BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. In the matter of Transparency of Airline Ancillary Fees and Other Consumer Protection Issues Docket DOT-OST-2014-0056 COMMENTS OF FRONTIER AIRLINES, INC. Communications with respect to this document should be addressed to: Howard Diamond Senior Vice President, General Counsel and Secretary FRONTIER AIRLINES, INC. Frontier Center One 7001 Tower Rd Denver, CO 80249 Robert E. Cohn Patrick R. Rizzi HOGAN LOVELLS US LLP Columbia Square 555 Thirteenth Street, NW Washington, DC 20004 +1 202 637 4999/5659 robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com Counsel for Frontier Airlines, Inc. September 29, 2014
BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. In the matter of Transparency of Airline Ancillary Fees and Other Consumer Protection Issues Docket DOT-OST-2014-0056 COMMENTS OF FRONTIER AIRLINES, INC. Frontier Airlines, Inc. ( Frontier submits these comments in response to the Department of Transportation s Notice of Proposed Rulemaking on Transparency of Airline Ancillary Fees and other Consumer Protection Issues, 79 Fed. Reg. 29970 (May 23, 2014 ( NPRM. I. Introduction. Frontier generally supports many of the Department s NPRM proposals. With respect to proposals to increase requirements to disclose ancillary fees, however, while Frontier supports the Department s goal to provide consumers enhanced ancillary fee transparency, Frontier believes that competitive market forces and the Department s existing regulations are more than adequate to inform and protect consumers. Several of the proposed rules are unnecessary and will stifle carrier innovation, differentiation, and competition. They constitute governmental micro-management, and are at odds with the Department s statutory obligation to place maximum reliance on competitive market forces (49 U.S.C. 40101(a(6. The NPRM incorrectly assumes that it is not already in the best interests of airlines in a dynamic competitive marketplace to provide consumers with timely information to make fully informed decisions about
Page 2 airline services. On the contrary, airlines that fail to meet consumer needs, including providing such service quality information, will inevitably lose out to airlines that do. Frontier is committed, and has spent considerable expense and effort, to ensure full transparency for its customers. Frontier s website is one of the most informative in the industry and already provides (without the need for a government mandate its customers with complete information about ancillary services and costs at the earliest opportunity in the booking process, with easily accessible, prominent links. Several items in the NPRM will reduce competition and consumer options, increase costs, and result in higher ticket prices. The Department needs to analyze the costs and benefits of its proposals carefully before proceeding to finalize them. At this juncture, the Department has failed to demonstrate that the significant costs and burdens imposed by several of the proposals are outweighed by any purported benefits. II. Frontier Generally Supports the Following Proposals in the NPRM. Rule 3. Frontier firmly believes that performance, on-time, and service quality data are important for consumers to compare carriers. However, a passenger can only make such comparisons if the carriers under consideration actually provide such data, either to the consumer directly or to the Department. This data gap is very real because a number of carriers are currently not obligated under the regulations to provide such data, thereby undermining the value of the current reporting-and-data regime for consumers. For its part,
Page 3 Frontier is a reporting carrier, but other notable competitors (such as Spirit Airlines and Allegiant Airlines are not. It is therefore impossible for any consumer to compare these carriers in terms of the reportable service quality metrics. To address this data gap and facilitate carrier/service comparisons by consumers, Frontier supports the proposed expansion of the definition of reporting carrier under Part 234, so that its principal competitors are obligated to provide such data. Rule 4. Rule 4 would address an issue that Frontier believes is another unfair data gap in the current monthly Air Travel Consumer Report ( ATCR whereby reporting carriers only have to provide data about their mainline operations, but not their codeshare operations. Frontier submits that this gap may incentivize mainline carriers with codeshare-operating partners to engage in certain unfair practices to boost their performance (e.g., canceling more of their regional partners flights in bad weather situations, rather than mainline operations. Moreover, since the mainline carriers use their regional carrier partners as extensions of themselves and their brands (e.g., Express or Connection, the performance of the regional carriers operating on their behalf is an important consideration in a consumer s evaluation of service/carrier options. Without the service quality data of regional carrier flights, the ATCR s value for consumers is significantly limited, providing only a partial picture of the travel experience under the mainline carrier s brand. By contrast, Frontier discloses the full experience of flying on Frontier through the ATCR. Rule 4 would ensure that a complete service quality picture of flights operating under a reporting carrier s brand is presented to consumers.
