U.S. DEPARTMENT OF TRANSPORTATION ABANDONS
ITS REGULATORY RESPONSIBILITY
by DONALD L. PEVSNER
Many newspaper stories have been written about how the airlines have turned airline ticket provisions that were once free, or available at nominal cost, into obscenely-large profit centers.
A classic example is the change penalty on most domestic and international airline tickets. Until April 22, 2013, the standard domestic change penalty was $150 per ticket. Only Southwest Airlines does not impose domestic change penalties. On international tickets, the standard change penalty was $250 per ticket, which is about 25% of the total price of an Economy Class round-trip excursion-fare ticket to Europe. It used to be $25 before the airlines became greedy beyond any rational expectation.
The Airline Deregulation Act of 1978, which is proving to be a major anti-consumer disaster at a time when there are only four giant US airlines left to "compete", removed Federal jurisdiction over domestic airline rates, fares and charges. However, Congress mandated decades ago, and still mandates, that the U.S. Department of Transportation continue to regulate international airline rates, fares and charges.
The pertinent Federal statute is 49 U.S.C. (United States Code) Section 41501, which remains the law of the land at this writing:
"Every air carrier and foreign air carrier shall establish, comply with and enforce--
(1)reasonable prices, classifications, rules, and practices related to foreign air transportation."
A long string of legal precedents defines “reasonable” as meaning “reasonably related to the cost of providing the service.”
On July 2, 2012, this writer asked the U.S. Department of Transportation, by formal Complaint, to open an investigation into the lawfulness of the then-standard $250 change penalty imposed by most air carriers and foreign air carriers on most tickets in foreign air transportation; i.e., on international flights to and from the USA. It is eminently clear that the airlines' transaction cost to change an international ticket is practically zero when the passenger does this himself online, and less than $10 when he does it on the telephone with an airline reservations agent. Add “lost opportunity costs” created by unfilled, canceled seats, and a reasonable total cost will not exceed $35-40. (SOURCE: A prominent airline consultant who has been a senior executive for four major world airlines over the past 35 years.)
On November 6, 2012--Election Day for a twice-victorious Democratic President--the Department dismissed the Complaint. The decisionmaker, a top USDOT official named Samuel Podberesky, used the following language to evade the statutory USDOT responsibility to protect international airline passengers under the applicable statute:
"We have...decided to dismiss Petitioner's request that we open a formal investigation pursuant to 49 U.S.C. Chapter 415 into the reasonableness of the $250 change penalty imposed by most air carriers and foreign air carriers on nonrefundable tickets in foreign air transportation. 49 U.S.C. 41501 requires carriers to establish reasonable rates and rules in foreign air transportation and the Department is authorized pursuant to 49 U.S.C. 41509 to cancel a rule that is unreasonable after notice and hearing. However, in the 34 years since the passage of the Airline Deregulation Act [of 1978] , the Department has declined to use this authority to strike down fare rules in foreign air transportation. Moreover, Petitioner has not offered any specific evidence that the international change fees are unreasonable [the appropriate forum for this would have been at a formal USDOT hearing] or demonstrated why we should deviate from our long-standing policy. Passengers can choose whether to buy a refundable or nonrefundable ticket at the time of purchase [with refundable, penalty-free tickets always costing many times the price of nonrefundable tickets] and can choose between carriers offering different fare products [but all airlines except Southwest rip passengers off mercilessly on nonrefundable tickets] . If the freedom to change plans without paying a penalty is a contingency for which the passenger wants to plan, refundable tickets are available in foreign air transportation [with the added cost usually being thousands of dollars extra, rather than $250] . In our view, the public benefits in low fares found to exist under these policies could be undone by the government intrusion requested by Petitioner [spurious laissez-faire nonsense] ."
[Order 2012-11-4, Docket DOT-OST-2012-0109, issued on November 6, 2012. The entire Docket contents is available at www.regulations.gov ; just enter the Docket Number above in the box at the top of the page.]
