DOT, ASTA Spar Over Fee Disclosure

DOT comes up with new $20, 10 percent limit proposal

By: Jerry Chandler

In an era of unprecedented pressure on the travel industry in general, and travel agents in particular, a U.S. Department of Transportation proposal to regulate service fee disclosures is being met with irritation by at least one industry organization.

“They ought not be meddling in the question of how travel agents disclose their fees,” said Paul Ruden, senior vice president for legal and industry affairs at the American Society of Travel Agents. “There are a lot bigger and more important issues out there than that.”

Misplaced priorities aren’t ASTA’s only objection.

“Portions of what they propose to do are tantamount to rate regulation, which is beyond their legal power,” said Ruden.

The final price of a tour or airline ticket traditionally includes the service fee. “They’ve had that rule in place for decades,” he said, referring to the DOT. “All that rule says is, ‘If you’re going to disclose the price, you must disclose the whole price.’ ”

Now however, the DOT is proposing that the fee and the final price, including the fee, be listed separately in advertising or promotions.

It also says the fee listing would be considered “an unfair and deceptive practice” if it is ad valorem, or expressed as a percentage of the base price; if the fee exceeds $20 or 10 percent of the base price, whichever is greater; and if the fee is not placed prominently near the base price.

A DOT spokesman, Bill Mosley, said the proposal would extend the current rules for online travel sales “to all price advertising, Internet or not.

“After looking at Orbitz and other online sellers of travel, DOT came to the conclusion that this approach could benefit consumers responding to ads in any kind of medium,” he said.

Why the inclusion of a “$20 or 10 percent” limit in the regulation?

“That ensures that carriers aren’t declaring a certain percentage of the pricea large percentageto be a service fee in order to make the basic fare look smaller,” he said.

Mosley said the proposal would not represent rate regulation. “It just regulates how much they can separate out and call it a service fee,” he said. “The final and full price is still the full price.”

But Ruden countered: “When they say that you can’t have a rate that’s based on a percentage of the price, if that’s not rate regulation I don’t know what is.”

He also added, “The only way a service fee could be used to make the fare seem lower is if they don’t disclose the fee. This is a very intense, competitive marketplace. Who is going to get away without ultimately disclosing what their charge is?

“One way or another, the client is going to get told that.”

One early advocate of service fees says the DOT’s proposal is rooted in a “fundamental confusion” about the travel agent business.

Robert Joselyn, now president of Joselyn Tepper Associates in Scottsdale, Ariz., said agents sell other people’s products, such as airline seats, tours and cruises, and they sell their own product of service and expertise.

The DOT is making a mistake in “lumping this all together and saying, ‘What you are doing with service fees is that you are misrepresenting the price of the airline product that’s being sold,’ ” the travel consultant said.

“The agency fee has nothing to do with the airline product being sold. It has everything to do with the service the agency provides as a separate product.”

DOT Service Fee Proposal

“In any advertising or solicitation by an agent of an air carrier, or indirect air carrier, the agent must separately list its service fees, if any for the price of the air transportation tour, or tour component, provided that any offer to sell specific air transportation, tour, or tour component services must also state the entire price to be paid by the customer to the agent or such air transportation, tour or tour component, including any service fee charged by the agent, and providing further that such separate listing of the service fee would be considered an unfair and deceptive practice if the service is ad valorem in nature, if the fee exceeds the greater of $20 or 10 percent of the price for the air transportation, tour or tour component, and if the amount of the fee is not prominently disclosed near the advertised fare or price.”