BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Transcription

1 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. ) ) Notice of Proposed Rulemaking ) Docket OST ) TRANSPARENCY OF AIRLINE ) ANCILLARY FEES AND ) OTHER CONSUMER ) PROTECTCION ISSUES ) ) ) ) COMMENTS OF SPIRIT AIRLINES, INC. TO NOTICE OF PROPOSED RULEMAKING ON TRANSPARENCY OF AIRLINE ANCILLARY FEES AND OTHER CONSUMER PROTECTION ISSUES Communications with respect to this document should be sent to: Joanne W. Young David M. Kirstein Kirstein & Young, PLLC 1750 K Street, N.W. Suite 200 Washington, D.C (202) (telephone) (202) (facsimile) Attorneys for SPIRIT AIRLINES, INC.

2 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. ) ) Notice of Proposed Rulemaking ) Docket OST ) TRANSPARENCY OF AIRLINE ) ANCILLARY FEES AND ) OTHER CONSUMER ) PROTECTCION ISSUES ) ) ) ) COMMENTS OF SPIRIT AIRLINES, INC. TO NOTICE OF PROPOSED RULEMAKING ON TRANSPARENCY OF AIRLINE ANCILLARY FEES AND OTHER CONSUMER PROTECTION ISSUES Spirit Airlines, Inc. ( Spirit ) submits these comments in response to the Notice of Proposed Rule Making, titled Transparency of Airline Ancillary Fees and Other Consumer Protection Issues, Docket OST , published at 79 Fed. Reg , May 23, In reviewing the proposed rules, Spirit starts from the premise that Congress deregulated the airlines in The Airline Deregulation Act was explicitly enacted to ensure that market forces, dictate airline fares and services. The Department has stated that following deregulation, it retains only extremely limited powers with respect to... airfares and related conditions and authorizes regulation only when there is compelling evidence of consumer deception or unfair methods of competition. Petition of Joel Kaufman re Ticket Change Penalties, Order , 2 (DOT Mar. 18, 2003). This high burden of proof recognized by the Department is intended to prevent overregulation which stifles innovation and new methods of competition. Imposing

3 Page 2 new rules simply because some members of the public or certain ticket agents might prefer them is not permitted under current law. The Airline Deregulation Act statement of policy, codified at 49 U.S.C , instructs the Secretary of Transportation to consider the following in the public interest: (12) encouraging, developing, and maintaining an air transportation system relying on actual and potential competition- (A) to provide efficiency, innovation, and low prices; and (B) to decide on the variety and quality of, and determine prices for, air transportation services. Unless a regulation is necessary to prevent compelling and demonstrable unfair or deceptive practices, it should not be imposed as it is not in the public interest. The proposed regulation will lead to less consumer choice and higher prices - action contrary to the clearly stated goals of deregulation. As the leading ultra-low cost carrier (ULCC) in the U.S., Spirit has substantially redesigned its website over the last four years to provide dramatically improved transparency to customers regarding its bare fares and charges for optional services. At the same time Spirit has reached out to travel agents in an effort to make information on optional charges available to them. Contrary to GDSs and some travel agents position, every airlines best interest compels them to ensure that customers know what they are paying before they buy. As the lowest fare airline (even when ancillary charges are included), complete transparency benefits Spirit. However, rules that impose additional costs but provide only small, if any, consumer benefits are not in the public interest.

4 Page 3 Spirit is commenting on the proposed rules discussed in: 1, 2, 7, 8, 9 and 10(d) of the NPRM. 1 To summarize its views: The Department lacks the authority to treat meta-data search engines as ticket agents as they are not a part of the process of selling air transportation to consumers. In addition, the Department acknowledges these search engines may not present any problems to the traveling public. Preemptively regulating any entity is unnecessary and could curtail efficiency and innovation in a highly competitive industry. Mandating specific relationships between air carriers and ticket agents prevents the air transportation industry from relying on market solutions and will raise airline costs while impeding innovation and efficiency. Higher costs translate into higher fares. GDSs already have strong and limiting contracts, which prohibit or restrict new distribution strategies among carriers. A mandate will strengthen GDS negotiating power and proliferate market inefficiencies by discouraging air carriers from investing in innovation. Through its own initiative, Spirit has ensured ticket agents (including GDSs) have access to information regarding its most popular ancillary services and provided them with means to sell these services to consumers. Spirit s efforts were based on the needs of the market not a mandate. Ancillary fee disclosures should not be subject to additional regulation. While ancillary fees may have confused or surprised a reasonable consumer five years ago this is no longer the case. The Department seemingly ignores that virtually all consumers have sufficient information and resources to make rational and efficient decision for 1 Spirit supports the rules proposed by the NPRM regarding establishing minimum customer service standards for ticket agents (5) and disclosure of code-share service (6) for the reasons set forth in the notice.