The dollar amount of confiscatory airline ticket change penalties is appallingly large. For the year ending
June 30, 2013, there were 177,292,438 nonstop international passengers between the USA and foreign countries carried by both U.S. and foreign airlines (both outbound and inbound). It is a reasonable estimate that over 90% of these passengers were traveling on nonrefundable tickets containing the then-standard $250 change-penalty provision, as fully-refundable tickets are so expensive that no one but a fool or an expense-account businessman at an unobservant corporation would ever buy one. USDOT’s David Smallen [TEL.: (202)366-5568; EMAIL: firstname.lastname@example.org ] has advised this writer that airline change penalties imposed by U.S. airlines-only on international tickets for the year ending September 30, 2013 totaled $1,004,895,000. As U.S. carriers carry 54.5% of all international traffic to and from the USA, one must add a further $838,949,020 to cover the change penalties imposed by foreign air carriers on the remaining 45.5% of international passengers carried by them. THE YEARLY TOTAL EQUALS $1,843,844,020 for the year ending September 30, 2013. As all airlines have raised their standard international change penalty from $250 to $300 since United Airlines started this obscene ball of greed rolling on April 22, 2013, the annualized future total of international ticket change penalties now exceeds $2.2 billion, with over 5.5 million mulcted international airline passengers each year.
On February 10, 2014, Delta Air Lines increased its change penalty on longhaul international tickets from $300 to $400. It is highly probable that its “competitors” will match this unconscionable increase shortly. After all, with the U.S. Department of Transportation totally ignoring valid Federal law mandating international pricing reasonableness, what is to stop Delta (or any other airline) from increasing its price-gouging? It is not impossible to foresee a future in which international airline tickets are treated by the airlines like theatre tickets, with the entire price paid forfeited to them if the passenger does not travel as originally-ticketed.
Given a maximum reasonable change penalty charge of approximately $35-40, as stated above, the overcharge component now equals an appalling $260-360 per changed international airline ticket, meaning that the new $400 penalty charge contains a 90%+ unlawful-overcharge element. For the press, Congress and USDOT to sit on their unconcerned posteriors in the face of such unlawful and scandalous airline price-gouging is an intolerable situation.
As described above, USDOT lost its authority to regulate domestic airline ticket change penalties (and almost everything else pertaining to what airlines charge domestically) in 1978. However, the total amount of domestic change penalties (@ $200 per changed ticket) imposed by the U.S. domestic airlines is equally outrageous, if technically “legal” due to a total absence of Federal regulation. In my USDOT Petition for Rulemaking and Complaint, I sought to have USDOT order full ticket refunds on request in cases where the airlines unilaterally changed their flight schedules between the dates of ticket purchase and departure. This would have been a very nice partial end-run around the Airline Deregulation Act of 1978 on the domestic side, and an equitable remedy on the international side as well. True to form, USDOT also dismissed this count of the Petition. It is not an exaggeration to state that the rampant overreaching of the Airline Deregulation Act of 1978 cries-out for prompt Congressional re-regulation of gouges like the current airline ticket change penalties in domestic air transportation. However, given a right-wing Republican House of Representatives, and a Democratic Senate whose members don’t have to worry about paying to change their own airline tickets (special “Government Affairs” airline reservations desks in Washington coddle all Members of Congress on such issues), this is not about to happen.
In plain English, USDOT has admitted in writing that it has stubbornly refused to enforce clear and valid Federal law for 36 years at this writing, thereby flouting the clear direction and intent of Congress, to the ultimate detriment of the mulcted international airline passenger. DOT's defiance of Federal law and total abdication of its regulatory responsibility is nothing less than a rank and incredible outrage.
One would think that the leading US newspapers, and responsible Members of Congress, would be motivated to report on this major consumer story (the former) and compel USDOT to exercise its Congressionally-mandated regulatory function (the latter). So, I decided in late April, 2013 to try to do something about it in both arenas. The results were an unmitigated disaster, and a litany of unconcern, supercilious annoyance, hostility and unbridled arrogance:
(a)The high-and-mighty NEW YORK TIMES' Washington Bureau employs reporter Matt Wald as its chief aviation reporter. This worthy did not even bother to reply. At the TIMES' New York headquarters, a Business reporter who refused to identify himself brushed-off this writer with such hostility that, after I duly reamed him out, he actually called me a few minutes later with a contrite tone in his voice. Under the circumstances, I refused to speak to him further. Margaret Sullivan, the TIMES’ ombudsman, also did nothing,.
