Committee on Transportation and Infrastructure: Aviation subcommittee looks at airline fees

Following are the prepared opening statements by Rep. James L. Oberstar (Minn.), Chairman of the Committee on Transportation and Infrastructure, and Rep. Jerry F. Costello (Ill.), Chairman of the Subcommittee on Aviation.

Statement of The Honorable James L. Oberstar

I thank Chairman Costello and Ranking Member Petri for holding this hearing on airline fees. In 2007, Spirit Airlines became the first airline to unbundle airfares by adopting an "a la carte" pricing plan. Other carriers rapidly followed suit and announced separate fees for checked baggage. Today, airlines charge fees for items and services that were traditionally included in a ticket price. Passengers pay extra for meals, pillows, blankets, headphones, beverages, checked luggage - and, as we will hear from Spirit Airlines today, now carry-on luggage.

Airlines argue that ancillary fee policies enable them to keep base ticket prices low, and allow passengers to pay only for the services they want. In addition, there are new fees for certain "premium" services, like early boarding, which provides passengers early access to overhead space for their carry-on bags.

According to the Bureau of Transportation Statistics, in 2009, U.S. airlines collected $7.8 billion in ancillary fee revenue, including $2.7 billion in baggage fees alone. In the first quarter of 2010, U.S. airlines collected almost $770 million in baggage fee revenue. This represents a 33 percent increase over the collections reported for the first quarter of 2009. Despite these gains, network air carriers lost $163 million in the first quarter of 2010, and the industry as a whole - including low cost and regional carriers - only reported a profit of $12 million.

In August 2009, due to the proliferation of ancillary fees charged by the airline industry, Chairman Costello and I requested a study by the Comptroller General. We were concerned that fees - many of them inescapable - were becoming excessive and were diverting revenue from the Airport and Airway Trust Fund, the balance of which is nearing zero. We were also concerned about the impact of such fees on consumers.

For example, a family of four traveling on a week-long vacation with each person checking a bag could pay up to $200 in baggage fees on top of airfare. This does not include fees for meals, beverages, blankets, pillows, early boarding, and more, which can quickly add up. While some have said that ticket prices have decreased, I am concerned with the addition of baggage and other fees, passengers may be paying the same price, if not more, for the total cost of their air travel.

I look forward to hearing from the Government Accountability Office (GAO) on its findings and recommendations, but I am particularly interested in its recommendation to the Department of Transportation (DOT) to require airlines to disclose all airline-imposed optional fees that passengers should know, and to require consistent disclosure of fees across distribution channels. This is important because it is far from evident to passengers, during the booking process, what fees airlines will charge for the services they want. Travelers often experience difficulty understanding what airlines charge since fees are not printed on boarding passes, are not displayed on travel Web sites, and are often not clearly displayed on airlines' Web sites. We need to ensure that, at the very least, if ancillary fees continue to be charged, the consumer is made fully aware prior to their travel of what to expect. I also look forward to hearing from the DOT regarding its proposed rulemaking, which seeks to ensure that airlines, and potentially ticket agents, make such fees more transparent during booking.

Unbundling of fares, combined with a decline in passenger traffic, have driven down average ticket prices according to the GAO, but at the same time ancillary fees have skyrocketed. However, few of these fees are taxed for the Airport and Airway Trust Fund, the primary means for funding airport improvement and air traffic control modernization. Aviation excise taxes are necessary to support the Trust Fund, which in recent years has provided about 80 percent of the Federal Aviation Administration's budget. I am extremely concerned about how unbundling fees will affect the future of the Trust Fund. According to the GAO, in 2009, if baggage fees were subject to the 7.5 percent passenger ticket tax, approximately $200 million in additional revenue would have gone into the Trust Fund.

Mr. Chairman, thank you for holding this timely hearing to explore this subject. We need to ensure that passengers are protected and understand what they will pay for air travel, and we must preserve the solvency of the Trust Fund.

