the Director of Civil Aviation Issues with 
the U.S. Government Accountability Office; Mr. Robert Rivkin, 
who is the General Counsel with the United States Department of 
Transportation; Mr. Ben Baldanza, who is the President and CEO 
of Spirit Airlines; Mr. Dave Ridley, who is the Senior Vice 
President of Marketing and Revenue Management, Southwest 
Airlines; Mr. Kevin Mitchell, Chairman, Business Travel 
Coalition; Mr. Kyle Moore, who is the Vice Presidente of 
Marketing, Sabre Holdings, and on behalf of The Interactive 
Travel Services Association, American Society of Travel Agents, 
Consumer Travel Alliance as well.
    With that, I will now recognize Dr. Dillingham. As is the 
policy of this Subcommittee, we would ask that you summarize 
your written testimony that you have submitted to the 
Subcommittee and try and summarize your statement in five 
minutes so that we will have time to ask questions.
    With that, the Chair now recognizes Dr. Dillingham.

TESTIMONY OF DR. GERALD DILLINGHAM, DIRECTOR OF CIVIL AVIATION 
   ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; ROBERT S. 
RIVKIN, GENERAL COUNSEL, U.S. DEPARTMENT OF TRANSPORTATION; BEN 
   BALDANZA, PRESIDENT AND CEO, SPIRIT AIRLINES, INC.; DAVE 
     RIDLEY, SENIOR VICE PRESIDENT, MARKETING AND REVENUE 
   MANAGEMENT, SOUTHWEST AIRLINES; KEVIN MITCHELL, CHAIRMAN, 
  BUSINESS TRAVEL COALITION; AND KYLE MOORE, VICE PRESIDENT, 
  MARKETING, SABRE HOLDINGS, AND ON BEHALF OF THE INTERACTIVE 
TRAVEL SERVICES ASSOCIATION, AMERICAN SOCIETY OF TRAVEL AGENTS, 
                    CONSUMER TRAVEL ALLIANCE

    Mr. Dillingham. Thank you, Mr. Chairman, Mr. Petri, Members 
of the Subcommittee. My statement today summarizes the findings 
of GAO's study of aviation-related fees and their potential 
impact on the Airport and Airway Trust Fund and the flying 
public.
    Our full report was published this morning on the GAO's 
website. This study addressed four questions: first, what are 
the nature and scope of these fees, including the fees' 
relationship to the cost of the services provided and their 
degree of transparency; second, what is the potential impact of 
such fees on revenues used to help fund FAA through the Trust 
Fund; and, third, how have the fees affected the number of 
checked bags and airline policies associated with checked and 
mishandled bags; and, lastly, what processes are available for 
refunding government-imposed taxes and fees to passengers who 
do not use their non-refundable tickets.
    With regard to the nature and scope of the fees, starting 
in about 2007, airlines began to charge for many services for 
which separate charges did not previously exist, such as first 
and second checked baggage, carry-on bags, meals, blankets, and 
seat selection. Prior to 2007, the flying public generally 
considered these kinds of services were included in the price 
of the ticket. Since these services were unbundled and fees 
established, the revenues from these fees have become an 
important part of the profit and loss statement of many 
airlines.
    During 2008 and 2009, U.S. passenger airlines posted 
operating losses of about $4.4 billion; however, during that 
same period airlines reported fee revenues of at least $7.9 
billion. This $7.9 billion represents only a portion of the 
revenues that were generated from optional fees. According to 
airline officials, the fees are based on a combination of 
factors, including the cost of providing the services, 
competition, and consumer demand.
    I think it is worth noting that the fees are not assessed 
equally. For example, some passengers, such as business class 
and elite frequent fliers, do not pay for certain services such 
as checked bags and early boarding. In addition, airline 
operational fees are not fully transparent. Specifically, DOD 
does not require the disclosure of most of these fees by 
airlines or ticket distribution channels that are used by 
consumers. Therefore, consumers cannot readily compare the 
total cost of flights offered by different carriers.
    With regard to the potential impact of these fees on the 
Trust Fund, the IRS has determined that many of the fees that 
have been established by airlines are not related to the 
transportation of a person; therefore, they are not subject to 
the 7.5 percent excise tax which would be deposited into the 
Trust Fund. However, if checked bag fee revenues that airlines 
reported in fiscal year 2009 had been subject to the excise tax 
on domestic travel, it would have generated about $186 million, 
or somewhat less than 2 percent of the Trust Fund revenues for 
2009.
    With regard to our question on checked baggage issues, 
since the airlines established check baggage fees, the number 
of checked bags per passenger and the rate of mishandled bags 
have both declined. According to airline officials that we 
talked to, their airlines have generally not changed their 
baggage handling policies or their compensation methods. 
Consequently, it would be reasonable to conclude that the 
decline in the number of checked bags was likely a factor in 
the decline in the rate of mishandled bags.
    Finally, regarding the processes available for refunding 
government taxes and fees to passengers who do not use their 
non-refundable tickets, government taxes and fees include a 7.5 
percent excise tax, a September 11 security fee, and various 
inspection fees. We found that the refundability of these taxes 
and fees on unused, non-refundable tickets varies depending on 
the tax and the fee. We also found that clear information was 
not generally available to consumers about the eligibility of 
refund for these fees and taxes.
    Mr. Chairman and Members of the Subcommittee, to address 
the issues that we identified through this study, our report 
contains a matter for congressional consideration on the 
taxation of optional fees and six recommendations to various 
fellow agencies that generally focus on disclosure and 
transparency issues. Thank you, Mr. Chairman.
    Mr. Costello. Thank you, Dr. Dillingham.
    The Chair now recognizes Mr. Rivkin.
    Mr. Rivkin. Chairman Costello, Ranking Member Petri, and 
Members of the Committee, thank you for the opportunity to 
appear before you to discuss airline fees.
    Secretary Ray LaHood is committed to protecting the 
interests of airline consumers. During this Administration, the 
Department has implemented a number of initiatives to further 
that commitment. Last December we established a new foundation 
in consumer protection through a rule that attacked several 
persistent and pernicious practices, including lengthy tarmac 
delays, chronically delayed flights, and lack of consumer 
information about on-time performance. In the last year we 
issued 37 cease and desist orders against airlines and agents, 
assessing more than $3 million in civil penalties, and we are 
very focused on the impact of new airline fees on consumers.
    We believe that the proliferation of these fees and the 
manner in which they are presented to the traveling public can 
be confusing and, in some cases, misleading. Many travelers 
still expect that the basics of air travel are included in the 
ticket price, but that is no longer the case. The published 
fare used by many consumers to choose a flight does not clearly 
represent the actual cost of travel once the new fees are 
added. These include fees for services that used to come 
included in the fare, like checking bags, carrying bags 
onboard, and now even getting soft drinks. As a result, it is 
difficult for consumers to compare fare offerings and make 
rational economic decisions based on the full cost of their 
travel.
    We believe consumers should have complete information about 
the full cost of their trip at the time they make their 
decisions about travel. We believe that information should be 
presented in a clear, straightforward way so that consumers can 
make informed decisions. The Department recently issued a 
Notice of Proposed Rulemaking that would apply these basic 
principles of transparency and fairness to the airline 
industry's new fee structure, among other consumer protections 
proposed. On fees, here is what we proposed:
    First, we would require true, full price advertising. 
Advertised tickets would be required to include all mandatory 
taxes, fees, and charges. If you have to pay a charge to fly, 
like what some airlines call a fuel surcharge or a convenience 
fee, it must be included in the total price presented to the 
consumer.
    Second, we propose that airlines' optional fees be fully 
disclosed on airline websites. By optional fees we mean charges 
for things like checking baggage or seat assignments that 
passengers can choose to avoid and yet still fly. We would also 
require more detailed and prominent disclosure for fees related 
to carry-on and checked bags, and that such fees be 
affirmatively agreed to by the consumer with no opt-out 
requirements or shenanigans.
    Third, we propose to require reimbursement of baggage fees 
when the bags are not delivered or not delivered on time.
    Fourth, we are seeking comment on a proposal that airlines 
report both a full fare, the carrier's base fare plus the 
mandatory charges, as well as what we have referred to as 
``full fare plus'', which would be the full fare ticket price 
plus the cost of baggage charges that consumers are 
traditionally used to seeing included in the price of the 
ticket. We are seeking comment on that; we haven't made any 
determination of what the Department thinks is appropriate.
    And, fifth, the Department proposes to require airlines to 
provide their agents and global distribution systems complete, 
accurate, and up to date information on ancillary fees so that 
the information is readily available to consumers.
    Among other key provisions of the rule unrelated to fees, 
we also propose to increase compensation and transparency for 
bumped passengers and to require airlines to allow cancellation 
of a reservation without penalty within 24 hours of booking a 
flight.
    Our proposed rule addresses most, but not all, the 
recommendations of the General Accountability Office report 
that was released today. One recommendation in the report 
involves the TSA $2.50 security fee that is imposed per flight 
segment, up to $10.00, to cover the cost of screening and 
related services, as well as other fees imposed by government 
agencies. Although these fees are beyond the scope of our 
current rulemaking, we would be happy to work with you and the 
GAO on this issue.
    We are committed to acting swiftly to try to complete the 
rulemaking by the end of this calendar year.
    In closing, I want to thank this Committee for invigorating 
our consumer protection program. Your leadership and support 
have enabled us to redouble our efforts to protect consumers. 
We are committed to the mission you have given us and we look 
forward to continuing to work with you. I would be happy to 
answer any questions you may have, and I ask that my written 
statement be made part of the record. Thank you.
    Mr. Costello. Thank you, Mr. Rivkin. You have made mention 
of Secretary LaHood and the action that he has taken thus far. 
We applaud him for his swift action and look forward to working 
with you on these issues.
    The Chair now recognizes Mr. Baldanza.
    Mr. Baldanza. Chairman Costello, Mr. Petri, and the 
Subcommittee, thank you for the opportunity to appear today in 
connection with the review of airline fees. Spirit Airlines is 
based in Fort Lauderdale, Florida. We currently have a fleet of 
31 aircraft serving 44 cities in the U.S., the Caribbean, 
Central and South America. We carry approximately 6.5 million 
passengers a year, and over the next five years will add 35 new 
aircraft to meet the growing demand for our unique ultra low 
cost carrier service.
    Spirit believes that unbundling, and by that I mean 
separating out optional customer services from the fare that 
are not essential to transporting a passenger, allows the 
customers the choice to purchase services or not, and this 
benefits the traveling public through lower total cost. This 
approach generates increased tax revenue by stimulating more 
travel. These unbundled services do not impose any cost on 
airport infrastructure, on the Nation's air traffic control 
system or any other government services funded by the aviation 
Federal excise tax. As such, no additional tax burden should be 
imposed on the cost of these ancillary services.