(b)The Washington POST's aviation reporter, one Ashley Halsey III, refused to reply to two voice-mail messages. When I remonstrated with his editor, one Henri Chauvin, I got such a negative reception that my response to him on the telephone was unprintable. Among other things, Mr. Chauvin (from whose name the word “chauvinism” derives) barked at me initially, “You have five minutes.” He then added that “when anyone calls my cellphone, the house had better be burning down.” (His voice-mail recording gave me his cellphone number without the pompous bluster.)
(c)Four reporters at THE WALL STREET JOURNAL--Jack Nicas, Susan Carey, Scott McCartney and a Chicago-based aviation reporter who referred me to them--totally ignored this story. So did Editorial Page Editor Paul Gigot (September 19-26, 2014).
Newspapers are a dying business, and deservedly so. In 2009, the NEW YORK TIMES went begging to the world’s richest man, Mexican telephone monopolist Carlos Slim Helu, for a $250 million loan at a whopping 14% interest rate. The loan was repaid on August 15, 2011. More recently, having paid $1.1 billion for the BOSTON GLOBE in 1993, the New York Times Company sold it on August 2, 2013 for a paltry $70 million, taking a $1,030,000,000 loss. A plethora of Ochs-Sulzberger family inheritors continues to whine loudly over the precipitous decline in their Times Company stock, while actually having to contemplate working for a living for the first time in their pampered lives. Over at the WASHINGTON POST, that Company’s only profitable (but declining) asset is Kaplan, Inc.: the test-preparation service, which grossed $2.2 billion in revenue in CY2012 amidst scandals and lawsuits involving its online university degree programs. As a direct result, the owning Graham family sold the POST to Amazon CEO Jeff Bezos for a pathetically-low $250 million, on August 5, 2013, following the demise of its NEWSWEEK Magazine. All of this is “poetic justice” for the cavalier and peremptory way in which these supremely-arrogant newspaper “institutions” routinely conduct their affairs with anyone but the rich, powerful and well-connected.
Given the welcome presence of the Internet, I would much rather write my own story with my own unedited facts, and post it on my own website for dissemination, than speak to one more unqualified, oblivious, incompetent, self-important newspaper reporter at nearly any newspaper in the nation. I have done so here.
(a)Senator Barbara Boxer's Washington office was a disorganized disaster. I wasted over three hours over the course of a week trying to reach a responsible policy staffer. Two of her senior Legislative Assistants--Lynn Abramson and Cerin Lindgrensavage--never returned several voicemail messages. Her Senior Counsel, one Brian McKeon, chided me for "bothering the staff". I told him, appropriately, to go to hell.
(b)Senator Elizabeth Warren's office provided zero assistance, though I did speak to her chief "issues" person, one Ganesh Sitaraman, who couldn't have cared less.(He has since resigned.)
(c)Senator Maria Cantwell, who chairs the Senate Commerce Subcommittee on Aviation Operations, Safety and Security (which should be leading the fight against USDOT on this issue), has a Seattle-based Chief of Staff named Jennifer Griffith who was "unavailable." I did manage to speak to a junior Seattle staffer named Christian Chiles, who at least understood the issues and sympathized with the consumer. I asked him to find me a senior Washington policy person in Senator Cantwell's office, and have them call me back to discuss them. Seventeen months later, no one has bothered to call. (The appropriate person is one Michael Daum.)
(d)Senator Charles Schumer—a notorious Senate “grandstander”-- issued a press release about fifteen months ago which asked the U.S. airlines to voluntarily roil-back their new $200 domestic change penalty to its prior $150 level. Given the realities of capitalism, and a total lack of government regulation of domestic rates, fares and charges since 1978, this was an ill-informed and idiotic pipe-dream. I thereupon suggested that Senator Schumer pressure USDOT on the international change penalty instead, where a clear Federal law mandates its regulatory enforcement function. After all, a dramatic decrease in the international ticket change penalty while a grossly-overinflated domestic change penalty remained would raise all sorts of consumer “red flags”, and probably force the airlines to lower domestic penalties as well, even without regulation. No one ever got back to me from the office of this self-promoting blowhard, who remains “Wall Street’s best friend on Capitol Hill” and who never met a hedge-fund billionaire he didn’t truckle to via preserving capital gains Federal income tax breaks on “carried interest” that none of them deserve.