5 Page 4 themselves. In addition, the proposed regulation oversteps the Department role in regulating unfair and deceptive practices by failing to show substantial monetary or economic injury and consumer harm. Sprit fully agrees that undisclosed bias and misrepresentation by omission by ticket and travel agents should be eliminated from electronic displays of routes and pricing. Consumers and their agents should be able to make informed decisions connected to the air transportation they purchase. Whether a carrier s routes are not shown at all or an air carrier provides incentives for an electronic display to give it a display advantage, agents should disclose these omissions and biases to consumers. Restriction on post-purchase price increases should be limited to baggage. The number of bags needed for a trip is the one add-on a customer may not know for sure until shortly before the trip. Consumers typically decide whether to buy a specific seat when a ticket is purchased. Increases in the cost of in-flight services are minimal. On the other hand, the costs that would be associated with tying all charges back to the price as of the date of the ticket purchase would be excessive for the industry. The airlines provide notice that prices are subject to change, which should be sufficient. The Department should not require gate attendants to provide a verbal explanation of the terms of vouchers given to volunteers in an overbooking situation. These volunteers have time to read the terms and conditions. Gate personnel simply do not have time to give oral tutorials while trying to manage the boarding process and dealing with myriad issues raised by customers at the gate. There is no evidence that a significant number of volunteers are misled about the terms of a travel voucher.

6 Page 5 Spirit has one of the most informative airline websites. It provides customers a breakdown of their base fare and government taxes plus the cost of fuel for their trip based on the distance flown. Under the current rules, travel agents provide a link to Spirit s optional fees page which can be quickly viewed by consumers. Further regulation is not necessary. SPECIFIC COMMENTS Proposal 1: Meta-Search Engines Should Not be Classified as Ticket Agents. The Department proposes to regulate meta-search engines such as Google and Kayak as ticket agents. Spirit believes including these services as ticket agents exceeds the Department s statutory authority, will place undue burdens on both airlines and meta-search engines, and is not necessary to protect consumers. In Sabre Inc. v. Department of Transportation, 429 F.3d 1113 (D.C. Cir. 2005), the court described the characteristics of entities the Department could designate as a ticket agent. Under 49 U.S.C (a), an entity must act: (i.) either as a principal or agent; (ii.) sell, offer for sale, negotiate for, or hold itself out as selling, providing, or arranging for; (iii.) air transportation, to fall under Department jurisdiction. Id. at The court explained these functions as specific activities, which define the Department s statutory limits. Id. at Meta-search engines fail the test s first two prongs. Meta-search engines are not principals or agents in the selling, providing, or arranging of air transportation. They have no agency relationship with the airlines and merely function as information depots, directing consumers toward other entities that engage in commercial exchanges. They are not part of the booking system which includes Global Distribution Systems (GDSs), internet and brick and

7 Page 6 mortar travel agents and airlines. These sites provide the transactable services necessary for arranging and selling air transportation to the public. Meta-search engines differ substantially from those sites and booking systems. As noted in Sabre, GDSs (and sites such as Orbitz not at issue in Sabre) provide functions tied directly to the transaction process, a necessary property of a ticket agent. Id. at The court listed these functions: accepting payment information, processing credit card authorizations, providing e-ticketing information, and physically issuing tickets on the airline s behalf. Id. at (internal citation omitted). Meta-search engines do not book flights at all. They simply provide information an electronic equivalent of the old paper Official Airline Guide (OAG) publication. Consumers make initial searches based on a variety of criteria to enable them to narrow their preferences. Kayak, for example, directs customers to the site where the actual exchange/purchase occurs after they select a specific flight. Indeed, Kayak posts a large disclaimer informing customers that they are leaving the site and will book their ticket on the site Kayak directs them to. Then, consumers interact with the airline or agents who actually sell, provide, or arrange for their transport. Further, meta-search engines often have a completely different, if any, pecuniary relationship with the airlines. As the NPRM notes, meta-search engines typically do not receive compensation through the purchase of specific flights, but may be compensated by some airlines with normal advertising fees and other means not connected with any specific transaction. 79 Fed. Reg at

8 Page 7 Google and Kayak gain their traffic like newspapers gained readership: building their reputations by providing the public with reliable information. In this respect, they function more like newspaper advertisements an analogy the court rejected for GDSs in Sabre than GDSs or travel agents. The court distinguished GDSs which receive commissions related to sales, from newspapers, which neither sell the merchandise they advertise nor charge their readers or advertisers fees when a reader makes a purchase as a result of a newspaper advertisement. Sabre, 429 F.3d at Like newspapers, meta-search engines are often compensated based on the expectation a certain number of people will view the site within a certain time frame. Ignoring this key distinction, the Department proposes to define meta-search engines as ticket agents regardless of the manner in which they are compensated. 79 Fed. Reg. at This broad definition would be directly at odds with Sabre, where the court held the most [significant] factor it weighed in determining that GDSs could be considered ticket agents was that GDSs are not paid for providing information but for making bookings. Id. The proposal also conflicts with the Department s previous policies. The NPRM describes this regulation as merely clarifying the definition of a ticket agent. 79 Fed. Reg. at The Regulatory Impact Statement even claims it is already generally understood, without specifying by whom, that treating meta-search engines as agents is a near-universal practice, and only meta-search engines themselves have not previously considered themselves to be subject to the Department s authority in connection with the display of air transportation itineraries. U.S. DEP'T OF TRANSP., INITIAL REGULATORY IMPACT ANALYSIS FOR PROPOSED CONSUMER RULEMAKING REGARDING TRANSPARENCY OF AIRLINE ANCILLARY FEES AND OTHER CONSUMER PROTECTION ISSUES (Regulatory Impact Statement) 37 (Apr. 16, 2014).