    Over the past decade, the U.S. airline industry has lost 
approximately $60 billion in light of a continuing weak economy 
and reduced demand for air transportation, as well as volatile 
and uncertain fuel prices. Imposing additional taxes on the 
industry and its passengers will be counterproductive and 
result in less, rather than more, tax revenue.
    In 1978, Congress passed the Airline Deregulation Act, 
which stressed competition as the way to stimulate efficiency, 
innovation, and low prices. Spirit Airlines takes this policy 
to heart. Our goal is to offer consumers a real choice in 
selecting an airline for their travel needs. Since 2007, when 
we adopted our unique Ultra Low Cost Carrier, or ULCC, business 
model to provide basic air transportation at the lowest 
possible price, in every market Spirit serves it provides an 
important public interest service by disciplining fares.
    Spirit's impact was clearly demonstrated when our pilots 
went on strike last month and other carriers, including low 
fare carriers, immediately raised prices. For example, Jet Blue 
raised its round-trip fare in the Fort Lauderdale-San Juan, 
Puerto Rico market. We and Jet Blue are the only carriers who 
serve that market nonstop. They released their fare from under 
$200 to over $600, while at the same time putting out a press 
release saying that they were helping Spirit's customers.
    In an effort to make airfares as low as possible, in 2007, 
Spirit unbundled the charge for checked bags and, despite 
rising fuel costs, lowered our base fare to adjust for the 
unbundling. This April we announced our decision to charge for 
carry-on luggage that is too big to fit under the seat 
beginning on August 1st. This charge does not apply to such 
items as medical equipment, baby strollers, and the like. 
Carry-on bags have become a nightmare for passenger boarding 
and deplaning; they create a safety risk for both passengers 
and flight attendants, and lead to costly flight delays.
    Carrying more than one bag is not necessary for all 
travelers, and we believe it is unfair to charge those 
customers for extra services they do not use. The carry-on fee 
for most passengers is $20 to $30, and Spirit reduced its base 
fares by about $40 to offset these charges. Spirit also lowered 
its checked bag charge to encourage passengers to check their 
bags. The carry-on fee has not affected Spirit's bookings 
because the total cost to customers for travel on Spirit 
remains far lower than on other airlines.
    As a group, low fare carriers already pay a greater 
percentage of the total ticket cost in taxes than do the higher 
fare legacy carriers. This is because much of the tax burden on 
airlines is in fixed charges. On a domestic flight, these 
include an addition to the 7.5 percent excise tax, a $3.70 
segment fee, $2.50 September 11 fee, PFCs at airports of up to 
$4.50, and a 4.3 cents per gallon commercial fuel tax. So, for 
example, on a 300 mile trip with $180 round-trip fare, the 
customer could pay a total of about $35.40 in taxes, or 20 
percent of the fare, including the Federal excise tax.
    Since Spirit has the lowest fares in the industry, our 
lower income passengers are already effectively paying the 
highest taxes as a percentage of the total fare. This is an 
unfortunate and highly regressive result of the existing tax 
structure. Our average fare is under $85. Most of the industry 
is well over $100. And our passengers pay over $11 in Federal 
excise tax between the ticket price and the fuel, or 13 percent 
on this amount just for the ticket, tax, and fuel.
    The primary impact of charging for nonessential ancillary 
services will be to raise prices for all consumers and thereby 
dampen travel demand and likely result in less total government 
excise tax revenue. At a time when the industry has serious 
financial issues and the Secretary of Transportation has formed 
a commission on how to strengthen the industry for the benefit 
of employees, consumers, and shareholders, it would be 
counterproductive to impose yet another tax burden.
    As noted, the services Spirit has unbundled do not involve 
activities that drive up the cost of air traffic control or 
other services paid for by the Aviation Trust Fund. They are 
not charges for the transportation of any person. For example, 
the handling of checked bags impose high labor cost on the 
airline but doesn't touch air traffic control. Another non-
transportation ancillary fee for flight charges involving non-
refundable tickets covers the cost imposed on the airline by 
such a change. These include both the direct cost for the time 
of the reservation agents and the potential lost revenue from 
empty seats. Passengers who want to avoid such fees can 
purchase a higher priced refundable ticket or purchase low cost 
travel insurance.
    Recent articles in the press based on a first quarter DOT 
report said Spirit had the highest ancillary revenue as a 
percent of total revenue. We believe this comparison is highly 
misleading. Spirit's percentage of ancillary revenue to total 
revenue is higher than other carriers simply because our fares 
are so low. For example, if Spirit had the same average fares 
as American Airlines, our percentage of ancillary fees would 
only be 14 percent.
    Over 70 percent of Spirit revenue that comes from ticket 
sales is subject to the aviation excise tax. Of the 25 percent 
of the revenue that could be labeled ancillary, about 60 
percent is related to an itinerary. Of this, about 50 percent 
is from baggage fees and 10 percent from seat selection fees. 
So, in total, only about 15 percent of Spirit total revenue is 
from ancillary fees selected by passengers in connection with 
their travel.
    We are certain that Spirit's decision to unbundle services 
not essential to the transportation of services have had 
minimal, if any, negative impact on the total excise taxes paid 
for travel on Spirit. This is because our lower fares have 
enabled more people to fly, despite the difficult economy of 
the last several years. Imposing excise taxes on these fees 
will simply raise fares, dampen the public's ability to afford 
travel, and therefore result in lower overall tax revenue.
    Lastly, Spirit firmly believes that customers deserve to 
have access to as much information as reasonably available on 
the cost of their travel. Spirit's website provides information 
on all of its charges, and customers can see the total cost of 
their flights, including all optional services they have 
selected, before confirming their purchase. This makes it easy 
for customers to comparison shop to confirm that Spirit's total 
price is still the lowest.
    Unfortunately, under the DOT policy, airlines must include 
the Federal excise tax as part of the base fare, so this tax is 
hidden from the customer. We are not aware of any retailer of a 
retail product where, by government fiat, merchants are 
prevented from showing customers how much of their payment is 
for tax.
    In closing, I would like to note two of the particularly 
onerous proposed new rules recently announced by the DOT. 
First, after decades of permitting airlines to list certain 
government taxes and fees separately from the base fare in 
advertising, the Department proposes to require airlines to 
include all applicable taxes and fees in the advertised fare. 
This new requirement will further obfuscate the portion of the 
ticket price going to the government. We believe Congress 
should direct the Department to permit airlines to display 
fares on their websites in a totally transparent way so 
customers can immediately see the full tax component of their 
fare.
    Secondly, the Department proposes to require that all 
airlines allow customers to hold a booking without payment or 
allow booking to be canceled without charge for at least 24 
hours, even for non-refundable tickets. Many of our promotions 
are for one-day sales only. Allowing a 24-hour hold would 
circumvent the sale, resulting in a term which adds lower 
revenue and means higher fares.
    Also, holding the fare for 24 hours allows customers to 
take away valuable selling time, potentially resulting in an 
empty seat. Most low fare carriers, including Southwest, do not 
permit either of these options for non-refundable tickets. Such 
a rule would require substantial and costly changes in our IT 
reservation system, as well as changing the contract with our 
credit card processing agent. As noted, on Spirit, passengers 
can shop and compare prices before they buy.
    In conclusion, we believe ancillary fees and other consumer 
protections, Congress must be guided by the objectives 
established by the Airline Deregulation Act, namely, the 
encouragement of innovation, competition, and the expansion of 
low fare service. Tax revenue should be generated by promoting 
economic expansion and taking steps to encourage more people to 
fly.
    Imposing new taxes on fees for nonessential customer 
services unrelated to costs imposed by the system must be 
avoided. Such taxes would surely harm competition, raise costs, 
and slow the industry's require from a decade of losses. In 
addition, Congress should look carefully at the new rules 
proposed by the DOT. Rules that benefit few customers but raise 
costs for all should not be imposed on the industry. Such rules 
create inefficiency, reduce innovation, and lead to higher 
fares.
    Thank you for your consideration.
    Mr. Costello. Thank you.
    The Chair now recognizes Mr. Ridley.
    Mr. Ridley. Chairman Costello, Ranking Member Petri, and 
Members of the Subcommittee, thank you for inviting Southwest 
Airlines to testify at today's hearing. My name is Dave Ridley, 
and I am Senior Vice President of Marketing and Revenue 
Management. I have been a Southwest employee since 1988. In my 
role, I am accountable for the company's top line revenue 
performance. My responsibilities include, among other things, 
pricing, advertising, and the maintenance of our brand image as 
America's leading low fare, high customer service airline.
    Today, Southwest is the Nation's largest airline in terms 
of domestic passengers, carrying more customers than any other 
U.S. airline. We now carry over 100 million passengers a year, 
serving 69 cities in 35 States. We are the most heavily 
unionized airline in the Country and we are the only airline 
that has not had an involuntary furlough of an employee since 
our inception in 1971.
    After 39 successful years in the airline business, 
Southwest continues to look for ways to differentiate ourselves 
from other airlines beyond our consistently low fares and our 
great customer service. Most recently we chose to make our 
affordable, transparent, and easy to understand pricing 
structure a focal point in winning the hearts and minds of the 
flying public by not following the industry trend toward 
nickel-and-diming of our customers. Our overriding philosophy 
at Southwest Airlines is to not charge customers for things 
they have historically received for free. That is why Southwest 
is committed to low fares with no hidden fees. What you see is 
what you pay.
    When you book a ticket on Southwest, you will not pay a fee 
to check your first or second bag, or to carry on a bag, for 
that matter; you will not pay a fee to check your bags 
curbside; you will not pay up to $150 to change your 
reservation; you will not pay a fee to sit in a window or aisle 
or an exit seat; you will not pay a fee to make your 
reservation over the phone; and you will not pay a fuel or peak 
travel surcharge fee, either. And, as always, snacks, sodas, 
smiles, and the occasional bad jokes are all complimentary at 
Southwest Airlines.
    Our position on fees aligns our corporate goal to generate 
positive financial results with the passion of our people to 
provide good customer service. We listen to our people. They, 
in turn, do not shy away from telling us exactly what they 
think. Our people told us that they don't want to nickel-and-
dime their customers.
    Allowing our people to do what they do best in a customer-
friendly way is just one reason why, since 1987, when the 
Department of Transportation began tracking customer 
satisfaction statistics, Southwest has consistently led the 
entire airline industry with the lowest ratio of complaints per 
passengers boarded. This is further evidence that our policy of 
not nickel-and-diming is not a gimmick; it is good business and 
it makes our people feel better about who they are and what 
they do.
    Due in large part to our Bags Fly Free campaign, Southwest 
has experienced a domestic market share shift worth close to $1 
billion since the introduction of this campaign. As a result, 
our customers, employees, and shareholders have been the 
beneficiaries of this decision.
