How an Airline Compensation Requirement Could Result in Higher Fares and Fewer Choices

The U.S. Department of Transportation (DOT) recently announced plans to require airlines to provide compensation and cover expenses for meals, hotels, and other amenities when their passengers are stranded. While this proposal appears laudable at first glance, the reality is that it ignores many facts about today’s passenger airline industry and could result in higher fares and fewer choices for many American travelers. While the details of this proposal will not be known until after DOT issues a Notice of Proposed Rulemaking that is expected later this year, the broad impacts upon air travel can already be understood.

Why it Matters

The COVID-19 pandemic delt a harsh blow to our nation’s air carriers. Our national carriers faced collapse and their very existence was threatened, including the tens of thousands they employ and billions in economic activity air travel provides to both large and small cities. Congress recognized the challenges air carriers faced by providing economic support during the pandemic to minimize furloughs and prevent mass layoffs. U.S. air carriers held on and pulled through, however the recovery is ongoing, with business travel still lagging pre-pandemic levels.

As with other mass economic shocks, recovery hasn’t been perfect. There have been frustrations, hiccups, and missteps along the way that have challenged airlines both domestically and internationally. However, these challenges are not an excuse for regulatory overreach. While this proposal may appear to be positive on the surface, it could increase costs to consumers while decreasing consumer choices when it comes to air travel.

In addition to requiring refunds and reimbursements in the event of cancellations and delays, DOT’s proposal requires compensation above and beyond simple refund or reimbursement for travel costs. These punitive damages could significantly inflate the cost of airfares during a time of already high inflation.

Adverse Impacts to the Traveler

In order to comply with the proposal, there is the potential that costs and other adverse impacts will be passed along to the consumer due to compliance costs the airlines will need to address. Inserting the government into the day-to-day transactions between the consumer and air traveler is only likely to increase the time it takes for the customer to receive compensation in the event of a delay, given air carriers will need to follow strict procedures to ensure they are in compliance with DOT regulations.

The last 20 years has seen dramatic improvements in the customer experience, including mobile boarding passes, improved entertainment offerings, in-flight wi-fi, and an improved airport experience. If air carriers are forced to comply with these proposed rules, it makes it less likely air carriers will experiment with new improvements to the customer experience given they will be focused elsewhere. Finally, by imposing compensation requirements on air carriers for what may even be minor delays, DOT is ensuring only the handful of large air carriers that can afford to bear the cost of those refunds survive, stifling smaller carriers that may have limited fleets but offer cost-competitive tickets to all travelers.

Competition Remains High

Robust competition in the aviation sector is positive and has resulted in major benefits for the consumer, including lower prices and improved air service. In their announcement, DOT acknowledged that the ten largest air carriers already guarantee meals and free rebooking, and nine guarantee hotel accommodations. The fact that air carriers have already taken it upon themselves to offer compensation for interruptions in air travel makes DOT’s move wholly unnecessary. In addition, several air carriers already compensate passengers for delays of their cause on a case-by-case basis even though they are not required to by law.

A Major Regulatory Overreach

The proposal as outlined is likely to face significant legal challenge as it’s based on a vague and overly broad reading of the “unfair and deceptive practice” statutory power of DOT. The “Chevron Deference” that most agencies operate under essentially gives federal agencies the benefit of the doubt. This long-standing precedent is already facing significant legal challenges, with the Supreme Court striking down overly broad interpretations of statutes. Most recently, on May 25^th in the unanimous decision of the Court in Sackett v. Environmental Protection Agency, the court ruled the EPA overstepped their authority by overly broadly defining what constitutes a “water of the United States”. Congress clearly never had punitive damages in mind when they tasked DOT with protecting consumers from deceptive airline prices, making this rule vulnerable to a similar challenge.

Bottom Line

DOT’s proposal stands to threaten the airline industry’s post-pandemic recovery by imposing new costs that have the potential to increase ticket prices, harm the consumer experience, reduce consumer choice in a highly competitive and still economically challenging environment. By dictating the time in which airlines must provide customer assistance, DOT could stifle airlines’ innovation of convenient, technology-driven ways to help passengers during irregular operations. The proposal as outlined is also likely to face significant legal challenge as it’s based on a vague and overly broad reading of the “unfair and deceptive practice” statutory power of DOT.

The Chamber will remain actively engaged in opposing this proposal and ensuring that all Americans have access to safe, efficient, and affordable air travel.