9 Page 8 Certainly, the Department has not understood these firms to be ticket agents. It has explicitly excluded sites that function as information repositories. In its final rule regarding Computer Reservation Systems (CRSs), it excluded the type of information only websites such as meta-search engines. 69 Fed. Reg. 976, The Department eschewed jurisdiction over firms that provide a link to other sites where bookings can be made, does not provide a booking function itself, and presumably is not charging airlines any fees. Id. While some meta-search engines charge airlines for internet traffic or bookings provided through their portals, this is not an intrinsic feature, and, regardless, they never provide booking services necessary to define them as statutory ticket agents. The Department considers such a sweeping regulation out of concern that meta-search engines may not provide all of the disclosures required by the Department and enable consumers to purchase the ticket from a GDS or airline website, after bypassing the pages containing... consumer protection information that the Department requires Fed. Reg , The Department acknowledges that it is not aware of whether there is a widespread problem of consumers being confused by meta-search engines. Id. The lack of any evidence of a problem means there is no unfair or deceptive practice that need be remedied in connection with these sites. Meta-search engines simply supply air travelers with the salient information they need to make travel choices on a timely and proper basis. They transfer customers to websites where all the additional information is available. Both Google and Kayak already provide prominent links to an airline s baggage policies when consumers search for a flight. When these sites redirect consumers to Spirit s system to purchase the ticket, consumers will not bypass any of the consumer protection information they

10 Page 9 would have viewed if they searched for the flight directly on Spirit s website. The first thing a consumer sees on Spirit s website after the meta-search engine refers them is a large disclaimer stating: Our fares are fully unbundled. A ticket with us gets you and a personal item from A to B. We call this the Bare Fare. Additional charges for baggage, advance seat assignments and any changes apply only if you add these options. Spirit caters to price-conscious air travelers. Its business model has worked well for the portion of the consumer market it serves. Sprit will continue to work with meta-search sites to provide consumers with the information they need while fulfilling its contractual obligations and remaining sensitive to market pressures. However, mandating meta-search engines to provide all the disclosures required for a ticket agent for each airline, most of which they do not have any direct pecuniary relationship with, will impose large IT costs on the sites. Despite the Regulatory Flexibility Analysis s claim that this proposal will have no impact on small entities, these higher costs could impel some meta-search engines not to list the fare information on smaller carriers, which will limit consumer choice. U.S. DEP'T OF TRANSP., INITIAL REGULATORY FLEXIBILITY ANALYSIS FOR PROPOSED CONSUMER RULEMAKING REGARDING TRANSPARENCY OF AIRLINE ANCILLARY FEES AND OTHER CONSUMER PROTECTION ISSUES 8 (Apr. 16, 2014). The NPRM acknowledges the evolving nature of consumer-carrier interaction. This evolution has benefited both parties. The best course is to allow these interactions to proliferate without government-mandated restrictions in the preliminary ticket-purchasing stage. Proposal 2: The Department Should Not Mandate Display of Ancillary Service Fees Through All Sales Channels

11 Page 10 The NPRM proposes to require carriers to disclose additional fee information for basic ancillary services defined as first checked bag, second checked bag, one carry on item, and advanced seat selection to either all ticket agents a carrier provides its fare information to or to all ticket agents that a carrier provides its fare information to and also sells air transportation directly to consumers. 79 Fed. Reg In addition, both proposals would require ticket agents to disclose air carriers basic ancillary fee information via a link or rollover on the first page that displays a fare in response to a specific flight itinerary search in a schedule/fare database. Id at The Department proposes these additional disclosure requirements out of concern that fees for unbundled services and products are insufficiently transparent which hinders individual passengers and corporate travel companies when determining the true cost of travel and/or compare different airline flight and fare options. While ancillary fees may have surprised or confused consumers five years ago, this is simply not the case today and under the current rules, consumers or travel departments can find this information with little additional effort. The Department should not lose sight that its role is to prevent unfair or deceptive practices, not simply to impose regulations just to make it somewhat more convenient for some customers to see a baggage or advance seat purchase price. In this regard, Spirit believes the current system of disclosure for ancillary fees established by the Enhancing Airline Passenger Protections rulemaking i.e. the disclosure requirements in 14 CFR eliminated any potential for unfairness or deception and easily enables consumers to ascertain all of the fees associated with ancillary services. Section already requires air carriers, an agent, or a ticket agent:

