The harm to U.S. businesses is estimated to be in the hundreds of millions of dollars. Of the 19 executives charged, four have gone to prison, and charges are pending against the other 15, nine of whom are considered fugitives -- you can't make this stuff up.
With so many airlines fined (Lufthansa and Virgin Atlantic avoided fines and prosecution by turning in their competitors), it is clear that this is not an isolated incident; 21 direct competitors don't suddenly start colluding without having had some friendly interaction before then. Admittedly, no U.S. domestic airlines have been fined, and the offenses were primarily on international flights to and from the U.S. and other countries, but it does give me pause after 10 years of watching the big U.S. airlines play a perfect game of "follow the leader" on surcharges, fees and the press releases that prop them up.
It turns out that officials from at least United and Northwest were exposed to some of the collusion discussions at a meeting of airline executives in Thailand in 2004, and are reported to have walked out of the meeting. The practice was still at full strength in 2005 when officials from Lufthansa, taking advantage of an amnesty program for airlines that came forward, notified the U.S. Justice Department of Lufthansa's involvement.
I can recall a few years ago asking the question as to whether incremental or even predicted increases in fuel costs really warranted the surcharge amounts being tagged onto domestic flights. As fares rise again now, folks are asking this question again. Airlines hedge against rising fuel prices extensively, so there is no one-to-one correlation between rising fuel prices and fares -- but fares have gone up over $50 so far in 2011. There is no evidence that domestic airlines are participating in direct collusion, but given how much in lockstep these surcharges and fees seem to mount up at every airline, and how consistent the flood of PR sounds, they might as well have.
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The Direct Line from Fuel Surcharges to Rampant Fees
There is a direct line from these same fuel surcharges of a few years ago to the subsequent baggage fees, and then the everything fees that characterize the air travel purchase experience today. Even before declining fuel prices made the fuel surcharge dodge less credible, the airlines almost immediately turned to new fees, particularly a charge for the first checked bag (which many thought would never stick).
Fees for booking fares on the phone quickly followed, and then fees for booking online, and fees for booking with a travel agent, and fees for asking a question about a booking made online, and fees for boarding earlier, and fees for exit row seats, and fees for carry-on bags, and even half-serious threats to charge to use the bathroom.
The airlines very quickly realized that ancillary surcharges and fees are exempt from truth in advertising requirements, and even further that many travelers ignore or never even notice some of the fees. This lets them advertise a $250 cross-country roundtrip fare, and also present it as such on all the booking engines, pulling in customers by the thousands -- but by the time you get off the plane back home, they've tapped you for another $100 or more in money you didn't intend to or understand you would spend. It is also income the airlines can count on, irrespective of fares; they might sell you a seat on a plane for $100 during a fare sale, and someone else for $800 on the day of the flight, but they're still going to get that same $35 out of both of you to check a bag.
How much are they extracting from us after they made the sale? Charlie Leocha shares a study by the Consumer Travel Alliance that found that hidden fees on major airline routes can be double the cost of the airfare -- double!
The airlines have become addicted to these fees, and for good reason; the fees have resulted in substantial -- nay, massive, as in billions of dollars massive -- profits without the airlines having to take heat for raising fares. Further, many of these ancillary fees are not taxed at all, so they dodge paying Uncle Sam as well.
But what are they going to do now? Surely they have exhausted all the potential fees, right? Not everyone thinks so. George Hobica of AirfareWatchdog.com sees fees aplenty in our future -- some of them have even come to pass. How about:
A lot of travelers and travel writers think these fees are predatory and sneaky, and it turns out that they are not alone; the United States Government Accountability Office (GAO) agrees, stating that "Fees for optional services are based on costs and other factors and are not fully disclosed to passengers at the time of booking." The GAO says that it is much more difficult for consumers to know the true price of transport at the time of purchase; the GAO also notes that the airlines are avoiding paying taxes on the fees, which are for services that previously were part of the regular airfare.
If anything inspires a closer look at these fees, it will be lost tax revenue. The GAO made recommendations to the Secretary of Transportation last summer; the DOT took up the issue shortly afterward, and will issue new rules regarding fee disclosure and practices next month. They have already taken American Airlines to task for fees, to the tune of $90,000 this month for offering vouchers to folks willing to get bumped from flights without mentioning the $30 fee to cash in said vouchers.
Poll: Which Fee Will the Airlines Add Next?
(Allegiant, clearly a trailblazer when it comes to fees -- it even charges a $15 airport shuttle fee for some Las Vegas flights -- is now proposing that the cost of fuel on your flight date will determine the actual price you pay: Allegiant asks if a low fare is worth a gamble.)
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Fast Forward to 2011: Fuel Prices Spike Again
So here we are in 2011, with airline executives gone underground to avoid trial, the airlines picking traveler pockets for everything short of breathing and nearly unprecedented unrest in the oil-rich Middle East, which is sending fuel prices skyrocketing. I can tell you that fears of collusion and customer backlash may have airline execs nervous, but they're not flinching; already airfares are leaping up, airlines are contracting capacity almost in concert (which will also drive fares up) and fuel surcharges are ready for a fiery resurgence.
In late 2008, the airlines dropped the fuel surcharges, but effectively kept the income rolling in as they buried the fuel surcharges in rising fares. It is almost inevitable that we will see fuel surcharges creep back in, right alongside fare increases. Last month, an airline exec told Joe Brancatelli that surcharges "may be something we have to do again. We can't handle oil at $100 a barrel, and we can't raise [advertised] fares without losing customers. So the surcharges come back into play."
Travelers clearly think they are being had. The first comment tagged onto the end of this article is telling: "Let's see -- Delta, American and United/Continental all announce cutbacks in service of about the same percentage and in the same geographic sectors, and all within a few days of each other. None dare call it collusion."
Admittedly, this is just a reader comment, not expert analysis, and we all know what happens in the comments threads on many Web sites, so take it with a grain of salt. But I'd wager that a lot of people had the same thought by the time they got to the end of that article.
What Does It Mean for Travelers?
Whether it is collusion or mere copy-catting, the airlines have been enjoying a run of considerable prosperity, and they're not going to give that up easily. When airline fortunes go down, the fortunes that travelers must fork over go up. Of course, the airlines also know that consumers have a breaking point at which they'll simply decide to stay home -- and the airlines are going to toe that line as aggressively as possible.
Meanwhile, any actual or potential reduction in travel will continue to squeeze hotels, resorts and other providers, which will keep the current bargains in these areas coming. This spring and summer, expect one of the most elaborate and confounding dances between consumers and airlines we have seen in a while. You'll need to employ all your best tricks for getting the best airfares, starting almost immediately. For help, see the following:
The Independent Traveler
Editor's Note: IndependentTraveler.com is published by The Independent Traveler, Inc., a member of the TripAdvisor Media Network, which also owns AirfareWatchdog.com.