    While we are not fans of fees for services that 
historically have been part of the base fare, we believe 
strongly that the decision on whether or not to charge a fee 
for an airline product or service is a business decision best 
made by each individual airline. Southwest made the conscious 
decision to limit our customers' exposure to what we view as 
unreasonable and annoying fees. That was our choice. Other 
airlines have chosen a different business model and should have 
every right to do so.
    However, we do think the Federal Government should focus on 
ensuring the full disclosure of any and all fees to consumers, 
making sure that airfares are advertised fairly and honestly. 
Only an informed consumer can make apples-to-apples fare 
comparisons, which allows them to shop for a flight that best 
meets their needs and preferences. To protect the traveling 
public, fees should be prominently disclosed to consumers 
wherever tickets are sold. We generally agree that the fee-
related elements of the DOT's NPRM would achieve this goal.
    On behalf of Southwest Airlines, thank you for this 
opportunity to testify, and I would be happy to answer any 
questions.
    Mr. Costello. Thank you, Mr. Ridley.
    The Chair now recognizes Mr. Mitchell.
    Mr. Mitchell. Mr. Chairman, Ranking Member Petri, and 
Members of the Subcommittee, thank you for inviting the 
Business Travel Coalition to appear before you today to 
represent passenger and corporate managed travel interests on 
airline product unbundling and fees.
    Today's hearing is critically important because of the 
potential for consumer abuse in this fast changing, unbundled 
marketplace for airline services. BTC is not against unbundling 
as a matter of principle, but, rather, it is opposed to the 
absence of full disclosure of all add-on fees and charges such 
that all consumers cannot make genuine apples-to-apples 
comparisons of all-in airline fares.
    Without timely and complete airline disclosure of an 
increasing array of add-on charges to global distribution 
systems and the travel agencies that they automate, consumers 
deprived of all-in information will become as economically 
trapped by airlines as they would be physically trapped during 
a seven hour tarmac delay. The need for consumer protection in 
this area is acute, but the remedy need not be burdensome.
    The highlights of BTC's survey results of 188 travel 
industry experts released yesterday are revealing of a sea 
change in thinking about Government oversight in commercial air 
transportation. Consider: 100 percent of corporate travel 
managers indicated that unbundling and extra fees have caused 
serious problems in their manage travel programs; 86 percent 
believes that airlines, absent Government rules, will not make 
fare adequate and readily accessible disclosure of their add-on 
fees and charges so that travel managers and their travel 
management companies can do comparison shopping of the all-in 
prices for air travel across carriers; and 95 percent support 
the proposal that the USDOT require airlines to make add-on 
data available and easily accessible to the travel agency 
channel through any GDS in which that airline or an airline has 
agreed to participate.
    These survey participants, I should point out, are business 
people who do not generally favor government intervention in a 
marketplace. However, they see a market failure coming at them 
with the speed and impact of a Stephen Strasburg fast ball to 
the side of the head. With across-the-board unbundling of air 
travel services, and absent the government empire stepping in, 
consumers will not have the ability to evaluate the full price 
of air travel options available to them. For decades, the 
transparency of airfare information through all channels has 
been a marvel of modern technology and has benefitted consumers 
immeasurably.
    Unbundling without disclosure threatens to catapult us out 
of the 21st century and back into an opaque Stone Age where a 
telephone, calculator, pen and paper, and a lot of unproductive 
time were needed to figure out how to compare airline services. 
Add-ons, like checked bags, are material to air transportation 
the way a chair is material to a restaurant meal. What some 
airlines are doing is akin to a restaurant advertising a $20 
business person's luncheon special and then surprising the 
patron with a $10 add-on fee for use of a chair when handed the 
menu. The patron is given partial information and essentially 
tricked into coming to the restaurant. The stakes, of course, 
are much higher at the airport for families and businesses on 
tight budgets, which is why you are having this hearing today.
    Of significance is that major airlines remain at a 30 to 35 
percent cost disadvantage vis-a-vis the low cost carriers and, 
as such, cannot offer the kinds of across-the-board low fares 
that the low cost carriers do. There is, therefore, a 
motivation present to obfuscate the true all-in price by 
keeping fares opaque and especially resisting efforts to have 
fees and fares displayed transparency for travel agents via the 
global distribution systems.
    Importantly, the Airline Tariff Publishing Company has a 
new airline-tested data system ready to facilitate the loading 
of add-on fares in the global distribution systems. However, 
not a single major U.S. airline has signed on, to BTC's 
knowledge, to permanently use this new system because the first 
airline to do so would likely show all-in higher airfares of 30 
percent or more compared with its competitors.
    This is an industry where a few dollars can make a 
difference for a consumer in choosing one airline over another, 
so no one airline can rationally be expected to make the first 
potentially suicidal move. That is why a reasonable measure of 
Government help is needed, to ensure that all airlines jump 
together for the benefit of consumers. Moreover, except to the 
extent that Congress or DOT mandates specific consumer 
protections, airline passengers are without legal rights and 
remedies because of Federal preemption and a lack of FTC 
oversight in this area.
    In conclusion, Mr. Chairman, the International Airline 
Passengers Association, IAPA, and its 400,000 members, join BTC 
in encouraging this Committee to urge the DOT in its NPRM to 
require airlines to make add-on fare data easily accessible not 
only on their own websites, but also to the travel agency 
channel through any GDS in which an airline has agreed to 
participate. Congress could also provide this relief in the FAA 
Reauthorization Act through Senator Menendez's sensible 
disclosure proposal. Either way, consumers would finally have 
the batting helmet needed to step up to the plate confidently 
in today's unbundled marketplace.
    Thank you, and I look forward to your questions.
    Mr. Costello. Thank you, Mr. Mitchell.
    The Chair now recognizes Mr. Moore.
    Mr. Moore. Thank you, Mr. Chairman.
    Sabre Holdings owns both Sabre Travel Network, the part of 
our business that runs the Sabre GDS, and Travelocity, one of 
the Nation's largest and most popular online travel companies.
    Today in my testimony, I am representing three groups: The 
Interactive Travel Services Association, the trade association 
for online travel companies and GDSes; the American Society of 
Travel Agents, the largest association of professional travel 
retailers in the world; and the Consumer Travel Alliance, a 
nonprofit member of the Consumer Federation of America created 
to inform and educate legislators and regulators about policy 
decisions about consumer travel. I am responsible for the 
systems that manage the sale of air travel across all channels 
where airlines distribute through Sabre, which has recently 
been heavily focused on airline unbundling.
    Up until recently, air travel shopping in the U.S. has been 
one of the closest things you will find to an Adam Smith 
perfect marketplace. Consumers have enjoyed access to near 
perfect information on air products and prices. Through the 
Internet, travelers can shop anytime, day or night; and the 
prices, while constantly changing, are also constantly updated. 
They can book when they feel the product is appropriately 
priced for themselves, and travelers are extremely price 
sensitive. The vast majority of travelers select air travel at 
or very near the lowest fare offered.
    Unfortunately, that perfect model is now broken. Mr. 
Mitchell and the rest of the panelists outlined this very well, 
but, in short, with the removal or repackaging of many services 
from what has traditionally been included in the fare, shoppers 
have a very difficult time finding out the true cost of travel 
for their proposed trips. They are left to find out the true 
cost only when they have completed the return flight for their 
trip, when they have paid for the last baggage fee and picked 
their seats for themselves and their families, to the painful 
surprise of blown budgets.
    Consumer Travel Alliance has just released information that 
outlines the impact on consumers from hidden fees, with 
effective price increases of 20, 40, 60 percent and higher. But 
it doesn't have to be this difficult or harmful. Solutions are 
coming online that will bring back transparency for the 
consumers. But this can only happen if the airline community 
makes information on ancillary fees readily available. Let me 
repeat that. It can only happen if the airline community makes 
information on ancillary fees readily available, something that 
ITSA, ASTA, and CTA strongly believe the airlines should be 
compelled to do.
    A broad collection of airlines, agencies, GDS, and standard 
setting bodies such as ATPCO, ARC and IATA have outlined how 
the information for ancillaries can be shared within the 
industry. ATPCO, the airline-owned fare clearinghouse, has 
adapted their systems to support ancillary fee information with 
the same level of specificity that airlines have for base 
fares. Targeting the ancillaries to specific dates, routes, 
flights, fares, traveler groups, corporations or agencies, and 
many, many, many, many other variables.
    At Sabre, we are on the cusp of being able to make this 
information available to the shopper as they shop, whether 
online or through a traditional travel agent. At the end of 
this month, Sabre is poised to introduce the ancillaries and 
their prices into the shopping workflow of the traditional 
travel agent.
    In referencing the graphic you see in front of you, next 
month we will take this a step further, a big step, enabling it 
in the low fare search process. Low fare search is something 
you would liken to online shopping, where you ask for flights 
and fares for your desired departure and return dates. Next 
month we will allow shoppers to choose what ancillaries are 
important to them for their trip. If they believe they are 
going to need to check a couple of bags, they can specify that 
up front. If they are traveling with their family, they can 
indicate the need to be able to select seats together. The 
system then finds the lowest fares that meet those specific 
needs, inclusive of the ancillaries, giving the consumer the 
total price for their trip, with no surprises at the airport.
    These standards can solve yet another problem: that today's 
corporations and agencies have virtually no ability to manage 
where the money is going. The systems can fix that too. And it 
is important to note that Sabre and the rest of the industry 
are all going down this path concurrently.
    Of course, all of this only happens if the airlines are 
compelled to provide that information to the channels that 
represent approximately half of the air travel sold in the 
United States. Absent this, consumers will invariably selecting 
flights only to find that things weren't as they appeared on 
their screen.
    And, to be clear, this isn't about compelling an airline to 
participate in the GDSes. Airlines have the choice to 
participate or not. This doesn't change that at all. This is 
unequivocally about the consumer. If the airline chooses to 
sell through the GDSes, the airline should show the consumers 
their full prices, not something that dramatically understates 
the real price travelers pay.
    Finally, airlines have a powerful disincentive to actually 
provide this information to consumers, as this gives that last 
holdout airline the added advantage of appearing lower priced 
than their competitors, who might actually be providing the 
information on their full cost. This is why the Government must 
step in. We don't believe airlines will do this on their own. 
We at ITSA, ASTA, and the CTA believe it is important that 
those airlines selling the GDSes provide the information in a 
way that allows consumers to shop with full knowledge of and 
confidence in the travel costs in total, as you can see above.
    At the same time, consumers deserve the opportunity to know 
what to expect when they are buying. In this manner, the cost 
of compliance for the airlines are negligible and the benefits 
are enormous. And I too thank you for your time.
    Mr. Costello. The Chair thanks you, Mr. Moore, and now 
recognizes the distinguished Member of the Full Committee, 
Chairman Oberstar.