Statement of The Honorable Jerry F. Costello

Subcommittee on Aviation

Hearing on Airline Fees

July 14, 2010

I welcome everyone to the Aviation Subcommittee's hearing on airline fees. I especially want to recognize and thank the Families of Colgan Flight 3407 for being with us today and for their steadfast support to improve pilot training and safety in the industry.

From 2001 through 2009, the U.S. airline industry, including air cargo carriers, reported a $58.1 billion net loss. Starting in 2007, many airlines began to unbundle services that were traditionally included in the cost of a ticket and started charging separate fees for checked bags and meals.

Today, it is estimated that the airlines present passengers with more than 100 additional fee options in the course of travel. In addition, the amount of the fee charged varies depending on each of the individual airline's policies.

According to the Bureau of Transportation Statistics, in 2009, U.S. airlines collected approximately $7.8 billion in additional fees, including $2.7 billion in baggage fees alone. U.S. passenger airlines experienced operating profits of approximately $1.2 billion. Between the first quarter of 2008 and the first quarter of 2009, revenue from additional fees increased by 18 percent.

By comparison, airports only generated $2.5 billion in passenger facility charges (PFCs) in 2009. With a cap of $4.50 per flight segment, the PFC is significantly less than the total amount of additional airline fees a passenger would pay for roundtrip travel in the majority of cases.

The House FAA Reauthorization bill would increase the current $4.50 cap on PFCs to $7.00, which would generate an additional $1.3 billion. PFCs, unlike additional airline fees, directly benefit passengers because they are invested in airport projects. Nevertheless, airlines have vigorously opposed increasing the PFC cap, stating they cannot absorb an increase and that their passengers will not pay it. I believe the fact that airlines are charging passengers $25, $30 and sometimes $40 dollars a bag and pocketing the money seriously undermines their own argument against a PFC increase that will benefit the entire aviation system.

In addition, I am concerned the fees the airlines are charging are excessive and that they are resulting in revenue being diverted from the Airport and Airway Trust Fund. Last August, Chairman Oberstar and I requested that the Government Accountability Office (GAO) undertake a study that among other issues, examines whether additional fees are related to the cost of providing those services to passengers and ways Congress can effectively capture these fees for the Airport and Airway Trust Fund. This study is being released today and I look forward to hearing from the GAO on its findings.

The majority of additional fees airlines are charging are not subject to the 7.5 percent passenger ticket tax, which is deposited into the Airport and Airway Trust Fund and is used to fund the Federal Aviation Administration (FAA). This pays for necessary facilities and equipment, some operations, and aviation safety improvements. According to the GAO, Trust Fund revenues have decreased by $1 billion over the last few years.

If baggage fees alone in 2009 would have been subject to the 7.5 passenger ticket tax, the Trust Fund would have taken in about an additional $200 million. This is revenue that could help to keep the Trust Fund more stable. All users - especially airlines - are better off in a system built with modern infrastructure. There needs to be a fair and equitable way to return the money that passengers pay as part of their air travel so it goes back into the aviation transportation system. I look forward to hearing from witnesses on this subject.

In addition to the amount of the airline fees, I am concerned that airline passengers do not have clear and accurate information regarding the full cost of their air transportation before they purchase a ticket. The full amount that a passenger will ultimately end up paying, taking baggage and other fees into account, is often not clearly communicated to the passenger before purchasing a ticket.

I commend the Department of Transportation (DOT) for being proactive and taking regulatory action in its first consumer protection rulemaking, which went into effect this year, to address tarmac delays, chronically delayed flights, and the lack of information provided to consumers on the on-time performance of flights. I am pleased the DOT recognizes that additional regulatory protections are needed to address deceptive fare advertising and greater transparency of airline fees and issued a second Notice of Proposed Rulemaking (NPRM) in June. I encourage the Department to stay on schedule and quickly complete its rulemaking.

I look forward to hearing from the other witnesses today about the issue of transparency in the advertised fare and other impacts of these fees on consumers.