(e)Senator Kirsten Gillibrand, the junior New York Senator, has not bothered to reply to my request that she proceed to pressure USDOT as well. I do not expect any response, as she is far too busy reading recent, favorable profiles of herself in THE NEW YORKER and THE NEW YORK TIMES to give a damn about the air-travel consumer in her own State: the nation’s busiest international travel market by far.
(f)Richard Swayze is a top Majority staffer at the Senate Commerce Subcommittee on Aviation Operations, Safety and Security. In two weeks, he did virtually nothing to put me in touch with senior Legislative Assistants in the above Senators’ offices. After I realized that he spent most of his time in “meetings”, and was brushed-off by him once too often, I decided that further attempts to get him to act were an utter waste of my time.
With a Congress like this, no wonder the January 8, 2013 Public Policy Poll gives its members a wretched 9% approval rating, with 85% of the polled public viewing Congress in a negative light. Cockroaches did a lot better in the same poll. From personal experience, their staffers are even worse, and insulate their entrenched, elected bosses even better than Al Capone’s “torpedoes” protected him during the “Roaring Twenties”.
The best way to force USDOT to do its job is for both Congress and the White House to "jawbone" the new Secretary of Transportation, former Charlotte, NC Mayor Anthony Foxx, who got his job by doing political favors for President Obama at the 2012 Democratic National Convention in Charlotte. A responsible press, if there is such a thing, also needs to banner this scandal across the nation.
An alternate method is for a major consumer organization like CONSUMERS UNION (publisher of CONSUMER REPORTS Magazine) to ask for a Writ of Mandamus from the U.S. Court of Appeals for the District of Columbia (or another) Circuit, that will force the Secretary of Transportation to hold hearings to determine the reasonableness of the now-$400 change penalty on nonrefundable international airline tickets. I requested that CONSUMERS UNION take such action on April 8, 2013. However, on April 19, 2013, CONSUMERS UNION refused to lift a finger, and even refused to report the story to its readers. The culprits are its (recently-retired) President and CEO, James Guest, and his successor, Marta Tellado, and its Washington-based Director of Federal Policy, Ellen Bloom. CONSUMER REPORTS prefers to peddle $14 “New Car Price Reports” to its readership, while carefully omitting to mention that the same information is available free from websites such as www.nada.com: a mockery of his organization’s sanctimoniously-proclaimed “ethics”. The Washington, DC-based consumer organization, PUBLIC CITIZEN, founded by Ralph Nader and headed by one Robert Weissman, refused to lift a finger. So did the fabled Ralph Nader himself. FLYERS’ RIGHTS and CONSUMER TRAVEL ALLIANCE have thus far refused to do anything since I first contacted them in April, 2013. As of September 26, 2014, only FLYERS’ RIGHTS shows any signs of being willing to work on this matter: probably via action in the U.S. Court of Appeals for the D.C. Circuit.
For a consumer advocate such as myself to try to penetrate the White House political swamp without being a large campaign donor first is ludicrous. I got dumped by its low-level, call-screening telephone switchboard operators into the meaningless “Comment Line” recording when I tried several times to reach a responsible Policy person there. And White House Counsel Kathryn Ruemmler never replied to a copy of this article that I mailed to her in early January, 2014. (She resigned recently, to represent rich, white-collar crooks in criminal cases for a fat income.) Her successor, W. Neil Eggleston, also never bothered to reply. Such is the way of our political world. But it is a very valid question to ask why a top USDOT staffer in a Democratic Administration--Mr. Podberesky—has been more of a laissez-faire advocate in this important consumer matter than the most rabid “Tea Party” member. Fortunately for us all, Mr. Podberesky retired from USDOT in January, 2014. His first stop after leaving his USDOT desk for the last time should be a Koch Brothers’ front organization, or the Heritage Foundation, where he would doubtless be welcomed with open arms and wallets.
Vilas, North Carolina
UPDATED : September 26, 2014
*DONALD L. PEVSNER, a Member of The Florida Bar, has been a prominent aviation consumer advocate since 1972, donating his time to the public interest. He is a former syndicated newspaper columnist for Universal Press Syndicate on travel consumer affairs.