Under this authority, in April 2011, DOT issued “Consumer Rule 2” which  included several provisions related to increasing the transparency of  airfares and optional service fees for consumers. This rule—which  became completely in effect in January 2012—requires, among other  things, that certain U.S. and foreign air carriers disclose information about  their optional service fees on their websites and refund passengers’  baggage fees if their bags are lost. Selected Airlines Have Continued to Introduce New Fees for Optional Services since 2010, while Increasing the Price of Some Existing Fees

Since 2010, U.S. airlines have introduced a variety of new optional- service fees and bundled products and increased the price of some  existing fees. U.S. Airlines Have Introduced New Fees and Products for Optional Services since 2010

Several U.S. airlines have introduced new fees since 2010 for services  that used to be included in the ticket price, notably “preferred” seats within  the economy cabin. From 2010 to 2017, U.S. airlines introduced other new fees such as fees  for carry-on bags, beverages, wireless internet access, and priority  boarding. Total Revenue from Fees Increased as the Number of Passengers Also Increased

According to airline financial data submitted to BTS, U.S. airline revenues  from baggage fees and reservation change and cancellation fees—the  only fees for which revenues are separately reported—increased from a  total of $6.3 billion in 2010 to $7.1 billion in 2016 in constant 2016 dollars. Selected Airlines Consider Competition and Customer Demand Among other Factors When Making Decisions About Optional Services

		Airlines Said That They Charge Separately for Optional Services to Compete with Other Airlines and Respond to Customer Demand

Airline officials said that airlines charge separately for optional services to  better compete with other airlines. As a result, customers who paid for checked bags paid more on  average for the combined airfare and bag fee than when the airfare and  bag fee were bundled together. According to officials from 9 of the 10  selected airlines we interviewed, unbundling allows passengers to  customize their flights by paying for only the services that they value—a  benefit that one official cited as the overriding impetus for unbundling. Customers’ willingness to pay  varies. Competitors’ prices for similar services: Officials from 8 of the 10  airlines that we interviewed said that they consider competitors’  pricing for similar services when they set fees for optional services, to  ensure that their own product is priced competitively. DOT Has Made Progress in Increasing Transparency of Optional Service Fees, but Consumer and Industry Groups Raised Some Challenges

		DOT Has Monitored and Enforced Compliance with Transparency Regulations, Collected Consumer Complaints, and Provided Guidance and Information to Airlines and Consumers

DOT has taken a range of actions to improve transparency of U.S. airline  fees for optional services since 2010, as described below. We requested and reviewed a selection of  2016 complaints related to optional service fees and found that  complaints included concerns that fees for changing or cancelling  reservations, transporting bags, and selecting seats were too high or that  information about these fees was not transparent or fully disclosed to the  customer. Educating Airlines and Consumers

DOT has taken several actions to educate airlines and consumers about  existing regulations and consumer rights related to optional service fees,  for example:  In 2011, after the issuance of Consumer Rule 2, DOT conducted  informational sessions with the airlines about the requirements of the  new regulations. Agency Comments

We provided a draft of this report to DOT for review and comment. DOT  officials provided technical comments that we incorporated as  appropriate. There are some differences between the U.S. and foreign laws. Appendix II: Objectives, Scope, and Methodology

Our objectives for this report were to describe: (1) how selected U.S.  airlines have modified their offering and pricing of optional services since  2010, (2) the factors that selected U.S. airlines consider when  determining whether and how much to charge for optional services, and  (3) the actions the Department of Transportation (DOT) has taken since  2010 to improve the transparency of optional service fees and views of  selected aviation stakeholders about these actions. We requested interviews with representatives from all 11  selected airlines but one airline declined to be interviewed. To identify the factors that airlines consider when setting optional service  fees, we interviewed officials from the 10 selected U.S. airlines that  agreed to speak with us about the factors airlines consider when deciding  whether to separate optional service fees from the base fare price and  determining how much to charge for a given optional service. We also conducted an economic literature search for studies that have  examined the effect of baggage fees on base ticket prices.
Why GAO Did This Study