12 Page 11 to clearly and prominently disclose on the first screen in which the agent or carrier offers a fare quotation for a specific itinerary selected by a consumer that additional airline fees for baggage may apply and where consumers can see these baggage fees. In addition, the regulation requires carriers to prominently disclose all optional service fees with a conspicuous link from the homepage. These requirements ensure all consumers are notified that ancillary charges may apply and directs them to where they may view such fees. Spirit does not believe there is a lack of transparency of fees associated with unbundled services. Since Spirit adopted the ULCC business model, price conscious consumers have flocked to Spirit and the vast majority of these customers are fully aware of the additional charges for services they may wish to purchase. Spirit puts emphasis on its bare fare, meaning the basic price for travel from point A to B (including taxes and a personal item.) Spirit prominently advertises this on its website through videos and tutorials as frill control, giving the customer the choice to pay for some or none of the ancillary service options are not provided within its quoted fare, such as baggage, drinks, and advanced seating. Spirit provides clear and prominent links to information on all of its optional services. Spirit s continued increase in market share in the past seven years testifies to the popularity of its low fare, unbundled product with previously underserved, price-conscious consumers. The Department asks if it decides to maintain the current disclosure requirements, whether it should require carriers to list fees for advance seat assignments in a more specific manner than is currently required. The Department should not focus on advanced seat assignment as a basic ancillary fee. Spirit believes any new requirements regarding advance seat selection are unnecessary and likely deceptive. Spirit, and all airlines, offer all customers a free seat. Requiring the airline to tell all customers that there is a fee for an advanced seat

13 Page 12 assignment may deceive and confuse them into thinking this fee is mandatory and cause them purchase a product they already have. Spirit disagrees with the Department that modifications to the existing disclosure requirements are necessary. As noted above, the Department has set out two proposed remedies for something Spirit believes is not a problem. Specifically: 1. Require each carrier to distribute certain ancillary fees, as well as fare, schedule, and availability information, to all ticket agents (including GDSs and meta-search engines). It would not require carriers to distribute ancillary fees to ticket agents that do not distribute its fare, schedule and availability information. Each airline would continue to determine where and how consumers may purchase its ancillary services; but the carriers would be required to provide usable, current and accurate information on its ancillary fees to any ticket agent who sells its product. 2. Mirrors the first proposal, except it would not require carriers to distribute information on ancillary fees to GDSs or other intermediaries since they would not be subject to direct consumer notification requirements. It would require carriers to distribute the information to all ticket agents that sell tickets directly to consumers. This proposal would specifically exempt carriers from having to provide ancillary fee information to meta-search tools such as Google and Kayak. 79 Fed. Reg , Both proposals would require the disclosure of basic ancillary fee information by air carriers and ticket agents via a link or rollover on the first page that displays a fare in response to a specific flight itinerary search required in a schedule/fare database. Id. at Spirit strongly opposes requiring airlines to provide basic ancillary fee information to GDSs. Even if the Department had sufficient evidence to conclude that current regulation did not eliminate any unfair or deceptive practices related to disclosure of basic ancillary fees, a government mandate is not necessary as the market and the competitive nature of the industry will solve issues resulting from the display of ancillary fees. If the government mandates the

14 Page 13 display of basic ancillary services at all phases of the ticket purchasing process, it will stifle much needed innovation in the sale of air transportation. Mandating carriers to provide this information to GDSs locks in existing structures in dated technology and creates disincentives to adopting more efficient systems. As technology continues to develop, business models will continue to become more efficient. As the NPRM points out, ticket agents often have contractual restrictions with GDSs which prohibit airlines from engaging in new methods of distribution, and the GDSs may very well pressure carriers to provide information in the existing format for fare filing. 79 Fed. Reg Mandating that carriers provide GDSs with this information entrenches the GDSs market power and prevents the industry from exploring other models of business. Market inefficiencies ultimately harm consumers. Forcing airlines to distribute ancillary information via GDS could cause a major disruption in the distribution industry and could be the tipping point for market fragmentation as the increased financial and technical burdens may increasingly force airlines not to distribute through all GDSs. Flexibility is vital in allowing market forces to work for the benefit of the consumer. The Regulatory Impact Statement suggests airlines are exhibiting a form of behavior known as myopia in which they focus on their short term benefits, (greater control of access to customers or decreased fees to GDSs) to their long term detriment (greater overall consumer dissatisfaction and demand). - REGULATORY IMPACT STATEMENT at 7. Spirit emphatically disagrees with this assertion, which once again substitutes the well-meaning conjecture of the government for the judgment of businesses whose very success depends on their ability to meet consumer needs and adjust rapidly to evolving consumer preferences. Spirit has worked

