16 September 2008

Trickery, Obfuscation? Is This Politics? No Just Another Day of Airline Pricing

The Professor is mad, very mad. I am spitting blood. I have been seething over this for a very long time. Now I cannot contain my anger any more. I am SICK AND TIRED of the way that airfares are presented. To illustrate my point here are some simple charts.

Firstly to show my point I created an entry in Orbitz to request availability from Seattle (SEA) to London. I left the defaults. This is the lowest diagram.

Looks straight forward enough. Except perhaps the information needs a little examination.

Why all the different prices and totals.

So I took this information and created a chart based on the info. Firstly I dissected the amount of tax to be paid. The resulting chart looks like this. Each notation represents an airline using its IATA 2 letter code. The number signifies the number of connections. YY is multiple airlines. This is the middle diagram

Fair enough and so far so good.

The cluster looks good for most flights with a few aberrations. However now look more carefully at the nature of the taxes. It seems to vary a lot. True… here is the chart showing the percentage of taxes as compared to the base fare.

Now I think you see what gets me angry.

So I looked at this issue and found this is not necessarily an aberration. I first noticed this about 4 years ago when I was trying to locate a frequent flyer ticket across the Atlantic. Then I dismissed it as a directional thing. BA’s charges for taxes on a “Free” ticket were $500+ Delta’s was only $45. I wrote to BA to complain. No response.

It really continued to bother me but felt it was just me being an ornery chap. However this year – I was speaking at NBTA and found that I was NOT alone. The travel managers were also very ticked off about this. And they wanted changes. So too it would seem does the European Community who has enacted legislation which demands that by the end of the year all websites selling air travel must prominently display the total ticket price INCLUSIVE of taxes and service fees.

And here in lies part of the problem. There is no standard for the application of taxes and there display. Sadly to the point – it is not getting better it is getting MUCH worse.

To illustrate my point of the misapplication of taxes – consider if you go to a restaurant. You add 15% to the bill as a tip. Some people do this from the total (like me) and round it. Others are a little more precise and take the BASE amount and then add the tip to that. So what is the problem?

There are several and here is a partial list:

1. Misapplication of the taxes. Taxes are not uniformly applied and the different taxes are not applied in some cases at all. This will result in both UNDER COLLECTION and OVER COLLECTION. Since there is no formal audit process for this with a consistent set of rules this happens a lot.
2. The ORDER of the taxes. Since this is left open to the seller – they can charge what they will in whatever order. Thus putting some taxes in different orders will change the calculation of the total taxes. Some charge taxes on top of items correctly some charge taxes on taxes incorrectly. So thus Sabre might charge a tax first then a PFC next. Others the reverse way.
3. The merging of taxes. ATPCo is supposed to be one of the arbiters of this and because the GDS and PSS systems cannot display all taxes at the granular level in the same manner they merge them together. This logic is applied inconsistently from the same data sources. So s Sabre display might use the same logic (Sabre’s way) but Amadeus does it differently. Same rule, same data, different result.
4. Misapplication of a tax. In some cases a tax is to be INCLUDED with the base fare in others it is not. This is left up to the seller. So clearly some airlines are using different logic to display taxes.
5. Even within a carrier the invocation of a tax may be different.
6. The same flight code share might have a different logic applied to it

I illustrate my point by looking at the chart below.

Now lets through in a further complication. Fees.

Seller and Airline imposed fees might also change the display. For example In Europe (Germany, Switzerland, Austria and Luxemburg not to forget Liechtenstein) all have a new fee charged by Lufthansa to any Amadeus generated booking of 4.50 Euros. Amadeus is eating this charge for now but it changes the structure of the fare total paid to the airline. Re-sellers can charge what they like and you wont know what they are until you have the final screen in front of you.

Before I make my recommendation on what to do about this, I do want to defend the rights of any player to charge any fare at any price with whatever fee they feel is appropriate. So If Ryanair chooses to charge one fare and add fees – they can do it, as long as they do so clearly.

My formal recommendation on this subject is that I believe the cause is a variety of factors – not directly as a result of malfeasance (at least I hope not) but a need by the airlines to hide their real costs from the consumers – obfuscation!!! Further poor government enforcement of taxes and the sheer volume of them charged without consideration must be addressed. So a simple solution must be made.

1. Airlines must clearly show their total charges for the ticket related fees in one. Must charge fees such as check-in, and baggage must be added to the base ticket. Optional fees must be enabled for advance purchase with a ticket and must be clearly offered to the consumer.
2. Optional Seller fees – service charges related to the same must be clearly displayed and charged consistently
3. Taxation must be clearly displayed and a benchmark created for the display and invocation of any taxes. The correct order of the taxes should be as follows:
a. International taxes
b. International security fees
c. State Taxes
d. State charges such as agricultural and security
e. Local market specific charges (eg airport related PFC)s
f. Specific ECO charges and fees
4. All taxes should follow a set of rules
a. Taxes should not be directional IE a person starting out in Country A going to Country B should not have to pay more than a person starting out in country B going to Country A.
b. All taxes should be charged on the basis of the hierarchy above
c. No tax can be charged on another tax – each tax must be a single charge tax related to a specific identifiable charge.
d. All taxes should be ordered on departure point first, arrival point second and all intermediate points 3rd.
e. All taxes should be charged equally whether the user is going one way, multihop or basic round trip.
f. Standard connection rules apply. (So for example the tax must not penalize a connection due to a way point unless that charge is specifically applied to all residents/visitors)
g. All service fee taxes must relate to their charges not the whole.
h. Either the Chicago Convention is upheld or it is scrapped altogether.

In the mean time we should be demanding government action and a class action lawsuit over the collection of too many taxes and fees unnecessarily. The excuse of one airline saying it is following the code and collecting the tax even if the money is transmitted to the government but misapplied should still keep the company open to liability for failing to interpret the law correctly.

Clear Enough…. I doubt it – but then airlines thrive on this sort of thing.

BTW if you would like to debate this issue – I am happy to do so via a podcast.


No comments: