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Airlines getting billions from new fees, House panel hears

By Tom Cohen, CNN
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The battle over baggage fees
STORY HIGHLIGHTS
  • NEW: Airline executive clashes with panel members at the subcommittee hearing
  • NEW: Airlines confuse consumers with hidden fees, business travel advocate says
  • Airlines are getting billions of dollars from fees on checked baggage and other services
  • Consumers have a hard time figuring out total air travel cost, witnesses tell House panel
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Washington (CNN) -- U.S. airlines make billions of dollars in fees for check-on luggage, refreshments and other services formerly included in ticket prices, but consumers have a hard time figuring out how much they'll pay in total to fly, a congressional committee heard Wednesday.

The House subcommittee on aviation held the sometimes contentious hearing to consider a U.S. Government Accountability Office report on the fees airlines have charged in recent years on unbundled services that once were considered part of the ticket price.

"Fees for optional services ... are not fully disclosed to passengers at the time of booking," said a summary of the report, which noted that airlines reported revenue of $7.9 billion from baggage fees and reservation change and cancellation fees in calendar years 2008 and 2009.

Witnesses from GAO, the Department of Transportation and associations for air travel and travel agents all urged the government to require uniform pricing information from airlines to help consumers make easy comparisons.

"The government must step in," said Kyle Moore of Sabre Travel Industry Group, appearing on behalf of major travel-agent groups. "We don't believe airlines will do this on their own."

Kevin Mitchell, chairman of the Business Travel Coalition, said airlines realize more profits from "complexity and confusion" that can cause travelers to pay significantly more for a flight than they thought when they purchased the ticket.

"Had you known that before, you might have made different choices," Mitchell said of consumers.

However, Spirit Airlines President and CEO Ben Baldanza defended the practice of unbundling, saying it allows his airline to charge lower fares and "allows the customers the choice to purchase the services or not."

Baldanza's brusque manner prompted clashes with two committee members. Rep. Peter DeFazio, D-Oregon, and Baldanza cut each other off with rising voices when DeFazio questioned if Spirit Airlines made more money when it unbundled baggage charges and other fees from ticket prices.

Later, Rep. Laura Richardson, D-California, admonished Baldanza for his brash style, saying, "I'd appreciate not being yelled at like you just did with my colleague here."

When Baldanza attempted to answer a question with an explanation, Richardson cut him off, saying a simple "yes" or "no" would suffice.

"I reserve my time," Richardson said to Baldanza, referring to the committee rules that allot panel members time to question witnesses. "That's how it works around here."

Another witness, Dave Ridley of Southwest Airlines, said it was up to individual airlines to decide what business model to use regarding fee structures. He noted that Southwest has been successful by resisting the industry shift toward unbundling fees and does not charge for checked bags, changing reservations or other services.

"Fees are a business decision best made by each airline," Ridley said, adding that the federal government should make sure all fees are disclosed to consumers.

Robert Rivkin, the Department of Transportation's general counsel, said government officials are looking at ways to tighten regulations on how airlines inform consumers of such fees.

"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," Rivkin said. Published fares used by consumers to choose flights don't "clearly represent the cost of travel when these services are added."

Changes under consideration would require full disclosure of "mandatory" costs, including taxes, fees and other charges paid by all travelers, as well as full disclosure of optional fees for checked bags, seat selection, refreshments, blankets and other services, Rivkin said. In addition, the department might require reimbursement of baggage fees when bags are not delivered on time, he said.

Another witness, Gerald Dillingham of GAO, noted that airlines already have administrative systems in place to provide the pricing information consumers need.

"It would not be free, but it would not be restrictive" for the airlines, Dillingham said.

In a warning to the industry, panel members asked about the possibility of extending the airline excise tax of 7.5 percent charged on airline tickets to the unbundled fees, which currently escape the tax. The tax revenue funds the Federal Aviation Administration.

Baldanza of Spirit Airlines opposed the idea, saying the additional tax could harm industry growth. Ridley of Southwest offered no view on the specific tax in question but said the airline industry already is overtaxed.