    Mr. Oberstar. I greatly appreciate your holding this 
hearing, Mr. Chairman, and the participation of Mr. Petri as 
well.
    There are few issues of more lively interest to air 
travelers than these checked baggage fees and other fees that 
airlines are charging. Hardly a weekend goes by in my travels 
that I am not asked by passengers: Aren't you going to do 
something about these fees? Can't something be done about these 
fees? Well, we are starting. We are at least having a hearing. 
We started with Mr. Costello and I asking GAO--thank you, Dr. 
Dillingham, for your very thorough report--to evaluate and 
report to us.
    I would say it looks to me like the airlines are learning 
from units of government. It is a back door price increase. It 
is not a tax if it is a fee. If you call it a fee, it is not a 
tax, so you can impose these taxes with impunity by calling 
them a fee. That is just back door financing.
    Look, passengers are paying for meals, for pillows, for 
blankets, for headphones, for beverages, to check the luggage, 
and some or at least one airline proposed a carry-on luggage 
fee. In Europe, a low fare carrier proposed a fee for using the 
potty on board the airplane. That didn't last very long, but at 
least they proposed that up front.
    And then you have premium services, early boarding and 
early access to overhead space. But there is never anybody on 
board those planes, flight attendant or others, who say, no, 
no, you are in row 24, you can't park your bag in row 3. They 
can do these things themselves, but they aren't doing it.
    In 2009, US Airlines collected $7.8 billion in fees, $2.7 
billion of which is from checked baggage. The first quarter of 
this year, $770 million in checked baggage fees, while the 
network carriers are losing money and the industry, as a whole, 
reported a profit of only $12 million.
    So, look, you have additional effect. And I make it a 
point, Mr. Chairman, every airport I go through, I talk to the 
TSA agents. What does this mean for you, the fee for checked 
baggage? Well, it means more carry-ons, more densely packed 
carry-ons, and carry-ons that are more difficult too screen, 
thus taking us longer to screen and more difficult to find 
things that are jammed in and packed in. We frequently have to 
have backup TSA persons to read and back up the primary 
screener. I found that all around the country.
    Those are hidden consequences of this rush to bag more 
money by imposing fees for bags. And then those fees are not 
subject to the airline ticket tax. And, as the GAO report 
indicated, that could be the equivalent of 2 percent of the 
revenues into the Aviation Trust Fund, which benefits primarily 
the airlines, air traffic control, the facilities and equipment 
account, airport construction improvement program. All of that 
would benefit, but you have the airlines saying, well, we have 
lower ticket prices.
    But if you add in the cost of all these charges that I 
listed a moment ago, those ticket prices are back up where they 
were before the fees, and probably higher.
    I think the GAO report recommendations of disclosure and 
some of the testimony we have heard today at least is a 
starting point.
    But I just want to say to the airlines, who I am sure are 
in great number here or back in their offices listening in, if 
they don't exercise restraint, there is going to be a 
continuing outcry from the traveling public and you are going 
to have some kind of regulation that you won't like. So if you 
don't exercise self-restraint, then you are going to get push-
back from the traveling public, they will come to the Congress, 
and then the Congress will act. And that is not a threat, that 
is history.
    Thank you.
    Mr. Costello. The Chair thanks you and now recognizes Mr. 
Petri.
    Mr. Petri. Thank you very much.
    I have a couple of questions for Mr. Rivkin, and maybe 
others would care to respond. Focusing on fees and disclosure 
of fees on airlines, what about discounts and undisclosed 
discounts? I mean, the strategy of a lot of these airlines 
seems to have all these fees and then to have affinity programs 
with lots of discounts, so if you belong to this thing you 
don't pay for the bag or you get into a fast find or you get 
free drinks, or you get 101 different perk, so to speak, or 
upgrade and all.
    I mean, is it legitimate to have a strategy that 
differentiates in that way and unbundles, so that customers 
more or less get the benefits and charges that they want to pay 
for, rather than one size fits all?
    Mr. Rivkin. Thank you for the question, Congressman Petri. 
The focus of the Department of Transportation since 
deregulation has been to ensure, to the extent we are able, 
with the great support of this Committee and the Congress, that 
we can guard against unfair and deceptive practices, unfair 
methods of competition, and to ensure safe and adequate 
transportation. All we are trying to do is to fulfill that 
charge.
    We have, as you know, a current rulemaking proposal, which 
I can't discuss beyond describing it under the rules related to 
regulatory proposals, but if there are other suggestions that 
are not included within the scope of the rule that we have put 
forward, which is rather broad, we would be very happy to 
consider them in discussions with you or your staff.
    Mr. Petri. OK. I am really just kind of curious because I 
know if you are a customer of Mr. Moore or someone else, and 
you knew you flew four times with AirTran you could get a free 
first class upgrade or you could save baggage charges or God 
knows what, or some other airline, that might make a difference 
because you might figure, well, we are taking several trips and 
it would be better to go with the airline that would charge $5 
more, but would give us all these extra discounts.
    So you are looking at extra charges, but you are not 
looking at the other side of it in this disclosure, and it 
seems to me a lot of these airlines have a strategy to try to 
capture the business and higher price customer by giving the 
individual business traveler all kinds of perks through these 
affinity plans that the boss is paying for and might not even 
realize is going into this because he is making the decision; 
he has to choose between two trips and he will choose the one 
that gets him the extra personal perks that he would like.
    Is that what they are doing or is this a problem, or is 
this something we should be addressing here in this Congress?
    Mr. Moore. I think it is a wonderful observation and I 
think it is exactly right. But I also believe that this was an 
unintended consequence out of this. You had airlines that were 
introducing these additional fees, but they did not want to 
anger their most loyal and highest revenue-driving passenger, 
so they were waiving them for that. That actual drove greater 
loyalty for those most loyal passengers, because now they had 
even greater differentiation in the products and services that 
they could expect relative to somewhere where they are not a 
loyal traveler.
    And that really just kind of speaks to why all this stuff 
is so important. This has made it even more complex than it 
used to be, and that is why consumers are unhappy. This is an 
incredibly complex process, and that is why we believe it is 
incredibly important for the airlines to provide the 
information so that you can differentiate between those that 
may be frequent travelers versus not in comparison shopping. 
The systems are ready to do that; we need the data.
    Mr. Petri. OK, thank you.
    I just have one other quick question. It is slightly 
unrelated to the subject before us, but as long as Mr. Rivkin 
is here, we do have a pretty strong rule currently to protect 
the traveling public, which says if an airline stays more than 
three hours, I guess holds passengers on the ground for more 
than three hours, there is this tremendous fine. We are 
starting to hear from various carriers that, to avoid that, 
they are asking people, after about two hours, to get off the 
plane, even though it might actually mean flights are more 
delayed than they would otherwise be and people are, overall, 
more inconvenienced.
    So I am just curious as to whether you or the Department, 
people dealing with this rule and its wise implementation, 
would be open to sitting down and reviewing various ideas for 
fine-tuning it with the idea of ending up conveniencing, rather 
than inconveniencing, the traveling public so far as 
unanticipated delays are concerned.
    Mr. Rivkin. Of course we would be, Congressman. We just got 
our first full month of comparative data, which showed that 
three-hour tarmac delays are down substantially from, I 
believe, 34 a year ago to 5 this last May. We are investigating 
those 5 and any that we have become aware of that have occurred 
since then. We are always looking for ways to improve on our 
regulatory responsibilities and would be very happy to work 
with you.
    Mr. Petri. Thank you.
    Mr. Dillingham. Mr. Petri?
    Mr. Petri. Yes.
    Mr. Dillingham. Just wanted to let you know that the GAO 
has been asked by Committees of the Congress to evaluate the 
impact and implementation of the rule, and, as Mr. Rivkin said, 
there has only been a month of data to this point, and we are 
waiting on a little more time to pass so we can have something 
to base our study on. So we will be looking at that as well.
    Mr. Petri. Good. We are just hearing from various people in 
the industry. A big fine concentrates the mind and there are 
some ideas that people think they have that they would like 
evaluated not to set aside the rule, but to implement it in a 
way that would benefit the traveling public more than a rigid 
one size fits all approach, which they currently fear is the 
case.
    There are some unanticipated consequences in airlines' 
behavior because, facing a big rule, when they get near the 
three hours, or fear they might, get everyone back in the 
airport and then maybe they will have to sit there for six 
hours or eight hours, waiting for another flight; whereas, they 
could have, if they had gotten taken off knowing the weather 
change or whatever was causing the delay was about to be 
overcome. But airlines are afraid of paying a couple million 
dollars because they hit the three hour point. They would 
rather save that money and inconvenience the customers than 
give them true convenience.
    Anyway, this is the concern that they have, that it is not 
a voluntary delay; they are trying to work with some real world 
situations, but to save this money they are faced with really 
inconveniencing customers or spending $3 million of their 
money, so they currently are really inconveniencing the 
customers, which is not our intention.
    Mr. Dillingham. Right. We will, in fact, be looking for 
unintended consequences as well, as we undertake that work.
    Mr. Mitchell. Mr. Petri, may I, very briefly?
    Mr. Costello. Mr. Mitchell, go ahead.
    Mr. Mitchell. Very brief comment. The reason that the rule 
is working so far is because finally the airline senior 
management teams have been made to prioritize this problem. One 
month of data, six months of data will not really matter. What 
is going to matter is that the airlines will have a period of 
time over the next 12 months to do the enormous work required 
in their systems and their operations to make this work for the 
passenger. I would virtually guarantee, a year from now, this 
will be a nonissue; the airlines will adjust.
    Mr. Costello. Mr. Rivkin, to follow up on Mr. Petri's point 
and question, let me ask did you say that the Department has 
one month or was that a quarter, the five tarmac delays?
    Mr. Rivkin. That was in the month of May of 2010. So we can 
only compare that month to May of 2009.
    Mr. Costello. To Mr. Petri's point of the industry raising 
concerns about consumers, conversely, have you had any 
complaints, the Department? Have you received any complaints 
from passengers or consumers?
    Mr. Rivkin. Yes, of course we have, sir. We have a staff of 
lawyers and investigators who field complaints every day.
    Mr. Costello. Specifically about the five delays during 
that period of time?
    Mr. Rivkin. We are investigating those five delays, but we 
also, in addition, investigate media reports and call-in 
complaints. So, yes, we are investigating whether those are 
actionable delays.
    Mr. Costello. The Chair now recognizes the gentleman from 
Oregon, Mr. DeFazio.
    Mr. DeFazio. Thank you, Mr. Chairman.
    Mr. Baldanza, you said that you unbundled the charge in 
2007 for checked bags and lowered base fares. Was that a net to 
the airline? Did you lower base fares as much as your revenue 
or did you actually increase revenue although you unbundled?
    Mr. Baldanza. Mr. DeFazio, we increased revenue because we 
carried more passengers.