Page 4 Rule 5. Frontier supports Rule 5, which would require large ticket agents to adopt and adhere to certain customer service commitments. This rule would help level the playing field by imposing on third-party sellers of air transportation key service commitments that are already imposed on the airlines. As the Department noted, [t]hese proposals put all airline passengers on an equal footing when it comes to customer service standards, regardless of how they purchased their tickets. 79 Fed. Reg. at 29985. Such an outcome is beneficial to consumers, and thus Frontier endorses this rule. Rule 7. Rule 7 would require large travel agents to disclose to consumers the carriers whose tickets they market and sell. Airlines can make contractual and business choices about how they are distributed. However, some large travel agents create the impression that they market and sell air transportation of all air carriers today (when, in fact, they do not, and consumers are not informed when such travel agents do not offer the full array of air carriers. In either case, the consumer is disadvantaged because he or she is unaware that certain carriers are not, in fact, marketed or sold by a particular large travel agent and that the fare/service options being presented are therefore limited. Rule 7 would enhance consumer decision-making in the purchase of air transportation, and accordingly Frontier supports Rule 7. Rule 8. Frontier supports Rule 8 to prohibit undisclosed display bias by ticket agents in any Internet, computer or mobile computing device-related displays of the fares, schedule information, rules or availability of multiple carriers. If ticket agents bias fares or other information, they typically do so in favor of larger legacy carriers that have greater bargaining power than smaller
Page 5 LCCs and are willing to pay for display bias. Consequently, smaller, low-cost carriers like Frontier are unfairly disadvantaged, as are consumers. Rule 8 would enhance consumer decision-making because it would alert consumers about ticket agents that bias their search results and other information in favor of certain carriers. Rule 9. As part of the Department s second Consumer Protection Rule issued in 2011, as interpreted in a Frequently Asked Questions clarification, the Department prohibited airlines from increasing the price of any ancillary service after a ticket was purchased. Many airlines protested this rule, arguing that it would be impossible to develop systems to keep track of every ancillary service at the time each passenger purchased its ticket. As a result, the Department s Enforcement Office issued a guidance document stating that it would only enforce the prohibition on post-purchase price increases for carry-on bags and first and second checked bags, pending completion of a rulemaking addressing this issue. The NPRM proposes to modify Section 399.88 to prohibit carriers from raising the price of air transportation, baggage or any ancillary services that are purchased with the ticket. Frontier supports the Department s modification as proposed in Rule 9. This clarification properly and fairly balances the interests of carriers and passengers regarding such post-purchase price increases. In sum, Frontier supports the NPRM rules discussed above. Frontier welcomes the opportunity to compete with other airlines regarding price, performance, and service quality on a level playing field which these rules seek to ensure.
Page 6 III. Frontier Has Significant Concerns about a Few of the NPRM s Proposals, and Urges that Those Proposals Not Be Finalized. Rule 2. Frontier does not object to the Department s objective that carriers disclose the fees for basic ancillary services before the passenger purchases the air transportation. Frontier already does that with a link or rollover at the very first time on which a fare for a specific itinerary is displayed. This is a customer service that does not need to be mandated by government, but one that is best left to competitive market forces pursuant to 49 U.S.C. 40101(a(6, which requires the Department to place maximum reliance on competitive market forces. Frontier has several significant concerns about the proposal to require air carriers to disclose fees for basic ancillary services (i.e., carry-on bag, first and second checked bag, advance seat assignment to all ticket agents that receive and distribute the carrier s fare, schedule, and availability information (plus, in the case of Option B, sell the carrier s tickets directly to the consumer. See Proposed Section 399.90(b. For the reasons detailed below, Rule 2 should not be finalized. Rather, Frontier believes that the disclosure requirements already established in 14 C.F.R. 399.85 are adequate and should not be changed. First, a requirement to disclose ancillary fees to ticket agents is unnecessary because, as a result of the Department s previous Consumer Rule, customers and ticket agents already have access to this fee information on the carrier s own website within one click of the airline s homepage. As the Department recognized, Under the existing regulation, consumers may visit individual carrier Web sites to ascertain all of the fees associated with ancillary
Page 7 services. This information is in a centralized location accessible from a link on each carrier s homepage. 79 Fed. Reg. at 29980. Similarly, there is no reason to force carriers to disclose such information to every ticket agent. Like ordinary consumers, ticket agents can easily find the relevant ancillary services and fee information and provide it to their customers. Instead of imposing on air carriers the massive costs and burdens associated with creating new systems to transmit the basic ancillary service fee information to ticket agents, the ticket agent and/or customer should simply be required to go the carrier s website to access the basic ancillary service fees. The Department should simply require that ticket agents provide information on the basic ancillary service fees at the time of booking based on the up-to-date information prominently displayed on each carrier s website. Such a requirement will provide consumers with the same benefits as if the fee information was transmitted to the ticket agents albeit without the imposition of massive costs and burdens on air carriers. Second, the technology and programs do not yet exist to ensure the transmittal of the basic ancillary service fee information as the rule envisions, particularly if the fees must take into account customer-specific factors. Accordingly, Rule 2 would impose huge capital and personnel costs and burdens on the carriers to develop, test, and implement such technology and programs without any corresponding benefit. The Initial Regulatory Impact Analysis for the NPRM even recognizes that there would be substantial Initial Costs associated with the information technology to incorporate fees into the information transfer between each carrier and GDSs and to revise websites, as well as On-going Costs related to labor and longer contract negotiations between sectors.
