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Passenger Bill of Rights – Traveler Protection or a Political Buzzword?

Late last month, Democratic Senators Edward Markey (MA) and Richard Blumenthal (CT) proposed the ‘Airline Passengers’ Bill of Rights’ and ‘Forbidding Airlines from Imposing Ridiculous (FAIR) Fees Act’, with the aim of providing "comprehensive legislation to expand protections for air travelers”. The bill, if brought into effect, would introduce a mandatory $1,350 refund, and a bag fees refund, to passengers denied boarding as a result of an oversold flight.

The hypothetical bill has been heralded, largely by other Democrats, as a historic milestone in regulating the airline industry, a great victory for American travelers, and a firm rejection of the hiking prices of flying with U.S. airlines. During an interview with CNBC’s Squawk Box, U.S. Secretary of Transportation, Pete Buttigieg, described the proposed legislation as ensuring that “the backstop is getting tougher and tougher”.

Secretary of Transportation Pete Buttigieg, who has expressed his desire for "results for consumers". (ITF)

But how pioneering is the so-called ‘Passenger Bill of Rights’? Does it offer customers protections exceeding those that already exist in written law? And would the bill lead to, in Secretary Buttigieg’s words, a “better passenger experience”?

First and foremost is the claim made by a number of Senators that the Bill would transform customer rights. The Bill promises “fair compensation, refunds, and recourse”. How these ideals would be achieved is not specified, beyond “$1,350 to passengers denied boarding”. Under rigorous American contract law, airlines are already obliged to pay passengers up to $1,350 in compensation if passengers check in to an overbooked flight and are denied boarding.

Conveniently, no public statement supporting the Bill has acknowledged that the $1,350 figure has been plucked from passenger protection legislation that is already enforced on, quite literally, a daily basis. Senator Blumenthal claimed that $1,350 would also be offered for delays, yet this is not recorded at any point in the written terms of the proposed Bill.

The promise of a bag fee refund in the proposed Bill’s accompanying FAIR Fees Act, readers of its draft may have assumed, would be a new passenger protection? Not the case. Baggage compensation has existed for years and continues to be enthusiastically enforced, with delays triggering compensation of up to $700, and lost or damaged luggage clauses guaranteeing standard compensation from $1,525 to $3,500.

All of these protections are listed, clause by clause, in the U.S. and Montreal Convention air passenger rights laws. For any travelers confused by discussion of the Bill and current passenger rights, AirHelp offers a comprehensive online guide to what compensation customers are already legally entitled to.

Beyond the semantics of compensation, what would the Bill actually achieve in the interests of passengers? Much political rhetoric has given the impression that FAIR would remedy issues that customers have recently been forced to endure.

Senator Blumenthal told CBS Mornings that “If passengers could receive 1,350 bucks whenever their flight is delayed by four hours, I am guaranteeing you there’d be a lot fewer delays”. Not only does this appear to be a fundamental misunderstanding of his own proposal, given that there is no specific compensation clause for delays, but it is also a misinterpretation of recent incidents and their causation.

Senator Blumenthal at a National Transport Safety Board meeting. (NTSB)

The segment in which Senator Blumenthal appeared began by referring to “severe air travel disruptions” that “ruined the holidays for tens of thousands of Americans”. The incident being alluded to throughout the interview is the December 2022 Southwest Airlines software error that led to thousands of cancellations.

The unforeseen computer interface error is currently being addressed by software upgrades that Southwest has committed an initial $1 billion to, and the airline incurred cancellation costs close to $800 million. Many passengers have been compensated; had each customer been compensated according to the bill, the expenses would have represented 2.79% of the costs Southwest actually incurred.

The reimbursement put forth by senators is almost 40 times smaller than Southwest’s eventual losses, and more than 80 times smaller when Southwest’s response package is considered. The suggestion, then, that an interface error of these proportions was in some way intentional, and would not have occurred if the Bill was in place, is nothing short of misleading.

Additionally, according to Airlines for America, the 11 largest U.S. airlines issued $32.3 billion in refunds between January 2020 and December 2022, and the trajectory of compensation has been upward, with the $11.2 billion in 2022 exceeding the 2019 sum by almost 50 percent. Compensation, it’s safe to say, is by no means a customer right that U.S. airlines are ignoring.

Another common misconception which may have led politicians to believe that such a bill would resonate with their electorate, is the cost of airline travel. Senator Markey’s insistence on live TV that customers are being “ripped off” isn’t supported by 50 years of flight data. In fact, domestic air travel (including ancillary fees) for 2021, the most recent year with complete data, was 55% less expensive than in 1979, and recorded 2022 inflation-adjusted fares were an average of 6.8% below 2019’s pre-pandemic fares.

The critical factor driving current flight prices is not airline profits, but the expenses the entire airline industry and wider economy is facing. 2022 unit costs for Airlines for America member carriers were 31% higher than 2019. Jet fuel by the end of 2022 was 83% more expensive than in 2019, and the January 2023 figures are 109% higher than those of January 2019.

The graphs below, of jet fuel prices and ticket prices respectively, illustrate the correlation between the two. It also illustrates airlines’ attempts to maintain affordability for customers in spite of concurrent fuel cost spikes – particularly in October 2021 and October 2022.

Jet fuel prices, January 2018 to December 2022. (index mundi)

Consumer Price Index for US airline fares, January 2018 to December 2022. (FRED)

Research undertaken by Airlines for America illustrates that 2022 costs for airlines averaged 29% more than in 2019. The main rising costs are fuel and labor – unsurprising, given that airlines are hiring the most workers in 20 years at wages 37% above the average private sector job. The chart below illustrates the reality that every major cost airlines face has increased.

US airline cost per available seat mile, 2019 and 2022. (Airlines for America)

Many travelers may be surprised by recent findings by personal finance agency Nerdwallet. Their February 2023 Travel Inflation Report showed demonstrably that, of the major travel costs, flights underwent the lowest percent change in the April 2020 to December 2022 period. Air fares were actually in a state of deflation more than inflation, and are trending back towards deflation while other expenses such as hotels are on an upward trajectory.

Change in travel prices by percentage, April 2020 to December 2022. (Nerdwallet)

Airlines for America have made it clear that the data they have access to indicates that passengers would not benefit from such a ‘Bill of Rights’ – thanks largely to the bill proposing “instituting government-controlled pricing, establishing a private right of action and dictating private sector contracts”. Such anti-competitive legislation, rather than lowering prices, would without question “decrease competition and inevitably lead to higher ticket prices and reduced services to small and rural communities”.

Contrary to the opinions of a handful of politicians, the hard data consistently suggests that airlines are doing all that they can to offer positive flight experiences, and at competitive costs, for customers in spite of their own dramatically increasing overheads. The post-COVID recovery airlines have been experiencing is on a knife edge, and legislation designed to impress voters will not help what is already a fragile situation for the U.S. travel industry. The Bill has been drafted on a misunderstanding of the facts behind travel costs, and it would worsen the very issues its authors created it to correct. The Bill is good for politicians, bad for airlines, worse for customers.

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