    Mr. DeFazio. OK, per passenger per average, did you realize 
more by unbundling and charging them a little bit less on the 
fare but a lot more for the bag?
    Mr. Baldanza. No. The average fare we collected from each 
customer has dropped each year since 2007.
    Mr. DeFazio. OK, so you did it as a public service. That is 
good. So when you begin to charge for people to carry bags on 
and put them in the overhead, are you going to lower fares 
again?
    Mr. Baldanza. We already have.
    Mr. DeFazio. OK. That is good. I tell you what, I have 
flown about 4 million miles since I have been in Congress; had 
a hell of a lot of conversations with people getting between 
here and there, and the first thing they care about is whether 
they get there alive and safely, but the second thing is the 
conditions under which they travel and what they paid for their 
ticket.
    Now, they don't care where that money goes. They just want 
to know how much the ticket is going to cost them. So why would 
you object to a system where people would be able to 
meaningfully compare what they are going to pay in total to go 
from A to B?
    Mr. Baldanza. We don't object to that system. In fact, we 
have spent a lot of money changing our website so that it is 
fully disclosed. When you buy a ticket on Spirit Airlines, you 
know exactly what your price is for the choices you choose.
    Mr. DeFazio. On the first page or when I finally get to the 
point------
    Mr. Baldanza. Before you pull out your credit card and put 
your money up.
    Mr. DeFazio. But you are not providing the data to the 
marketers.
    Mr. Baldanza. Absolutely, because as customers go through 
the shopping process, they say I want to fly from A to B, then 
maybe I want to check two bags, maybe I want to buy travel 
insurance or not, maybe I want to join this club or not, or 
whatever, and at the end they see the whole piece of what they 
are going to buy------
    Mr. DeFazio. Excuse me, excuse me. I reclaim my time.
    Mr. Moore, could you comment on this? I saw you shaking 
your head. I thought I understood from Dr. Dillingham and from 
your testimony that they are not cooperating with the secondary 
marketers in terms of these fees and charges.
    Mr. Moore. Thank you for the question. In terms of the data 
that we would need, that a consumer would need to say, up 
front, I am going from point A to point B, as you have said, 
and I am going to check a couple of bags, and I want to be able 
to preselect my seat, that type of information is not made 
available today; and there has been no airline that has said 
that they are going to do this permanently. I mean, there has 
been no airline that has said that we are doing this expressly 
right now.
    Mr. DeFazio. I think you said that there is a system that 
could accommodate that.
    Mr. Moore. Absolutely.
    Mr. DeFazio. And I think you said that airlines, some are 
more or less interested, but they are worried about the effect, 
if they go first, then consumers are getting fully honest what 
it is going to cost me in total for this trip, for me and my 
kids, and get a meaningful comparison of the bottom line across 
all the airlines that you report on, as opposed to when you go 
to a captive site, yes, maybe they give you the information, 
but you can't compare it unless you want go close that down, go 
over to another site, then do a comparison there, and then go 
to another site and do a comparison there. They can't go to a 
one-stop shopping site and get this information. That is 
correct, right?
    Mr. Moore. That is absolutely correct.
    Mr. DeFazio. OK.
    Mr. Moore. That is absolutely correct.
    Mr. DeFazio. This kind of reminds me of when I was trying 
to ban smoking in my early days on this Committee on airplanes. 
The CEO would say, oh, I would love to do it, but we would be 
at a competitive disadvantage--I tried to convince him it would 
be a competitive advantage because I hate smoking--if we did 
that, if we stepped out. So the Government had to stand in and 
say we are not going to allow smoking; now you have a level 
playing field. So I guess my question would be why wouldn't we 
create a level playing field here, especially since, what, half 
the tickets are purchased through secondary marketing, not 
principally through airline sites?
    Mr. Moore. That is right.
    Mr. DeFazio. Why wouldn't we create a level playing field 
there by requiring the meaningful transfer of the necessary 
data to those secondary marketers?
    Now, why wouldn't we do that, Mr. Baldanza?
    Mr. Baldanza. Well, Mr. DeFazio, proving that our airline 
is quite different from the airlines that my competitor------
    Mr. DeFazio. The ones that give us one price, like 
Southwest? You are very different.
    Mr. Baldanza.--is that less than 10 percent of our 
customers buy from third-party intermediaries.
    Mr. DeFazio. Well, that is great.
    Mr. Baldanza. So 92 percent of our customers buy direct 
from our airline. We fully disclose 100 percent to that 
customer base.
    Mr. DeFazio. OK.
    Mr. Baldanza. So if we would not------
    Mr. DeFazio. You are not answering my question. If the 
Government orders you to do this, is this going to be a big 
imposition on you?
    Mr. Baldanza. No, because if we would do it for 92 percent 
of our customers, why wouldn't we do it for 8 percent?
    Mr. DeFazio. Well, that is true. Well, because maybe you 
would get more customers if you were marketed more honestly on 
those other sites.
    Mr. Baldanza. The 92 percent of the customers that buy from 
us feel very good about our products.
    Mr. DeFazio. Thank you very much, sir. Thank you. I 
appreciate it.
    Dr. Dillingham, do you have any comment on whether this 
would be overly burdensome on the airlines to provide this data 
to the system that Mr. Moore described?
    Mr. Dillingham. Mr. DeFazio, based on the work that we have 
done, we do not think that it would be a tremendous burden on 
the airlines to provide the kind of information in a way that 
customers could make meaningful comparisons. Airlines already 
have administrative mechanisms in place that would facilitate 
doing this kind of thing. It would not be free, but it would 
not be overly burdensome either.
    Mr. DeFazio. OK.
    Mr. Rivkin, why wouldn't we have a comprehensive rule to 
require that, as opposed to your sort of picking around the 
edges with what you are proposing?
    Mr. Rivkin. We have asked that question in our current 
rulemaking and propose that it be a Government mandate, and we 
are awaiting comment.
    Mr. DeFazio. OK, thank you.
    Thank you, Mr. Chairman.
    Mr. Costello. Thank you.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Coble.
    Mr. Coble. Thank you, Mr. Chairman.
    Good to have you all with us today.
    Dr. Dillingham, how would you rate the transparency of 
current airline fees, and in what ways could transparency be 
improved?
    Mr. Dillingham. Thank you, Mr. Coble. I think the findings 
of our report indicate that the fees are not very transparent. 
In fact, what Mr. Rivkin is talking about in terms of the way 
the Notice of Proposed Rulemaking is being developed and put 
out to the public is closer to or at least we would consider it 
a first step in terms of making it more transparent so that the 
consumers can in fact compare what they are going to be buying 
from across websites.
    Mr. Coble. Mr. Rivkin, how does DOT define deceptive 
advertising?
    Mr. Rivkin. Mr. Congressman, our mandate is unfair or 
deceptive practices. That is similar to State consumer 
protection rules around the Country where there is a body of 
case law that describes when there is a misrepresentation or a 
misleading assertion.
    Mr. Coble. How specifically, Mr. Rivkin, does DOT plan to 
require full disclosure of optional fees and what would this 
require?
    Mr. Rivkin. Mr. Congressman, in our current rulemaking, 
which is now out for comment, we have set forth a whole series 
of proposals that ancillary fees, as I described in my oral 
testimony, must be fully and prominently disclosed. The key 
proposal is that the total mandatory price must be disclosed 
the same way by every airline and agent so that the consumer 
can actually compare the real price the consumer would have to 
pay as the final price the ticket.
    Mr. Coble. I thank you.
    Mr. Mitchell, how will more transparency on the part of 
airlines and their ancillary fees benefit corporate travel 
programs? Or will it benefit corporate?
    Mr. Mitchell. Well, the direction of the DOT's NPRM will 
solve several problems for corporate travel departments. First 
of all, with knowledge of the fares and the fees, they will be 
able to budget more effectively; they will be able to 
administer the programs, do the accounting and the auditing 
correctly; they will be able to enforce travel policy.
    Currently, a fee is indistinguishable between a checked 
baggage fee or an upgrade to business class, for example. So 
there is a whole host of benefits, including their travelers 
not being surprised at the airport by these fees, and confused. 
So there are great benefits that would come from full 
disclosure and transparency as laid out in the NPRM.
    Mr. Coble. Thank you.
    Thank you, gentlemen, for being with us.
    Mr. Chairman, I yield back.
    Mr. Costello. The Chair thanks the gentleman and now 
recognizes the gentlelady from California, Ms. Richardson.
    Ms. Richardson. Thank you, Mr. Chairman.
    Mr. Baldanza, I realize you are the President of Spirit, 
but I would appreciate not being yelled at like you just did 
with my colleague here. So let me just lay that out in the 
front. Here, you are in Congress and I am going to talk to you 
with respect, and I would like for you to do the same with me.
    My first question is--and let me ask this to Mr. Dillingham 
when a plane is unloaded, is it generally done by a general 
employee on an airport or is it done by a specific carrier? I 
seem to recall, and I fly two times a week, I don't always see 
that it is a specific carrier. So could you clarify that for 
me?
    Mr. Dillingham. Ms. Richardson, when you say when a plane 
is unloaded?
    Ms. Richardson. Like, for example, when Spirit Airlines, if 
they are unloading their passengers in Florida, let's say, we 
get off the plane. Is it the Florida airport, their employees 
that are unloading it or is it Spirit's employees? Or does it 
vary from airport to airport?
    Mr. Dillingham. Right. I think the latter, it varies from 
airport to airport.
    Ms. Richardson. OK. That is an important point, because I 
think it gets to the question of, well, why are we charging 
more fees.
    My next question is, Spirit, have you collected data on 
your passengers and what do you know in terms of the number of 
packages, has it increased or decrease, of your passengers 
since you have added this fee?
    Mr. Baldanza. Since we began charging for checked luggage, 
we are checking less luggage than before we did, so it has 
decreased.
    Ms. Richardson. OK.
    And, Mr. Dillingham, in your professional opinion, in your 
evaluation, what I see on the plane and I can tell you is that 
I have noticed a dramatic increase with people who have on 
bags, how much longer it takes to get everybody onboard, and it 
does become dangerous. You have people slinging high bags. Not 
everyone is strong enough to lift it and it becomes a problem. 
Is there a safety issue that we might have a concern with with 
this new policy, Mr. Dillingham?
    Mr. Dillingham. Ms. Richardson, there is the potential for 
a safety issue here, and I think when we talked with the flight 
attendants, for example, they are really concerned because they 
are usually the ones that are trying to lift those heavy bags 
over into the bin as well. There is also the issue of flight 
delays that are associated with that, trying to get all the 
bags on.
    And then you have situations where people, for a while they 
would bring a bag that wouldn't fit. They didn't have to pay 
for it by checking it in, but then they could get it free by 
taking it down to the gate. So there are all kinds of 
unintended consequences and gaps that are going on at this 
point in time.