15 Page 14 diligently to ensure greater overall consumer satisfaction and demand by developing a method to distribute its ancillary services to GDSs and other agents so that they may disclose and sell these services to consumers. Yet GDSs and Travel Agencies are not fully utilizing the functionality Spirit offers because they have been intentionally waiting for a mandate similar to the NPRM so that they may begin charging airlines such as Spirit for these services. 2 Spirit agrees with the Department s decision not to mandate carriers enable ticket agents to sell the carrier s ancillary services. 3 While Spirit does not oppose ticket agents selling ancillary services, competitive market forces will allow this to occur spontaneously. Spirit recently created a process using existing technology whereby consumers could pay baggage charges via all airline channels of distribution including GDS channels at the time the ticket is purchased. Spirit embarked on this effort, on its own, because it realized consumers will benefit from having the most readily available popular ancillary services available for distribution via these channels. Market pressure, not government mandate, spurred this innovation. Yet, GDSs have not fully utilized the opportunity Spirit has provided them, because they seem to be waiting for a mandate that would allow them to surcharge airlines for functionality that they can provide for free. New GDS charges would be reflected in higher consumer fares and would most harm the price conscious consumers Spirit caters to. 2 While DOT proposes to protect carriers from initial disclosure fees to the extent that carriers have existing contractual relationships with ticket agents acting as intermediaries its proposal does not prevent GDSs from later charging to distribute basic ancillary fees. 79 Fed. Reg. at, Such a proposal gives GDSs and other ticket agents considerable leverage in future contract negotiations as the NPRM proposes it would be unlawful to provide consumer fare information that does not include fees for basic ancillary services. DOT Meeting with A4A August 7, 2014, DOT-OST (Sept. 15, 2014) (emphasis added); see NPRM at Thus, carriers are forced to give GDSs this information despite whatever astronomical price GDSs may ask for the service. 3 Should the Department change its mind and ultimately decide to require transactability, Spirit urges the Department to issue a supplemental NPRM as the current NPRM does not propose this requirement and the industry is not able to comment on the impact of such a requirement as no details were published as to what may be required.

16 Page 15 The Department states that once a rule is in place, failure of airlines to share... fee information in an up-to-date and accurate fashion would be considered an unfair and deceptive trade practice in violation of 49 U.S.C Fed. Reg Under the current rules, agents provide a link to the carriers website listing of optional services, which would be current. Under 49 U.S.C , the Department must first find that the current disclosure regime is unfair or deceptive before it can impose a rule. 4 It cannot simply decide to impose a rule, without such a finding and then say violation of the new rule would be an unfair or deceptive practice. While the Department has authority to prevent unfair and deceptive practices, its role is not to regulate every practice that a small minority of passengers may find inconvenient. 5 It is settled law that to constitute an unfair or deceptive practice the challenged behavior must cause substantial monetary or economic injury, not outweighed by countervailing benefits, and where the injury cannot reasonably be avoided by consumers. American Financial Services Association v. Federal Trade Commission, 767 F. 2d 957, (DC Cir, 1985). In addition, the record relied on by the Department must contain substantial evidence that there is a serious unfair or deceptive practice that must be stopped or prevented. Id. at 985. Spirit believes there is 4 The Department acknowledges it does not have comprehensive evidence to establish this. See 79 Fed. Reg ( [W]e lack the sufficient data to be able to quantify the extent of this problem for consumers. ). See also GEO. WASH. U. REG. STUD. CTR., PUBLIC INTEREST COMMENT ON THE DEPARTMENT OF TRANSPORTATION S PROPOSED RULE TRANSPARENCY OF AIRLINE ANCILLARY FEES AND OTHER CONSUMER PROTECTION ISSUES (REG. STUD. CTR. COMMENT) 6 (Sep. 16, 2014) (noting the Department has not established that any unfair or predatory treatment is occurring ). 5 For example, the Department cites to consumer difficulty in comparing different airline flights and fare options as a reason for this regulation. 79 Fed. Reg. at Such reasoning is not to remedy an unfair or deceptive practice but instead is the government mandating one regulated entity must provide another regulated entity with fee information so consumers may comparison shop more easily. DOT Meeting with A4A August 7, 2014, DOT-OST (Sept. 15, 2014). There is no precedent establishing DOT should require additional regulations for such minute consumer inconveniences. Id.

17 Page 16 no injury and in any event, consumers can easily avoid any harm by clicking on the link from the agency site to the carrier site to review ancillary fees. The Department acknowledges this regulation will impose a high financial burden, which would outweigh any monetary benefits by approximately $21 million dollars placed, on the industry. Rather than justify such an enormous monetary burden, the Department simply states that there are unquantified/non-monetized benefits including greater competition and lower overall prices for ancillary service fees and greater efficiency by consumers in flight purchases. 79 Fed. Reg. at Spirit does not agree that a mandate from the government will lead to these benefits because the regulation only creates and enhances market inefficiencies. Instead, the carriers, and ultimately consumers, will pay high fees to GDSs and other ticket agents for a service that that the market could, and will, create. Similarly, and as noted above, a reasonable consumer is aware of airline ancillary fees. Spirit has ensured there is no unfair or deceptive practice through its effort to ensure its ticket agents have access to up to date price information regarding its ancillary fees as well as the ability to purchase at least the most significant of these services through GDSs and other ticket agents. These efforts, in connection with the lack of substantial monetary or economic injury, runs against the Department s argument there is a need for regulation and do not meet the legal definition of an unfair or deceptive practice. American Financial Services Association, 767 F.2d at 957, , 985. If the Department nonetheless goes forward to adopt one of its two proposals, Spirit views the second proposal as less disruptive to existing relationships. The second proposal would be less intrusive and cause fewer market distortions as it mandates carriers to distribute

