Twenty one years after the US Government gave the airlines free rein to run their businesses as they saw fit, Congressional fingers are beginning to itch. A glance at the various passenger rights bills now circulating the corridors of Congress shows that those same fingers are more than merely restless. They are pointing to a wish-list of services for passengers and telling airlines they can do better. Is this a genuine attempt to protect the consumer or the beginnings of reregulation?
The last few months have seen a handful of bills put forward by congressmen, as well as a proposal direct from the White House. The Airline Passenger Fairness Act, proposed by Senators John McCain and Ron Wyden, is typical in its demands. Under this Act, passengers could claim a full refund of their ticket within 48 hours of purchase; would be free to use portions of a round-trip or multi-city ticket however they choose; and would be entitled to be informed about all fares being charged for a particular flight.
Another proposal, Senator Richard Shelby's Airline Deregulation and Disclosure Act, would require airlines to fully refund the fares of any passenger held onboard for more than two hours before takeoff or after landing. If a flight were cancelled for any reason other than safety, the passenger would have the automatic option to a full refund. The Clinton/Gore Airline Passenger Fair Treatment Initiative, humbly described as " . . . an aggressive plan to aid the travelling public in the 21st Century", would mandate that quoted fares remain valid for at least 48 hours if quoted sooner than seven days before the flight. This bill would also double the minimum payment for mishandled baggage to $2,500 and double the maximum compensation for being bumped to $800.
This spate of bills has its roots in several layers of political subsoil. First is the wave of interest in protecting and promoting airline competition in the USA, which has led to several Congressional hearings, the drafting of a Department of Transportation pro-competition guideline document, and the raising of some restrictions at several of the USA's most slot-restricted hub airports to give startup carriers more opportunity to serve these cities. These are not reregulatory moves, the government insists, but safeguards against potential monopolistic behaviour by the major carriers within the hub-and-spoke system that has dominated the US aviation landscape since deregulation in 1978.
Second is the uncomfortable truth that airlines owe part of their record financial successes to the fact that they have kept close control over capacity through the current economic boom. That restraint has created record load factors throughout the industry, which has inevitably led to a degradation of service in some quarters. Each bank of flights at US hubs sucks in and spits out thousands of travellers - many of whom will be given no option but the middle seat in row 30 of a Boeing 727.
And passenger patience was severely tested in late 1998 and early 1999 by pilot strikes, sick-outs and severe winter weather that left many people stranded, enduring queues at filled-beyond-capacity airports, or stuck on aircraft for hours without food, water and useable lavatories, let alone the prospect of going anywhere.
It was a potent mixture that was bound to ignite a response. But the curious part about the bills that constitute the response is that several low-cost carriers and some consumer groups are as dismayed by them as the majors. A close look at some of the proposals (see box P34) shows why there is more fear than applause. The longer-term implications of some of the proposals smack of government interference in the financial strategies of privatised companies and they could hit the passenger where it hurts most - in the wallet.
Opponents of the bills include some interesting and unlikely names. Herb Kelleher, chairman and chief executive of Southwest Airlines stood back in 1997 and took a neutral stance when the Air Transport Association (ATA) launched its highly-public campaign against the proposed new pro-competition rules. But when it comes to the passenger rights bills, he is a staunch opponent and may prove to be the ATA's most useful ally.
"If you tot up the advantages and disadvantages of all these proposals, then Southwest has less disadvantages to deal with than the other majors, but over time you will break up the unity of the industry," says Kelleher. "You can do a lot of potential harm with these bills for the industry as a totality. We have to be very careful that the government does not use these bills as a vehicle for reregulating the industry in the USA, because that is the flavour and direction of many of these proposals." Kelleher believes that the increased costs associated with some of the proposals, and which would be added to the ticket price, could ultimately exclude some 20-30% of the US passenger base.
Another unlikely sceptic is Ned Homfeld, founder and chief executive officer at Spirit Airlines, a startup carrier based in Detroit, Michigan. Spirit has bucked the trend of other US low-fares startups by turning in a profit all but one of its ten years of operation as a scheduled carrier. But Homfeld sees little point in attempting to legislate service improvements for the air traveller. "This is something that does not really affect us as a small carrier as we have to treat the passengers well anyway," says Homfeld. "But the full refundability proposal would be a problem for us. We have load factors averaging 85.7% and we know how to do that well. It would be much more difficult to do that and keep prices low if we did not have the non-refundable tickets."
Higher ticket prices
The Washington DC-based Competitive Enterprise Institute (CEI) is also arguing against the bills. The CEI points out that a proposal in congressman Bud Shuster's bill would require a 200% refund for flights delayed more than two hours. "That sounds fine, but the money for this guarantee will most likely come from higher ticket prices," says the CEI. Similarly, the CEI believes that McCain's proposal to allow passengers the right to use any portion of their ticket as they choose - allowing them to bypass Saturday stay-over restrictions and get much cheaper tickets - would take away the airlines' ability to differentiate the business traveller from the bargain-seeking leisure traveller and it would be the leisure traveller that would ultimately lose out. "Simplifying this system may make a great soundbite, but it could jeopardise the low-cost fares that have allowed millions to fly more cheaply since deregulation," argues the CEI. "If you're delayed, bumped or simply treated rudely, the answer is to go to another airline, not a bureaucrat."
With so many bills putting forward similar proposals, it seems unlikely that all will survive the congressional process. But the prospect seems high that parts of each could end up being written in law - something the ATA would find hard to swallow. The ATA says it is most concerned about those proposals that would affect pricing, but the organisation also finds it hard to accept there is any need for new legislation for operations such as baggage handling.
ATA members scored a 99.5% success rate in 1998 for delivering checked baggage to its owner within 24 hours. "It's an urban myth that we do a bad job with checked luggage," says ATA spokesman David Fuscus. But the ATA is keen not to alienate congress nor the public, as it did last year with its brash campaign against the DoT's pro-competition policy guidelines. So while the ATA is making no comment about any possible campaigns this time around, it is clear that the tone will be more humble. "Our overall strategy is to work with congress and not to fight people over this." says Fuscus.
Other industry experts keen not to see the government turn the clock back 21 years and become involved in the day-to-day runnings of airlines are appealing to lawmakers to turn their attention instead to infrastructure. Many make the ironic point that some of the worst passenger frustrations are caused by delays and cancellations that are outside of the airlines' control and which are due to the USA's overworked and government-operated air traffic control system. "On a good day with perfect weather, our air traffic control system is maxed out," says Darryl Jenkins, director of the George Washington University's Aviation Institute and a witness at a hearing on McCain's bill. "It's not fair to fine an airline for delays caused by the federally operated ATC system," says Jenkins. "If we do, we should also mandate that pilots announce: 'Ladies and gentlemen, this delay is brought to you by your friends at the US Government.'"
Source: Airline Business