The regulatory capture of DOT by the airline industry — public interest is not considered
DOT has turned on the American public, whom they are sworn to protect. The Department of Transportation (DOT) is an example of “regulatory capture” by the airlines, the very group they are mandated to regulate. The airline industry was deregulated in 1978. Eventually, the Civil Aeronautics Board (CAB) had its responsibilities for public interest and economic regulatory responsibilities transferred to the Department of Transportation in 1984.
Further Supreme Court decisions extended the control over all aspects to the federal level, eliminating the state and local abilities to protect consumers and separating aviation consumers from the same protections afforded all other consumers in all other areas of the economy by the Federal Trade Commission (FTC) and the Commerce Department.
This is the consistent issue that DOT has chosen to ignore — aviation consumers do not have any private right of action through the state and local court systems. DOT is the regulator, prosecutor, judge, and jury when it comes to passenger rights and complaints about the aviation system. This right of regulation extends to scheduling, sales, customer service, consumer protection, advertising, air traffic control, aircraft certifications and safety.
If consumers and state and local regulators cannot get satisfaction through DOT, their next step is the federal judicial system, a far more expensive and complex judicial world than the state and local jurisdictions now out-of-bounds for aviation consumers with grievances with airlines.
For years, Travelers United has been working through the DOT and Congress to try to help consumers to level the playing field with the giant aviation company stakeholders in Washington. Travelers United has been amazingly effective, getting many consumer-friendly regulations in place. However, today aviation consumers are facing an emboldened airline industry that seems to be writing DOT missives urging fewer consumer protections and degraded customer service.
DOT repeats the airline mantra that airfares are at historic lows when adjusted for inflation. It does not look at the scores of ancillary fees and outrageous change and cancellation fees added to airfares since 2008. DOT fails to examine the service changes forced on airline passengers since the turn of the century. DOT does not examine the technology improvements, such as larger aircraft and denser seating configurations that allow airline fixed costs to be spread across greater numbers of passengers. And, DOT fails to note that the aviation industry is making greater profits today, while they provide less customer care. Plus, while the current consumer protection rules, which airlines want to be repealed, were put into effect, airline industry profits soared.
Case in point: A letter to the ranking member of the Senate Commerce Committee from James Owens, the DOT Deputy General Counsel, used words that could have been written by the airline industry urging fewer consumer protections and less prescriptive rules.
From DOT: “…the airline industry is highly competitive, and consumers continue to realize enormous benefits from our market-based system for air travel.”
Fact: The airline industry is less competitive than ever. Four airlines control more than 80 percent of all domestic flights. Plus, three airline alliances control more than 80 percent of all international flights.
From DOT: “The number of rulemakings, advisory committees, and reports to Congress required by the two bills will consume a significant portion of the resources that could otherwise be used to enforce aviation consumer protections.”
Fact: The rulemakings will provide a clear guideline for protection of aviation consumers that will save DOT time and provide clear guidelines for enforcement actions. These regulations, once in place, will save time and resources.
From DOT: “Simply put, this provision marks a return to the pre-1978 era when the federal Civil Aeronautics Board controlled domestic airline fares and other rates charged to the public.”
Fact: No provision in the FAA Reauthorization Bill affects any airfare. These rules only affect ancillary fees, which the airlines specifically claim are required because of economic reasons, such as increased fuel costs, etc. The legislation only required the airlines to justify their ancillary fees. DOT will not set any fees; however, it will require justification by the airlines.
From DOT: “The ADA was enacted because Congress and the Carter Administration recognized that market-based economies are superior to command-and-control economies in every significant respect, in part because in a free market, supply is generated to meet demand.”
Fact: Market-based economics requires open and transparent pricing for the system to properly function. Airlines are pleased to demand market-based economics for them but refuse to allow passengers a market-based, competition-driven, comparison-shopping-enabled marketplace that would ensure the operation of the free market.
From DOT: DOT, after noting that market-based economics are working for the airlines, then argue that consumers should not enjoy the same free marketplace. “We are also concerned with section 3108 of the Senate bill, relating to disclosure of fees to consumers. The provision would require DOT, within one year of the bill’s enactment, to mandate that airlines and ticket agents disclose to consumers the baggage fee, cancellation fee, change fee, ticketing fee, and seat selection fee at all points of sale.” DOT goes on to claim that knowing the full price of travel is of “limited value to consumers.”
Fact: The entire world economies and the free market system work on the principle that pricing is the single most important factor in any decision to purchase a product. Across the world, companies compete on price. Only in the “regulated” world of the airline industry are prices shrouded and comparison shopping made more difficult by official rules that allow the withholding of the full price of a service.
For consumers, knowing the full price of travel is the main economic factor considered. All studies done by airlines, universities, think tanks, and consumer groups agree on that topic. Only DOT and the airlines claim that knowing the full price of travel is of “limited value to consumers.”
Note: Everyone should know that there are serious problems with DOT when they refuse to punish an airline for unjustifiably dragging a passenger off a plane, beating him, cuffing, and taking him to jail for demanding his DOT-given rights. The DOT letter exonerating United Airlines, in this case, is shameful and another example of the painfully clear regulatory capture of DOT by the airline industry.
It appears that DOT is no longer operating by the mandate that opens the Airline Deregulation Act — it is in place to protect the interests of the flying public. Now is the time for the Senate to take a stand and demand effective regulation.
Editor’s note: This post was edited to clarify the dates of the creation of DOT and the ending of the CAB.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 11 years with Congress, the Department of Transportation and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.