18 Page 17 basic ancillary fee information to all ticket agents who the carrier permits to distribute its fares, schedules and availability if a ticket agent sells the carriers tickets directly to consumers (which also obviates any need to provide basic ancillary fee information to meta-search engines). Spirit agrees with the advocates the NPRM cites who stress the second proposal s approach is less intrusive and would cause less market distortions as it (1) permits carriers to decide what intermediaries to use if any and to only provide ancillary fee information to ticket agents acting as sales outlets which minimizes government interference with business arrangements and (2) may provide some opportunities to develop new and innovative technologies and methods of distribution of air transportation while allowing carriers the freedom to use traditional methods if it makes commercial sense for them to do so. 79 Fed. Reg. at While still not the best answer, the second proposal is more limited and thus less damaging to the industry and consumers than the first proposal. Spirit stresses that should the Department adopt its first proposal, it may have to eliminate distributing via one or more of the GDSs entirely due to costs, negotiation hurdles, functional ability, and/or business requirements. Spirit believes this would harm numerous consumers, especially Spirit s economically conscious customers who would have diminished access to its low priced product. Proposal 7: The Department Should Require Identification of Carriers Not Disclosed on Ticket Agent Websites Spirit supports the Department proposal to require online ticket agents to disclose carriers they do not sell tickets for serving a particular market. The rule should apply to all online ticket agents, regardless of size. This is necessary to protect consumers from misrepresentation via

19 Page 18 omission and ensure that they can look to other sites to obtain an accurate picture of available choices when making their purchasing decisions. The Department asks whether websites should make the disclosure on the home page or with each search. Spirit believes that it is important that websites show this information on the home page and with each search. As the Department notes elsewhere in the NPRM, consumers can bypass the homepage of a ticket agent, so requiring the disclosure at the search page ensures they receive the necessary information. 79 Fed. Reg. at The Department seeks suggestions on the content of the disclosure. To ensure consumers have the most information, ticket agents should be required to include a statement that they do not sell tickets for all carriers in the market and then list those that are not sold with a link to those carriers home page. 6 Spirit agrees with the Department that consumers deserve complete information regarding the carriers their ticket agent does not display when deciding to book a flight. Id. at Failing to inform consumers that there may be other flight options beyond those the agent displays deprives them of meaningful consumer choice. Failing to learn about Spirit s flights harms price sensitive consumers, who disproportionately purchase their tickets online. See Nelson Granados, et. al., Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry, 23 INFO. SYS. RES. 164 (2011) (using empirical studies to determine that consumer demand in the Internet channel is more price-elastic for... online travel agencies ). 6 Agents either include an airline s flights or they do not for all markets. So they only need a link to a single list which would state the airlines that are not sold by that agency.

20 Page 19 Not disclosing this information effectively makes a misrepresentation via omission to consumers which would be a deceptive practice under 49 U.S.C The NPRM states consumers may believe they are searching all possible flight options for a particular city-pair market when in fact there may be other options available. 79 Fed. Reg , In other words: the omission is deceptive because it misleads consumers into thinking there are no other options for flights. Given the importance of full disclosure to maximize consumer choice and prevent misrepresentation, Spirit sees no reason to exempt small online travel agents from the regulation. Spirit understands that the Department may be concerned that the costs of implementing the regulation would unfairly burden small firms. However, in contrast to proposal 2 on ancillary fees, requiring a website to display a disclosure will impose minimal costs. The risk to consumers if the regulation does not apply to all ticket agents greatly outweighs any minor inconvenience and expense for small online ticket agents. Proposal 8: The Department Must Prohibit Undisclosed Airfare Display Bias by Ticket Agents The Department proposes prohibiting undisclosed display bias in any presentation of carrier schedules, fares, rules or availability. As noted in the NPRM, the Enforcement Office has learned of allegations that certain ticket agents, including GDSs, have biased their displays to disadvantage certain airlines in the course of hard-fought contract negotiations. 79 Fed. Reg. 7 Under both common law fraud and other agencies interpretation of unfair and deceptive practices, non-disclosure and omissions can be deceptive. See, e.g., FTC Policy Statement on Deception, FTC (1983), available at (noting that an omission of material information, the disclosure of which is necessary to prevent the claim, practice, or sale from being misleading can be a deceptive practice).