    Ms. Richardson. OK. And then I have two quick last 
questions, and I realize we are calling for votes, so the 
answers, if we could have them be brief.
    I believe you had said that the DOT had not responded to 
the recommendations, Mr. Dillingham. Is it that they didn't 
respond or just that they have not agreed or disagreed?
    Mr. Dillingham. The recommendations in our report?
    Ms. Richardson. Yes.
    Mr. Dillingham. They have not responded; it wasn't an agree 
or disagree. And usually they have 60 days to fully comply in 
one way or another, so it is not unusual that we are in this 
situation, since we just issued.
    Ms. Richardson. OK.
    And then my last question is back to you again, Mr. 
Baldanza. I apologize if I butchered your name. I understand 
and I read in your testimony that the information is available 
on your website; however, the community that I represent, not 
everyone has a computer, not everyone has access to websites, 
and many people are utilizing services, as Mr. Moore has 
mentioned, calling their local travel agent, who helps them to 
answer all the questions. So if you are providing the 
information on the website, really, what is your objection to 
providing the information to the agencies and to the GDS 
system?
    Mr. Baldanza. We don't have that objection. What I have 
said is------
    Ms. Richardson. If you don't have the objection, why aren't 
you doing it, then?
    Mr. Baldanza. It is simply because we have not had the 
ability to see how the system works yet, and we won't put 
ourselves at the competitive disadvantage yet.
    Ms. Richardson. So------
    Mr. Baldanza. And only a small------
    Ms. Richardson. Excuse me. I am reclaiming my time. That is 
how it works here. So are you saying to me that neither two of 
these gentlemen here, Mr. Mitchell or Mr. Moore, have provided 
you an example of how you could provide that information?
    Mr. Baldanza. No. What I am saying is that
    Ms. Richardson. No, yes or no?
    Mr. Baldanza. No.
    Ms. Richardson. Has anyone supplied you with the 
information of how you could incorporate it?
    Mr. Baldanza. Not that I am aware of.
    Ms. Richardson. And if you were provided it, would you be 
open to adjusting that system for consumers?
    Mr. Baldanza. We would be open to considering it, yes.
    Ms. Richardson. Thank you, sir.
    Mr. Costello. The Chair thanks the gentlelady and now 
recognizes the gentleman from Arkansas, Mr. Boozman.
    Mr. Boozman. Thank you, Mr. Chairman.
    Mr. Rivkin, what are the top priorities in the fee 
rulemaking, your top priorities?
    Mr. Rivkin. What are the top priorities in the current 
rulemaking?
    Mr. Boozman. Yes, sir.
    Mr. Rivkin. Well, we don't list them in order of priority, 
but this is a rulemaking that encompasses a broad number of 
consumer issues that we issued in the wake of our last 
rulemaking, so we have tried to be as comprehensive as we could 
be, understanding that there are always going to be other 
issues. I would say that true full price advertising is one of 
the key principles; that baggage fees be fully disclosed and 
reimbursable when not delivered; we have also proposed 
increased compensation for involuntarily bumped passengers; and 
cancellation of a reservation within 24 hours without charge.
    So there are a number of additional provisions and, in 
fact, we have tried with this rulemaking to achieve the maximum 
public involvement we could by partnering with Cornell 
University at RegulationRoom.org so that the public might find 
it easier to go to that website and actually comment on the 
proposal, Cornell will summarize those comments and place them 
on the rulemaking docket.
    Mr. Boozman. So you don't really, then, feel that certain 
ancillary fees should be included in the base fare? You are not 
going that way with the rulemaking?
    Mr. Rivkin. We do not have the authority to regulate fees, 
routes, or service, so we are trying to discharge our mandate 
to ensure that what the airlines do, they do openly and 
transparently.
    Mr. Boozman. When do you think the final rule will be 
issued?
    Mr. Rivkin. We are hoping, but we can never be sure, to 
issue the final rule before the end of this calendar year.
    Mr. Boozman. And we only have literally just a minute or 
so, but in separating out the baggage, and, again, I am a guy 
that is flying all the time and that is an extra fee and 
things, is it such, though, that in having the increased fee 
and, thus, not having as much baggage, is that a good thing as 
far as transporting people and using less fuel? I guess what I 
am saying is are there any positive consequences as a result of 
people not having two bags every time they go someplace? Does 
that make sense?
    Mr. Rivkin. I am sure there are arguments, and I have heard 
some of them on different sides of that issue. We just heard 
some comments from Mr. Dillingham that more carry-on bags could 
be dangerous and could delay the loading and unloading of 
flights. On the other hand, perhaps people are incentivised to 
carry less with them that they don't actually need. I 
personally really don't have an opinion.
    Mr. Boozman. How about you, Mr. Dillingham? I guess what I 
am saying is do you carry more people on top? Is weight a 
factor so that you can actually carry more people and thus, 
theoretically, you are not having as many planes in the air to 
affect the environment and fuel and all those kinds of things? 
Is that a factor in reducing the weight?
    Mr. Dillingham. Mr. Boozman, as you have indicated, weight 
is a factor in terms of flights, and, therefore, you could make 
that argument in weight taken altogether. We haven't done any 
work that would indicate sort of what the increment is between 
baggage and persons, but the logic is there.
    Mr. Boozman. OK. Thank you very much.
    Mr. Costello. The Chair thanks the gentleman and will 
announce that we have three votes pending on the floor right 
now. We will return. Members have questions and I have some 
questions as well. I would ask everyone to be back in the room 
in your chairs, if you will, by 3:40.
    The Subcommittee will stand in recess until 3:40.
    [Recess.]
    Mr. Costello. The Subcommittee will come to order.
    Dr. Dillingham, in your statement you describe potential 
revenue for the Airport and Airway Trust Fund if these checked 
bags were taxed at the 7.5. How much did you say it would 
generate for the Trust Fund, $200 million?
    Mr. Dillingham. Around $200 million, yes, sir.
    Mr. Costello. OK. And obviously it is not in Trust Fund. 
While the airlines have made a substantial amount of money off 
of these fees, the Trust Fund has shown a deficit in the same 
period of time, is that correct?
    Mr. Dillingham. The uncommitted balance in the Trust Fund 
has in fact been going down. Mr. Chairman, I wanted to point 
out that part of what we say in our report is that we only are 
talking about a proportion of the fees that have been charged 
by airlines because we couldn't disaggregate some of the other 
fees, so the total amount is yet to be determined.
    Mr. Costello. But it is clear from what you have seen that 
revenue for the airlines as a result of these fees, obviously 
the revenue has gone up, while at the same time the Trust Fund 
is going down.
    Mr. Dillingham. That is correct. But I am not sure I would 
link them, but both of those statements are true.
    Mr. Costello. But we would generate $200 million more if in 
fact the fees that are collected were in fact part of the tax 
and going into the Trust Fund.
    Mr. Dillingham. Yes, sir.
    Mr. Costello. OK. Let me ask you, there are a number of 
recommendations, several recommendations that you have made to 
the Secretary to improve disclosure and information on airline-
and government-imposed fees to improve airline reporting of 
revenues to the Department of Transportation. Can you walk us 
through, just for the record, to be clear, what some of those 
recommendations are in the GAO report?
    Mr. Dillingham. Yes, sir. They fall into two basic 
categories. The first one is the matter for consideration that 
we offered to the Congress in the sense of if the Congress 
wants to consider taxing the fees, and that is a policy 
decision that the Congress needs to make, but with regard to 
the recommendations that we made to the various departments, 
DHS, Agriculture, it was the same basic principle, that is, 
full disclosure, transparency of fees. Let those departments, 
DHS to let the DOT know what their refund policies is, let the 
airlines know what those refund policies are across those 
agencies. Again, it is an attempt to be transparent and 
disclose to the flying public.
    Mr. Costello. Mr. Rivkin, in your testimony you state that 
in the proposed rulemaking that you are asking for comments on 
the cost and benefits of requiring that two prices be provided 
in certain airfare advertising. I wonder if you might explain 
that.
    Mr. Rivkin. Certainly, Mr. Chairman. The basic principle is 
that we want there to be a full fare price that includes all 
the non-optional prices so that, really, apples to apples could 
be compared. We are seeking comment really in an agnostic way 
and hoping that we can become educated and learn through the 
rulemaking process what would be useful. In addition to that 
price, the mandatory price that includes fees, we seek comment 
on whether it would be helpful to the public to have another 
price that would be essentially the bare minimum price plus 
what people are normally used to having included in the price 
of a ticket such as a bag or two and perhaps a seat being 
selected. We are asking if there might be some standardized way 
of comparing that notional price, as well, to give more 
information to consumers.
    Mr. Costello. I mentioned earlier, when I recognized you, 
that I commend the Department of Transportation and the 
Secretary for being proactive and taking regulatory actions 
concerning consumer protection issues, and I am pleased that 
you are moving forward with additional regulatory protections. 
Regarding deceptive fares and deceptive advertising and greater 
transparency for airline fees, I, frankly, do not believe that 
we are going to get where we need to be unless we do this 
either through rulemaking or through action taken by the 
Congress.
    Mr. Baldanza said earlier that he did not object. I think 
he talked about an unfair competitive advantage if one airline 
does it and the other one doesn't. Obviously, if you do not 
have an objection to posting all of the fees, if everyone has 
to do the same, and he said he wouldn't have an objection.
    I assume, Mr. Ridley, you would say the same, is that 
correct?
    Mr. Ridley. Given our situation, where we have very few 
fees, we would not object.
    Mr. Costello. Mr. Baldanza, let me ask you. In your written 
testimony you indicate that Spirit believes it is unfair to 
charge passengers for extra services that they do not use. What 
do you mean by that?
    Mr. Baldanza. Thank you, Chairman. What I mean by that is 
that different customers ask for different things in terms of 
their air travel, and we think it is unfair to presume that a 
customer might want, might need to check two bags or might need 
to have a certain service onboard.
    So at Spirit we think it is very important to only charge 
them what is necessary for their trip, but then make available 
in an optional basis other services and options that they may 
be able to use. We think this benefits consumers. We think this 
results in lower fares and it gives customers the option to say 
this is valuable to me, so I will pay for it, or it is not 
valuable to me and I can save the money.
    Mr. Costello. You also indicate in your written testimony 
that unbundled services do not impose any cost on airport 
infrastructure, that there is no cost imposed on airport 
infrastructure as a result of unbundled services. What do you 
mean by that? Are you saying that checked bags do not put 
additional cost on an airport?
    Mr. Baldanza. What I mean by that is that the costs of 
transporting the passenger are all included in the base fare, 
and the things we charge extra for we don't believe add to the 
burden that the Aviation Trust Fund funds. So checked bags, for 
example, add cost to the airline, but they don't particularly 
use air traffic control, they don't particularly add airport 
related costs to the airport, they add to the airline.
    Mr. Costello. I would respectfully disagree with you. I 
think it is pretty clear that it does.
    But at this point I will recognize the Ranking Member, Mr. 
Duncan.
    Mr. Duncan. Well, thank you, Mr. Chairman, and thank you 
for calling this hearing. I just have a couple of questions.
    First of all, does anyone on the panel disagree with the 
statement by Mr. Ridley when he said that Southwest strongly 
believes that the decision on these charges should be a 
business decision and left up to the airlines. Anybody disagree 
with that statement? Yes, Mr. Moore?
    Mr. Moore. I am not sure that I would disagree with the 
statement. What I felt like I heard Mr. Ridley say is that it 
should be left to the airlines as to how they actually market 
their products and services. So whether they choose to bundle 
or not, I too believe that that is an airline decision. The 
thing that I think was important, that I believe that Mr. 
Ridley would also support, is transparency. So if that means 
that you have an airline that is bundling and one that is not, 
it just needs to be made clear to the consumer about how you 
compare those apples and apples.
    Did I characterize that right for you, Dave?
    Mr. Ridley. I think that is fair, yes.
    Mr. Duncan. Well, let me ask Mr. Dillingham and Mr. Rivkin. 
In our briefing it says through various rulings and guidance, 
the DOT has required that airlines and ticket agents disclose 
the following fees in airfare advertisements: fuel surcharges, 
peak travel and holiday surcharges, and government fees, among 
others. Do you think it would add substantially to airline 
costs or would really substantially decrease airline travel if 
the airlines were required to disclose these things like extra 
charges for bags and the kind of fees that we have been talking 
about here today?
    Mr. Dillingham. Mr. Duncan, from the work that we have 
done, we have seen no indications that the showing of fees and 
transparency of fees and disclosure would decrease travel.
    Mr. Duncan. Well, would it be a substantial cost for the 
airlines to do that in some ways?
    Mr. Dillingham. Again, based on the work that we have done, 
we do not think that it would be a substantial cost to the 
airlines. The airlines have administrative mechanisms in place 
starting as a base, and the technologies that we currently have 
make these kinds of disclosures relatively easy. And as you 
heard some of the witnesses today, the market is beginning to 
rev up to produce all kinds of mechanisms that will make this 
an easy thing to do. It then becomes the airlines' choice. As 
the Chairman said, short of congressional action, then it 
becomes the airlines' choice whether they want to participate.
    Mr. Duncan. Mr. Rivkin?
    Mr. Rivkin. I agree, Congressman Duncan, with Mr. 
Dillingham that there is not a substantial cost to disclosing 
fully the fees in the way that our regulations have suggested. 
Of course, the Committee needs no reminding that every 
rulemaking goes through a rather rigorous cost-benefit 
analysis, and it won't get through OMB if it doesn't have 
benefits commensurate with its cost.
    Mr. Duncan. I will let all of you respond, but let me ask 
the airlines not only about that question I just asked, but 
also, and maybe you have covered this, but I have had votes in 
other Committees and haven't been able to hear all of the 
hearing, but what is the problem with the travel agents? They 
say that the airlines won't give the information about these 
additional fees to them and it has caused some problems for 
them.
    Mr. Baldanza and Mr. Ridley, what do you say about that in 
response to the travel agents?
    Mr. Baldanza. Well, this may be a bit of a clarification on 
my earlier testimony as well, but I can confirm that Spirit 
provides full detail about its fees and services to all of our 
GDS partners today. And perhaps we are not providing it in a 
format or timeliness or way that they can use it properly, but 
if we are not doing it that way, we just need to know and we 
will do that, because we are very open to that idea.
    Mr. Duncan. All right. Mr. Ridley?
    Mr. Ridley. Mr. Duncan, I am not sure that Mr. Moore might 
be a better one to answer this, but since you ask the airlines' 
perspective, in Southwest in particular, where we sell less 
than 5 percent of our bookings through either an online travel 
agent or a travel agent, this is kind of a de minimis issue 
that I am really not------
    Mr. Duncan. Is your main concern that you don't mind 
disclosing all these ancillary charges, but you just don't want 
to be taxed on them? Is that the main concern of the airlines, 
Mr. Baldanza?
    Mr. Baldanza. Well, we are fine with full disclosure 
because, again, we believe with full disclosure we still will 
often have the lowest total price. But in regards to tax, we 
don't believe it is appropriate to tax the ancillary fees 
because, in most cases, they do not use the infrastructure that 
the tax is intended to pay for.
    Mr. Duncan. And if they help you make any profit, you are 
going to pay taxes in that way anyway, is that correct?
    Mr. Baldanza. That is correct, and it also allows lower 
fares to the consumer, which generates more travel, which also 
generates more tax revenue.
    Mr. Duncan. Mr. Ridley?
    Mr. Ridley. Well, at Southwest in particular, we are 
talking about $100 million, which is a lot of money, even in 
this town. While that is a lot of money, it should be compared 
to the billions of dollars of fees that are the subject of this 
hearing. The industry is overtaxed, I will make that point. But 
in terms of whether the ancillary revenues that are the 
discussion of today's hearing should come under the excise tax 
ambit, we just take the position that the airline industry is 
already too heavily taxed.
    Mr. Duncan. Mr. Mitchell and Mr. Moore wanted to comment 
either on the earlier questions or the later parts too, so go 
ahead.
    Mr. Moore. Mr. Duncan, thank you. My comment that I wanted 
to make just surrounded the question you were asking on 
difficulty, and what I would suggest to you is today there are 
a number of airlines, 26 airlines, that are test piling this 
information through ATPCO. They are experimenting with, you 
know, if I have this ancillary fee how would I file it, all 
that kind of stuff.
    So they have done some good work to lay the groundwork even 
internally for this. Those 26 airlines represent 86 percent of 
the U.S. point of sale bookings in Sabre, meaning from today 
the airlines that actually know how to do this represent the 
vast majority of bookings that we already do. Airlines can do 
this, it doesn't have to be that difficult.
    Mr. Duncan. All right. Mr. Mitchell?
    Mr. Mitchell. Yes, Congressman. I think that there are five 
reasons why the airlines are resisting this. The first is, as 
we said earlier, a few of us, the first airline to jump into 
this system and show fares that are 30 percent higher than 
their competitor is going to lose.
    Mr. Duncan. Right, I heard that.
    Mr. Mitchell. The second reason is that there is great 
profitability from complexity and confusion. When you purchase 
a fare, you purchase it thinking, many times, that that is what 
my all-in price is going to be. Then you get to the airport and 
you are paying 30 percent or 40 percent more. Had you know 
about that earlier, you may have made different choices of 
airlines or transportation. So there is money to be made in 
complexity.
    The third point is that by withholding this information 
from the GDSes and the travel agencies, it is the common view 
of many industry participants that what the airlines are 
endeavoring to do is force the agencies to actually pay them 
for this content. What that will do, in effect, is shift the 
cost of merchandising and distribution onto the backs of 
consumers.
    And, finally, or fourth, let's move passengers in droves to 
Airline.com, where they do not have comparative shopping 
capabilities and where they are going to get higher yields and 
higher fares.
    And, finally, there is the tax avoidance issue.
    Mr. Duncan. All right. Well, let me ask Mr. Rivkin this. 
Has the Department of Transportation received a large number of 
complaints about these extra fees? Have you gotten thousands of 
complaints or hundreds of complaints?
    Mr. Rivkin. I don't have those with me, but we do get 
complaints from a lot of people that are unhappy with fees. 
They just are.
    [The information follows:]



    
    Mr. Duncan. All right. Thank you very much, Mr. Chairman.
    Mr. Costello. I thank the gentleman.
    Mr. Moore and Mr. Mitchell, you heard Mr. Baldanza say that 
Spirit fully discloses all of their fees online. You don't 
agree with that, do you?
    Mr. Moore. My perspective would be that the, and I have 
shopped Spirit.com. It is a more arduous process than I would 
like as a consumer. I have to pick my city pair. I then get 
what I feel like is a fare that I can rely on and then I find 
out that there are taxes and fees that get added on top of 
that. That is not the ancillary fees we are talking about, just 
basic security fees, those kind of things, that weren t 
disclosed initially.
    And then I am going to have to put in my personal 
information on where I live, all that kind of stuff, to 
actually get what I believe is the true price. And then after 
all of that, I find out that there might be a seat fee, and 
that actually might take place after I have paid. It is 
troublesome to me as a consumer.
    Mr. Costello. Mr. Mitchell?
    Mr. Mitchell. Mr. Chairman, the way I would answer that is 
that I think Spirit should be free to unbundle until the cows 
come home and price to their heart s content. But so long as a 
carrier is in a GDS and providing agencies with fare data, they 
need to provide complete data, and they need to do it in a way 
that is very transparent.
    I think the marketplace will reward or punish Spirit 
Airlines based upon how they conduct their business.
    Mr. Costello. And that is what we hear from consumers is 
that, look, they set the prices and, as you said, they are 
setting fees. Just tell us what we are getting. What is the 
price going to be, so we don't have to spend a half hour or an 
hour shopping around on a website.
    As I see it, as you said, Mr. Mitchell, that the first 
airline who jumps out there and does this and shows a 30 
percent increase over the cost in comparison to other airlines, 
they are not going to do it voluntarily and they are not going 
to do it in a uniform manner that consumers can easily 
understand, unless they are required to do it.
    Now, would you disagree with that?
    Mr. Mitchell. I would agree with that 100 percent. I am 
going to file with the DOT a comment on behalf of a major 
corporation whose travel manager came here last month with a 
family friend and took a flight from Boston to L.A. The 
surprise at the airport on baggage fees increased their total 
trip cost by 20 percent.
    He went back to Belgium and looked through the GDS to find 
any mention whatsoever of these fees. He went back to the 
travel management company and looked. There was no mention 
anywhere. And this is a professional corporate travel manager. 
If it can happen to him, what does that portend for the average 
consumer?
    Mr. Baldanza. Mr. Costello, may I make a comment?
    Mr. Costello. Yes.
    Mr. Baldanza. Thank you.
    The booking process that Mr. Moore described for 
Spiritair.com was accurate as of six months ago, but Spirit has 
invested hundreds of thousands of dollars to change our website 
to where today you don't go through the arduous process he 
described, which again was accurate as the way we used to work.
    Today, the process is very simple and fully disclosed.
    Mr. Costello. Wouldn't it be in the best interests of your 
consumers, your passengers, as well as Southwest and every 
other airline out there, if there was a uniform way of posting 
prices, if they go to Spirit or they go to United or Delta or 
Southwest Airlines, all the same, easy to find and easy to 
understand. Isn't that in the consumer s best interest?
