In April the U.S. Department of Transportation issued a new rule on fees requiring airlines and ticket agents to fully disclose all add-on costs for baggage, changes, and cancellations upfront at first instance of displaying itineraries and fares. It also required airlines to automatically and promptly refund passengers when services like checked baggage and Wi-Fi are not delivered as promised.

Airlines sued to stop the rule, and the U.S. Court of Appeals for the 5th Circuit issued an injunction suggesting that the carriers were likely to prevail on the merits, and suffer irreparable harm if the rules went into effect in the meantime. DOT itself estimates the cost to comply with the new rules in the hundreds of millions.

The court heard the case, and mostly sided with DOT but still sent the rule back for reconsideration because the agency failed to follow the Administrative Procedures Act is promulgating the final rule.

DOT Has The Legal Authority For The Rule, But Used Improper Analysis

The court determined that DOT has the ability to create consumer protection regulations under 49 U.S.C. § 41712 – that it can issue prescriptive rules and not just adjudicate specific bad behavior.

It rejected the airlines’ “major questions” analysis, which suggested that the fee disclosure issue was too significant for DOT to decide on its own under its broad mandate without specific approval by Congress, suggesting that the agency has a long history of issuing similar consumer protection measures and that this rule does not drastically alter airline industry oversight.

And the fifth circuit ruling also rejected the airlines’ nondelegation challenge, concluding that Congress provided DOT with a sufficiently clear framework for governing deceptive airline practices.

However, while DOT has general authority to pursue this rule, the rule has to pass a cost-benefit analysis and it justified the rule using a study that was completed after the notice and comment period for the rule had ended. And the court determined that this was improper because it meant airlines (and other interested parties) did not have an opportunity to comment on the justification for the rule. That was a violation of the Administrative Procedure Act. The court remanded the rule to DOT for the agency to address this procedural shortcoming.

Very Little Benefit, And You Can’t Opt Out Of The Clutter

For the most part airlines already disclose fees fairly well. This isn’t going to bring much new information to consumers, and it will add a new layer of complexity to fare search. For most passengers, at best it’s additional clutter on the screen likely to fade into the background, like terms and conditions that nobody reads.

Consumers are not even permitted to opt out of these fee displays (!) – unless the airline first gets certification from the customer that no one on the reservation will travel with a carry-on bag or first or second checked bag. You can’t even save this as a preference in your customer profile since it’s specific to each given trip.

Fees Are Already Well-Disclosed (Usually)

I used to think that fees were well-disclosed and most of the time they are. First checked bag fees have been in place for 16 years and everyone knows to expect them. They’re on airline websites, easily accessible. Most of the time there are no surprises! But I was shocked this year when JetBlue quietly raised bag fees twice last year without telling anyone, or even anyone noticing for a couple of weeks, while this rule was pending. Maybe the rule should apply only to JetBlue.

There are a few other edge cases where airlines do a bad job disclosing fees. For instance, I’ve documented the way that American Airlines sells refundable business flexible fares that entail a $500 refund fee that almost no one knows about until they go to request a refund.

Causes Longer Hold Times When You Call An Airline

Each call to reservations that involves searching for flights will take a little longer as reservations agents read out required fee information. As each call takes longer, telephone hold times will get worse – by the way, DOT does not assume that airlines will add call center agents to address this (or else that would have driven up costs of the regulation).

We’re Stuck With Seeing Only The Fees The Government Has Chosen, Even As Fees Change

The government has picked and chosen which fees matter, fixing those in place even as what fees airlines charge change. DOT has decided that consumers are supposed to know about bag fees and change fees, but not all fees. It leaves out some of the more confusing fees, for instance it doesn’t require disclosure of fees for oversize or overweight fees, where policies vary by airline.

And rules tend to remain fixed even as fees being charged change – basic economy fares for instance were largely a non-issue the last time that DOT looked at this. United and Delta are both talking about greater unbundling of their premium products but the fees that might be associated with those aren’t part of the disclosures.

Benefits Of The Rule Don’t Outweigh Costs

In promulgating a rule under its broad power to ensure a safe and efficient air transportation system, it matters whether the agency is addressing an actual problem and it also matters whether the benefits of the rule outweigh its costs.

DOT claimed that the rule will “save [consumers] over half a billion dollars every year that they are currently overpaying in airline fees.” That is simply not true.

• DOT said that consumers go on a search for fees when buying tickets, but having those fees included up front in search saves them time.

• According to DOT, that is almost the entire source of the savings (“time savings benefits are expected to range from $365 million to $484 million annually”).

• There would be some savings from forcing airlines to refund check bag fees when bags are significantly delayed. And maybe someone is paying for seats not realizing that they won’t be forced to stand if they do not do it (although an advance seat assignment reduces your chances of being bumped off a flight).

• Meanwhile DOT estimated that the rule would cost airlines “$239 million to $331 million annually.”

They needed to manufacture a consumer benefit larger than the cost of compliance in order to justify the rule, if their general authority even allows them to do it, but they do not even back out the consumer cost of having to wade through extra information, further complicating the process of buying tickets.

Ultimately they cited a study from after the Notice and Comment period closed which concluded a bare likelihood that the benefits of the rule outweighed the costs, and no one was given an opportunity to critique that work. That was a problem for the court.

We Should Encourage Competition, Not Enforce Conformity

In ordering refunds for services not provided, DOT makes a lot of sense. Deciding what information every consumer has to see before buying a ticket, when it’s rarely a surprise or hard to find information to begin with, goes too far in commoditizing the air travel market. They may be able to do it legally (if they follow the law in promulgating the rule).

• The DOT rule would benefit Southwest, which includes checked bags with every fare. It’ll make them look cheaper than competitors.

• But it moves in the wrong direction. Showing just schedule and price means airlines compete on schedule and price and not experience. Locking in – by law – that airline pricing is shown with bag and seat fees means they compete on the price of those things, and not the quality.

• It would be better to focus on information on seat width and pitch available, quality of wifi (bandwidth and latency for instance), meal service etc. Or at least to let online travel sites compete to give consumers the best, most relevant, and useful information to them in making choices.

DOT should certainly enforce refunds for services charged but not provided. But they shouldn’t lock airlines and airfare search sites into displaying specific charges in a standardized way, the same everywhere. We should be encouraging competition in meeting consumer needs, not making airline sites and Expedia displays the same forever. It’s not only seat and bag fees that matter – and even those don’t always matter!

What Happens To The Rule?

With the rule sent back for further review, DOT can still pursue much of what it set out to accomplish – if the agency decides to go through the process. And that’ll be up to the Trump administration.

In order to do that, DOT has to gather fresh input on the disputed research to address the APA violation before moving forward. At this point whether to move forward with the rule is a political question. The court gave DOT a roadmap for how to paper it, whether or not they do so is an open question.