21 Page , Ticket agents have allegedly fostered these biases through the listing of available itineraries displayed in response to searches by consumers and/or travel agents on their websites. Spirit strongly agrees with the Department s proposal to prohibit undisclosed display bias by ticket agents as set forth in proposed Part Undisclosed display bias by ticket agents distorts the air travel market and subjects consumers to misleading and unfair information. Bias harms consumers, who themselves or through their travel agent, are often unaware their search results are tailored to favor certain carriers due to undisclosed contract negotiations or payments. This alleged practice particularly harms Spirit, as the company makes most business decisions with the goal of providing consumers with the lowest possible price. The Department s final regulation should require ticket agents to disclose all companies, air carriers and foreign air carriers offering incentives, a summary of each incentive and how the bias affects the electronic display of prices and routes. Similarly, the requirement should apply to incentives travel agents earn. These disclosures will inform consumers who are ultimately affected of a site s bias and help them to understand how the electronic display of fares and routes are being manipulated. Similarly, Spirit agrees with the Department that carriers and ticket agents should provide airfare information electronically to display the lowest generally available airfares and most direct routings that meet the parameters of the search in response to the inquiry of an airfare quotation for a specific itinerary. Spirit also agrees with the Department that any regulation should prohibit biasing that would display less direct routings that are equivalently priced or 8 Spirit does not agree that this rule should apply to carriers since carriers would not show listings for other airlines except possibly alliance partners where displays are likely agreed through negotiation and because a reasonable consumer would assume that an airline s own website would naturally favor that airline. On the other hand, most customers would assume that a ticket agent selling on multiple airlines would not bias the information displayed.

22 Page 21 more expensive fares with an equally direct routing displayed more prominently or earlier in search results list than a more direct routing or a lower fare. Proposal 9: The Prohibition of Post-Purchase Price Increase for Ancillary Services Must be Limited to Baggage Fees The Department proposes continuing to limit the prohibition of post-purchase price increases for ancillary services to carry-on bags and the first two checked bags but is also considering capping the price of all ancillary goods and services to the price at the time a passenger purchases his or her ticket. Spirit urges the Department to limit the prohibition to carry-on bags and the first two checked bags. Expanding the prohibition would create major logistical difficulties for airlines and consumers as well as raise prices. Importantly, the proposal does not address any substantive problem. As the NPRM notes, the D.C. Circuit upheld the Department s prohibition on post-purchase increases for certain baggage fees. Spirit Airlines, Inc. v. Dep t of Transp. 687 F.3d 403 (D.C. Cir. 2012). The court declined to rule on the Department s authority to expand the prohibition to other ancillary products, and described baggage transportation as very commonly purchased and practically necessary services, which made the Department s policy reasonable. Id. at 417. The NPRM calls transporting baggage intrinsic to transportation. While some customers may enjoy other ancillaries, specific seat selection, peanuts and sodas are certainly not practically necessary services or intrinsic to air travel. Spirit agrees with the Department that expanding the rule beyond baggage would place a great logistical and financial burden on carriers. 79 Fed. Reg. at Implementing the price freeze for bags already has imposed heavy IT and other costs on Spirit and other airlines. Spirit anticipates a price freeze on numerous other services linked to the date a ticket was

23 Page 22 purchased would be an IT and logistical nightmare, would be significantly more expensive, would force Spirit to raise ticket prices and could confuse and dissatisfy passengers as they pay different prices for the same drink or sandwich on board. While the prohibitions are designed to help consumers, they will force low cost airlines to raise prices for most passengers. As the NPRM notes, prohibiting post-purchase price changes for all ancillaries could incentivize carriers to set the prices for ancillary prices artificially high. Id. The Department s proposal could raise costs in other respects. Charging for ancillaries on flights is not a unique situation that requires regulation. Rather it is just one example of what economists call primary and aftermarket pricing. Many primary products and services have ancillary aftermarket products. For example, once a consumer purchases a ticket for a ballgame, movie, or concert; he or she will have limited consumer choice for products purchased at concessions. Yet no one would suggest a sports stadium could not change the price of a hot dog after a fan purchased a ticket. Spirit s approach to pricing is supported by many economists who have found that aftermarket pricing actually results in more affordable products and services for those who do not wish to purchase the aftermarket goods. See, e.g., Richard Gil & Wesley Hartmann, Empirical Analysis of Metering Price Discrimination: Evidence from Concession Sales at Movie Theaters, 28 MKTG. SCI (2009), available at (noting that aftermarket prices can allow producers to lower prices for the primary product and thereby increase the overall consumer welfare and noted that their analysis could provide guidance to the airline industry ). 9 9 While some argued these markets were unfair in the past, courts now recognize their competitive benefits and usually reject unfair competition claims. See David A.J. Godfine & Kenneth M. Vorrasi, The Fall of the Kodak Aftermarket Doctrine, 72 ANTITRUST L.J. 209 (2004) (observing that most federal courts will only consider