Page 8 Initial Regulatory Impact Analysis for Proposed Consumer Rulemaking ( IRIA, at 43 (Table 11, 47-49. And, even that assessment significantly underestimates the real costs by failing to fully account for the complexity of the technology and data transfer at issue and by not properly valuing the associated opportunity costs (e.g., the significant sums spent on developing, testing, and implementing technology to handle the requirements of Rule 2 will be unavailable for carriers to invest in new distribution and technology developments. Third, the complexity and cost for each airline to deliver this information to each reseller would significantly outweigh any purported benefits. Indeed, the Department s own cost-benefit analysis estimated that the discounted costs of Rule 2 would far exceed the discounted quantifiable benefits over 10 years $46.15 million (costs vs. $25.1 million (benefits. See 79 Fed. Reg. at 29972, 29993; IRIA, at 47-49. Fourth, the Department s suggestion about providing passenger-specific basic fee information based on detailed customer information (e.g., frequent flyer and other customer subgroups should be at the option of airlines to provide. It should not be a regulatory requirement. The incremental complexity of being required to supply information on every customer subgroup to ticket agents is significant, and the benefits would never outweigh the costs. Moreover, passengers in these categories typically know to check for benefits (and how to do so. For these reasons, Rule 2 as drafted should not be finalized. If, despite the compelling reasons why Rule 2 should not be finalized, the Department decides to promulgate Rule 2, it should give carriers at least 24
Page 9 months to comply. That is the minimum amount of time necessary to develop, program, test, and implement the information technology for transmitting the basic ancillary service fee data to travel agents. The Department also should not expand the list of ancillary services (and corresponding fees covered by the disclosure proposals to include services such as in-flight wireless Internet access, seating section upgrades, food and beverages, or priority boarding. These services are not intrinsic to air transportation, and they have not traditionally been included in the ticket price, as the Department acknowledges. See 79 Fed. Reg. at 29980. Although Frontier provides information about such other ancillary services and fees in a readily accessible, user-friendly manner on its website, it should not be compelled by regulation to disseminate that broader list of fees and services to travel agents when it is already available to the public (and to ticket agents on its own website. Finally, Frontier opposes transactability for ancillary services by ticket agents and other third-party sellers. Regardless of how the basic ancillary service fee information is obtained by ticket agents and provided to consumers, Frontier opposes requiring airlines to allow travel agents to sell such services to the passenger. As the Department has tentatively recognized (79 Fed. Reg. at 29979, there should be no regulatory requirement that these services be transactable via the travel agent. Requiring ancillary services to be transactable by third parties would likely increase airline and consumer costs. It makes sense to allow such arrangements to be developed commercially, not by government fiat. To the extent that third parties are allowed to charge airlines (or consumers
Page 10 fees for such ancillary service transactions, airline costs will increase and such costs will be passed on to consumers. Tarmac Delay Rule Civil Penalty. The Department proposes to amend the current tarmac delay rule to clarify that it may impose penalties for tarmac delay violations on a per passenger basis. See 79 Fed. Reg. at 29992. This amendment would be excessively punitive and cannot be reasonably justified. The statute, 49 U.S.C. 46301, gives the Department authority to impose a civil penalty of up to $27,500 for each violation of certain laws and regulations, including the tarmac delay rule. See 79 Fed. Reg. at 29992. A violation of the tarmac delay rule applies on a per flight basis, not a per passenger basis. If the Department codifies this proposal, the potential maximum civil penalty for a single tarmac delay on a full Frontier flight could reach a massive $3.795 million (138-seat A-319 or $4.62 million (168-seat A-320. Such a maximum amount simply cannot be justified, and the current regulatory and statutory language does not support it. The Department should not finalize this proposal. IV. The Department Should Require Ticket Agents to Provide Airlines with Customer Contact Information. Frontier submits that the Department should require ticket agents to provide customer contact information to the airline(s. Although the Department has imposed more passenger notification and update obligations on carriers, the carriers face hurdles in keeping passengers informed when they are not privy to the contact information for passengers who purchased their tickets via ticket agents. At the same time, there is no real incentive for ticket agents voluntarily to provide this passenger information to carriers. Consequently, it would be
Page 11 beneficial and in the interests of travelers for the Department to require ticket agents to provide carriers with passenger contact information so that carriers can provide passengers with post-purchase information before they fly about products, services and fees, as well as operational status updates. Respectfully submitted, Howard Diamond Senior Vice President, General Counsel and Secretary FRONTIER AIRLINES, INC. Frontier Center One 7001 Tower Rd Denver, CO 80249