Wednesday, March 17, 2010

Disclosure - The government tries to do some good

In the face of all this health care nonsense it was nice to see a US Senate bill that tries to do the right thing brought up in Congress.  Recently the Washington Post reported on a Senate addendum to the bill that funds the FAA. The addendum would require Airlines and Travel agents to list and disclose all possible Fees when selling airline tickets [ ].

This is an excellent example of good government in action: requirements for transparency and regulatory truth in advertising with the government reacting to a recent trend in consumer behavior.

First, why do airlines all of a sudden have so many fees? The answer is simple: Expedia. Most people over the last few years have switched away from travel agencies (or calling airlines directly) to purchasing travel tickets on-line. Even corporate travel has moved this way, what used to be a call to your corporate travel agent is now some typing on your computer "" (etc.).  The internet has built the bazaar for the travel industry. Previously by calling airlines or travel agents you were privy to only the prices for the airline, or the airlines (only a few) the travel agent dealt with. With limited information you could only make irrational choices. For example, 10 years ago when trying to get a cheap ticket to Madrid I was told the cheapest ticket AAA could offer was 1500 USD, but after calling about 10 airlines I got down to 500 USD. Crazy eh? Today, I can be reasonably sure I get the best deal by going on one of several web pages.

However, with the convenience of the web comes the sad fact that people really don't fly their favorite airline, they fly the airline which comes up on the first row under "cheapest." As a result, each airline squeezes their prices to the bare minimum by stripping out bits of the old ticket and charging extra. Squeezing a few pennies out of the fare can mean the difference between being #1 on the list, and being #200. The only reason they don't charge more for the seat is you can't opt to fly without one.

All of this is progress,  and prices have come way down. However, for those of us who travel with luggage most of the time or who want to switch flights at the last minute (etc), we get nailed for some fee that we never saw coming after we have already booked the flight and are standing up at the airport. The Senate bill to require airlines to list possible costs is an action which levels the playing ground and puts more information in the hands of the consumers so they can make rational choices when purchasing tickets. This effort is similar to efforts by governments to require restaurants to post the contents and caloric value of their food. You can still enjoy the 1K calorie big Mac, but you know what you are getting before you eat it. Rational decision making in an open environment, with airlines it means passengers on a tight budget can get the dirt cheap tickets with no frills, or people with a bit more money to spare can buy the ticket that they want too... but still know what they are getting into upfront.

From an economic perspective this makes sense, the Government isn't putting their finger on a scale and hindering an open market. They are just making sure the market is really open; If you want to smoke in your own home that's fine, just note you are probably shortening your life. That's OK with me, it's your life.

Government regulation which puts a big fat Government finger on the scale.... that's not always a good idea.

1 comment:

Net Ghost said...

This was published by JK^2 (in case you couldn't tell). He seemed to be logged in as me though.