24 Page 23 Finally, this rule seeks to address a non-existent problem. Spirit occasionally changes the prices on optional services based on its costs and other marketing and competitive factors that every business considers when setting prices. The NPRM does not allege that airlines have gouged consumers on optional services. All airlines depend on repeat customers, and lost goodwill would outweigh any short-term revenue that an unreasonable price increase would generate. Baggage charges are the only significant option which consumers are not likely to purchase at the same time they purchase their tickets. When consumers books a flight far in advance, they may not be sure of exactly how many bags they will need, and so a post-ticket purchase price change could affect them. In contrast, when families or friends book flights together, they will know whether they want to sit together and to purchase advanced seating at the time of the ticket purchase to ensure that result. Similarly they will know in advance if they want to purchase other services like transportation for a pet or large sports equipment like golf clubs. And any price changes on snacks and beverages will be de minimis. Eliminating Spirit s flexibility in setting prices for these add-on products will harm consumers by forcing it to raise prices both on flights, and as the NPRM acknowledges, on the affected add-on products. Proposal 10 (d): The Department Should Not Require Verbal Disclosure of Material Restrictions on Travel Vouchers Offered to Potential Volunteers in Over Sale Situations Under Part 250 Spirit strongly opposes any amendment to 14 CFR Part 250 to require verbal disclosure of any material restrictions on travel vouchers offered to any passenger a carrier solicits to voluntarily give up his or her confirmed reservation on an oversold flight. The Department is restricting aftermarkets when the seller has market power in the primary market) In this case, the sale of air transportation which is highly competitive.

25 Page 24 concerned that some passengers offered vouchers will not have time to read the notice they have received before acceptance of the voucher. In a deregulated environment, such a regulation is uncalled for. First, the Department lacks any demonstrable evidence that consumers are harmed by written disclosures. It simply states, we are unconvinced that such written notice alone is adequate at times when the solicitation itself is oral and passengers are constrained by time pressure to make a quick decision as to whether to volunteer. NPRM at The Department beliefs are not enough to justify a new rule that will be highly disruptive to the boarding process and inconvenience other passengers and airline agents. Certainly the Department has not come close to showing compelling evidence of consumer deception or unfair methods of competition. Petition of Joel Kaufman re Ticket Change Penalties at 2. Just because some passengers may feel rushed and forego their opportunity to read the terms of a solicitations does not mean the practice is unfair or deceptive. Second, the Department s concern is misplaced. Spirit ensures that customers who volunteer to take a later flight are informed of the terms of the voucher Spirit provides. Spirit first asks customers to review the terms inside the voucher, then asks the customer to check a box which states I agree to the terms and conditions outlined in this card, and finally asks the customer to sign the voucher. However, it is completely impractical to require a gate agent to give a private presentation of the material restriction applicable to the travel voucher to each potential volunteer. While a verbal presentation may sound ideal, the burden on the gate agents who are dealing with numerous customers on various issues not limited to oversold flights and

26 Page 25 trying to ensure the aircraft departs on time and the customers waiting to speak with him or her, it is just not realistic. CONCLUSION Spirit shares the Department s goal of preventing deception and unfair practices and ensuring that consumers have adequate information when purchasing airline tickets. Some of the proposed regulations discussed above, such as prohibiting undisclosed and anti-competitive deals between ticket agents and air carriers and requiring online agents to inform consumers that they do not display all flights, ensure a free and fair marketplace and impose minimal costs on the industry. However, several of the proposals do not further the goals of deregulation which sought to place maximum reliance on competitive market forces. Instead, the proposals focus on issues the Department perceives as problems despite a complete lack of evidence and seek to remedy these perceived problems through regulation which create market inefficiencies and impose unreasonable costs on carriers and agents, which will result in higher prices and ultimately harm consumers. The NPRM notes that online marketing of flights has changed dramatically and continues to evolve. 79 Fed. Reg. at However, the Department responds to this progression by proposing broad regulations to cover what it acknowledges may only be potential problems, such as consumers not receiving disclosures when purchasing tickets they learn about from a meta-search engine. Spirit believes that many of the costly and intrusive proposed regulations will prevent the market from efficiently responding to consumer demands. In 2013, the airlines carried 826 million passengers, including million domestic passengers. By far the vast majority of those millions of travelers were able to successfully find

27 Page 26 a flight, purchase optional services, learn flight costs and purchase and use on-board services without the slightest problem. The free market does not solve every problem for every customer. It is not the Department s role to impose regulations to meet every demand of a small group of highly motivated consumer groups or special interests like the GDSs when millions of customers clearly have no problem at all with the current system. 10 Spirit urges the Department to defer to the market place where it can, and particularly with respect to the rapidly evolving developments that are progressively improving reasonable consumers ability to determine the total cost of their travel before purchase. As discussed, the current regulations make this information largely available, and direct cooperation between airlines and travel agents is moving quickly towards this end. Respectfully submitted, Joanne W. Young David M. Kirstein Kirstein & Young PLLC 1750 K Street N.W. Suite 200 Washington, D.C (202) (telephone) (202) (facsimile) Attorneys for SPIRIT AIRLINES, INC. 10 In July, 2014, H.R. 4156, the House bill to reverse the Department s change in EAPP-II to the fare advertising rule previously in effect for 25 years was passed. It is currently pending in the Senate. The action by the House reflects that Congress is concerned about the Department s over-regulation of the industry. The Department should apply its own stated standard by not imposing new consumer regulations which lack substantial evidence of deception under current regulations.