Since 2008, U.S passenger airlines have increasingly charged fees for optional services that were previously included in the price of a ticket, such as checked baggage or seat selection. Consumer advocates have raised questions about the transparency of these fees and their associated rules. In April 2011, DOT issued a final rule requiring, among other things, that certain U.S. and foreign airlines disclose information about optional service fees on their websites.
GAO was asked to review issues related to optional service fees in the U.S. aviation industry. This report describes: (1) how selected U.S. airlines have modified their offering and pricing of optional services since 2010, (2) the factors that selected U.S. airlines consider when determining whether and how much to charge for optional services, and (3) actions DOT has taken since 2010 to improve the transparency of optional service fees and views of selected aviation stakeholders about these actions.
GAO reviewed 2010 and 2017 airline data on optional services fees charged by the 11 largest U.S. passenger airlines; analyzed airline financial data from 2010 to 2016 reported to DOT; reviewed economic studies examining the effects of bag fees on fares; and reviewed applicable laws. GAO requested interviews with representatives of all the 11 selected U.S. airlines; 10 agreed to be interviewed and one airline declined. GAO also interviewed DOT officials, consumer advocates, and other aviation industry stakeholders. DOT reviewed a draft of this report and provided technical comments that GAO incorporated as appropriate.

What GAO Found

Since 2010, selected U.S. airlines have introduced a variety of new fees for optional services and increased some existing fees. For example, each of the 11 U.S. airlines that GAO examined introduced fees for “preferred” seating, which may include additional legroom or a seat closer to the front of the economy cabin. Some of these airlines have also introduced new fees for other optional services, such as fees for carry-on baggage and priority boarding. Since 2010, many of the selected airlines have also increased existing fees for some optional services, including fees for checked baggage and for changing or cancelling a reservation. From 2010 to 2016, U.S. airlines' revenues from these two fees—the only optional service fees for which revenues are separately reported to the Department of Transportation (DOT)—increased from $6.3 billion in 2010 to $7.1 billion in 2016 (in constant 2016 dollars).
Airline officials cited competition from other airlines and customer demand, among other things, as factors they consider when deciding whether and how much to charge for optional services. According to officials from 9 of the 10 selected airlines GAO interviewed, the process of “unbundling” allows passengers to customize their flight by paying for only the services that they value. Airline officials said that charging fees for optional services allows the airlines to offer lower base airfares to customers. For customers traveling with bags, however, GAO's review of airline-related economic literature showed that on average customers who paid for at least one checked bag paid more in total for the airfare and bag fees than they did when airfares included checked baggage. Officials from the 10 airlines said they also consider customer demand and willingness to pay when setting prices for optional services, and officials from 8 of these airlines noted that competitors' prices for similar services are another factor used in determining the amount of fees.
Since 2010, DOT has taken or has proposed a range of actions to improve the transparency of airlines' fees for optional services. These actions include: (1) monitoring and enforcing airlines' compliance with existing transparency regulations; (2) collecting, reviewing, and responding to consumers' complaints; (3) collecting additional data on revenue generated from fees; and (4) educating airlines and consumers about existing regulations and consumer rights related to optional service fees. Consumer and industry stakeholders, such as online travel agents' representatives, told GAO that DOT's regulations requiring certain airlines to disclose optional service fees on their websites have improved consumer transparency. However, these stakeholders also told GAO that there are additional transparency challenges, such as when consumers search for and book flights through online travel agents. Because optional services are not always available for purchase and because fees for such services are not always disclosed through online travel agents, these stakeholders argue that consumers are not always able to determine the full cost of their travel and compare costs across airlines before they purchase their tickets. While transparency challenges still exist, DOT has ongoing regulatory proceedings, some in response to prior GAO recommendations that may resolve some of these issues.