    Mr. Baldanza. Well, it may be, and that is interesting. I 
would like to be able to buy a refrigerator that way, too, when 
I go to Sears and know what it costs me at Lowe's and at Home 
Depot. The reality is that different airlines offer different 
things to customers, and that diversity is a wonderful thing.
    The world would't be a great place if every airline were 
like Spirit. I would also argue it would't be a great place if 
everyone was like Southwest. The world is a better place 
because customers have the choice of airlines like Spirit and 
Southwest and many, many other airlines.
    Mr. Costello. One of the problems when it comes to pricing, 
though, is that many people do not understand what their 
choices are; and number two, that they are getting services 
that they didn t know; paying for services that they didn t 
know that they wanted, nor did they ask for.
    So I think I have made my point and I think you have made 
your point.
    Final question. As I think all of you know, we passed in 
this Committee and out of the House of Representatives an 
airline safety bill where we increased the requirements for 
pilots, both in training and in number of hours in the cockpit, 
and also a number of other things, flying conditions.
    Just out of curiosity, since we have both of you here, what 
is the starting pay, the entry level pay for a first officer 
with Spirit Airlines, the unbundled?
    Mr. Baldanza. I don't know the starting pay. I can give you 
the average pay, and we tend to be a pretty low seniority 
airline. So our average first officer is about three years 
senior with the airline, and last year they earned about 
$70,000 a year on their W-2. Our average captain is about eight 
years senior and last year earned about $145,000 on their W-2.
    Mr. Costello. But you don't know what the starting salary 
is of the first officer that is hired?
    Mr. Baldanza. The starting wage rate and how that 
translates to their W-2, I don't have that information with me 
right now, but we can certainly provide that.
    Mr. Costello. We would request that information.
    Mr. Ridley?
    Mr. Ridley. Chairman Costello, that is not my area of 
expertise, but we will get you the answer as soon as possible.
    Mr. Costello. I understand the business model where we 
have, I think in your written testimony, Mr. Baldanza, you say 
that since 2007 when we adopted our ultra low-cost carrier 
business model, our goal has been to provide basic quality air 
transportation at the lowest possible cost. I understand what 
that means.
    My concern is about safety, and that is why I am interested 
to know at the lowest possible cost, what are your airline and 
other airlines paying a starting First Officer, the entry 
level. We found with a number of regional carriers that in at 
least one instance that we know of that the First Officer was 
hired and paid less than $20,000 a year. I am certain that is 
not the case at Southwest and hopefully it is not at Spirit, 
but I would like to have that information if you would supply 
it to the Committee staff.
    [The information follows:]



    
    The Chair now recognizes Mr. Petri.
    Mr. Petri. Thank you.
    I just had one question, which probably reveals my 
ignorance about the web information is collected and works and 
so on, but I think it is mainly directed at Mr. Moore as to 
why, if Mr. Baldanza s airline is posting all this information 
on its website and presumably other airlines post it in maybe 
somewhat different formats and so on, the burden shouldn t be 
on you to just visit their websites every day or upgrade it and 
say what is available. And if you want a matrix and that 
airline does not provide that information, put an X there or 
something and the public would be informed, but they would then 
have the diversity of choice.
    Or is this a legal issue? Are the lawyers for you saying 
you want it provided by the airline so that if there is 
confusion or some difference, the liability is on them and you 
can show a piece of paper or something? Is this what we are 
really talking about? Because the information is there on 
different websites, so it must be someone is trying to shift 
legal liability to the airlines from themselves who wants to 
present that information.
    Or am I misrepresenting the situation?
    Mr. Moore. I appreciate the question, Mr. Petri.
    It is one of those things where I look at it, and I don't 
look at it as a legal issue at all. I do look at it as a 
question of complexity. When you have 600 airlines in the world 
that have their schedules in Sabre, and to actually try to go 
out and gather all this information in a very laborious 
fashion, it would be incredibly challenging to try to keep that 
stuff fresh because as soon as you do, it has been made stale. 
Things change.
    And the other thing that makes this incredibly hard or 
impossible, basically, is that these charges are often applied 
and then many times aren t, and that level of granularity is 
just not made available on the website. So if one of Mr. 
Mitchell s corporate customers has negotiated away a baggage 
fee, well, that is not posted on the website. We have no means 
to know that.
    It is an imperative of the airline to provide that 
information because we have no knowledge of that level of 
granularity. And particularly that those things might apply at 
very low fares, but perhaps they don't apply at the higher 
fares. And the fees are applied for seat fees, but perhaps not 
baggage.
    It is a level of granularity that could never be gathered 
by going out and trying to get it from the carrier websites.
    Mr. Petri. Excuse me, I am serious, but I thought there 
were search engines and that half the websites are being hit 
automatically by Google or someone and they have ways of 
updating this practically instantaneously. And people may want 
to change their business model, and if you had to go through a 
government regulatory process, it could take months. And there 
are seasonal differences.
    Do you buy a new airplane that may have different 
requirements as to what type of bundling or unbundling would be 
appropriate? I mean, this could retard a lot of flexibility in 
the industry if it is not handled right. Or am I 
misunderstanding the situation?
    Mr. Moore. I would believe it actually introduces the 
flexibility that we would need to allow a consumer to shop in 
the way they want. When you think about some of the stuff I was 
discussing earlier around how a consumer can suggest up front, 
I am an elite frequent traveler on United, as an example, and I 
am flying from New York to L.A.
    And with that, I go and shop. Well, perhaps I am not elite 
on anybody else. The fees that might apply to me, those aren t 
available on the website. I don't know that. They are certainly 
not applicable to me. And particularly the fact that they may 
be applied for one corporation or not, just based on the 
negotiated agreement that I have with those.
    There is no level of specificity that would be required in 
order for that shopping mechanism to really work for the 
traveler. It is just way too much data that changes far too 
rapidly. When you think about the way a consumer shops, and 
this speaks to something you were talking about earlier, Mr. 
Chairman, fully half the consumers that shop in the online 
space buy at the lowest fare, and it is a curve on total price.
    So in other words you get to about 70 percent of travelers, 
they will have bought within 120 percent or 130 percent of the 
lowest fare, but half of those people, if they have missed that 
$20 charge that may have been incurred, they might have made a 
very different decision.
    And so there is a level of information that is just going 
to be lost that consumers would benefit from tremendously and 
would actually change the products they may be buying because 
they are better informed. It is just too much information to 
try to be gathering laboriously all the time.
    Mr. Petri. Anyone else have any comment on that?
    Mr. Mitchell. Yes, Congressman.
    The ATPCO, the airline-owned company that distributes all 
these fares to the GDS s and is in a position to distribute the 
fees, they have identified 100 ancillary fees. That is what 
they are ready to go to market with.
    So if you do the possible combinations just with one 
airline, you do the math 100 times 100, that means that a 
consumer has a possibility of 10,000 combinations for that one 
airlines; perhaps 9:00 o clock to 11:00 o clock on a Wednesday 
morning. If you are comparing against nine other airlines, that 
is 100,000 possible combinations.
    This is orders and orders and orders of magnitude more 
complex than anything this industry has ever known or faced 
before. And it strongly begs for the technology and the 
standards to get into place so that the consumer has the full 
disclosure he or she needs.
    Mr. Costello. I thank Mr. Petri.
    Mr. Mitchell, you in fact state in your testimony that 
airlines often have a strong incentive to mislead consumers on 
prices.
    Mr. Mitchell. Mr. Chairman, that is correct. Whether it is 
trying to look in the GDS and the travel agent as if you are 
matching a Southwest or an AirTran, or whether it is just 
simply misleading the consumer to think he or she has an all-in 
price, and then they get to the airport and they are surprised.
    But in addition to that, this is the no man s land for 
consumer protection. Mr. Baldanza mentioned going to the store 
for a refrigerator. Well, luckily for him and the rest of us, 
we are protected in large part by the FTC. The FTC has no 
oversight responsibility here and the consumer has no rights or 
legal remedies because of Federal preemption, which the 
airlines have fought and championed and fought to expand.
    So that is central to this idea that the consumer needs 
protection here.
    Mr. Costello. Well, we know that there is one person at the 
witness table that recently went through and examined all of 
the airlines and the fees that they charge, and the GAO 
submitted this report to us.
    So I would ask Dr. Dillingham, was it a simple process to 
go and understand what fees each airline charges? You just went 
through this, you and your staff. Is it pretty simple for the 
average consumer to understand?
    Mr. Dillingham. Mr. Chairman, the GAO cannot own up to it 
being a simple process. But we were able to identify those fees 
that we in fact show in the handout that we passed to you.
    Mr. Costello. With a highly professional staff.
    Mr. Dillingham. Yes, with our highly professional staff.
    Mr. Costello. Not the average consumer.
    Mr. Dillingham. Not the average consumer, absolutely. We 
agree that the permutations can be never-ending. So we are on 
the side of making it completely accessible and transparent for 
the consumer.
    Mr. Costello. And that is the goal of what we are trying to 
achieve here, and I think what Senator Menendez and his 
amendment, what he is trying to achieve is transparency so 
people understand and know what they are getting for the money 
and they can compare one price to another and what their 
options are.
    Mr. Petri, do you have any further questions?
    If not, I will ask very quickly if anyone on the panel has 
anything to add before we close out the hearing.
    Mr. Ridley?
    Mr. Ridley. Mr. Chairman, I just cannot let it lie here. 
While we are on record that we believe in greater transparency, 
I cannot sit here and be lumped among all airlines that believe 
where there is confusion, there is a chance for profit. I would 
argue that where there is simplicity, there is a chance for 
profit, and that is the tack Southwest has taken. So I don't 
want to be lumped in with all my brethren in Mr. Mitchell's 
description.
    Mr. Costello. Anyone else?
    Mr. Baldanza. I would as well, Chairman, thank you.
    I would like to say that this has been extremely 
interesting to us and I think the whole industry. And while 
there may be differences among Spirit and many other airlines 
in fees that measure generally in the tens or twenties of 
dollars, the real outrage we think at Spirit should be on the 
fares where the differences measure in the hundreds and 
thousands of dollars.
    And when customers are asked to pay enormously high fares 
and taken advantage of because the supply-demand relationship 
or their inability to be flexible takes advantage of them, that 
is a more outrageous situation for consumer exploitation than 
charging of fees.
    Mr. Costello. And that is an issue for a different hearing.
    Mr. Baldanza. That is right.
    Mr. Costello. Let me just thank all of you for being here 
today and offering your testimony and answering questions of 
the Members of the Subcommittee.
    And Mr. Rivkin, I hope you will go back and pass on to the 
Secretary and the Administrator as well that we encourage the 
Department to stay on schedule and to move quickly with their 
rulemaking.
    Mr. Rivkin. I certainly will.
    Mr. Costello. With that, this Subcommittee stands 
adjourned.
    [Whereupon, at 4:31 p.m., the Subcommittee was adjourned.]



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