Last week, Biden announced intentions to issue executive orders protecting consumers from WiFi and baggage fees when the carrier fails to deliver. These and other consumer protections in the order appear mostly good but may not be able to pass challenges.
Executive Order Targets Airline Fees
President Biden announced his intention to sign a sweeping executive order that covers a variety of consumer protections, several of which directly target airline fees. Rather than determine these fees shouldn’t be permissible, instead the concern is that the fees paid should be refundable if the service isn’t delivered. Statements from the White House included the following:
“Reduced competition contributes to increasing fees like baggage and cancellation fees,” “These fees are often raised in lockstep, demonstrating a lack of meaningful competitive pressure, and are often hidden from consumers at the point of purchase.”
The White House Competition Council contributed to the compilation of the bill and the statement (and sentiment) is certainly not wrong. What’s interesting about the order is that it’s going to have to be specific with regard to what constitutes a failure. If a bag is lost, that’s an obvious failure, the same if the WiFi on a flight never works during the entire journey, but consider the following gray areas:
- Airline WiFi works for a majority of the flight, but not all of it.
- Airline WiFi/IFE is originally slated to be on the aircraft but due to equipment changes, it’s no longer available.
- Airline WiFi is offered but performs at speeds so slow it isn’t functional
- Bags arrive within X minutes of the cutoff period
- Bags are included in the fare (Southwest, elite flyers on other carriers) but bags arrive late.
There are plenty of other gray areas outside of these examples, but these the first ones that come to mind. What the Administration is aiming to achieve is that customers, who are consistently targeted for additional and costly add-on fees, have some sort of guarantee that they get what they pay for. That is a noble, honest, and fair approach as right now, the airlines have no duty to ensure that bags arrive within any certain period of time and other fees come without guarantees as well.
However, the definition of those boundaries will be important. Many flyers choose Southwest or an airline for which they hold a credit card or elite status that allows them to avoid extra fees. That may come with a more expensive price tag and often does, therefore even when the consumer isn’t specifically paying baggage fees, they are paying a premium due to that service but wouldn’t be eligible (as it’s been conveyed to this point) for remuneration.
Other Consumer Protections
The bill has a number of other consumer protections built-in. One, in particular, has been the ability for hearing aids to be sold over the counter as the Department for Health and Human Services has requested. This too seems like a laudable move. Canadian drugs that meet FDA standards would be available for sale in the United States potentially saving taxpayers hundreds of millions of dollars if not billions annually.
Another noble pursuit in the order also encourages (or requires depending on how it’s read) the right to make your own repairs to a device. This is targeting items specifically like the construction of an iPhone which does not have a removable battery requiring costly repair by Apple to maintain the warranty (as performance degrades over time) or other components. Mac users will remember the days when they could simply open the keyboard of their MacBooks to add significantly more RAM memory for very little cost and extend the life of their machines by improved performance.
Net neutrality rules were included in the order. The Federal Communications Commission has attempted to keep companies with specific interests from elevating or demoting companies that compete with regard to internet services. For example, Comcast owns XFinity (internet service provider – ISP) and in theory could make streaming services for its NBC subsidiary, Peacock, faster than NetFlix to secure market share.
A final major piece of the order would revolve around non-compete agreements. The order suggests that these agreements, which can require workers to stay out of the industry for which they are hired in a particular area for a particular time, hold back workers, and without them, employees would see increased wages.
The biggest problem is lumping all of these issues together, each of which could present a challenge by the House, Senate, or Supreme Court. Aiming for brevity, I will focus on just the airline reforms. I will preface this with the following: All of the stated aims appear to be good-natured, well-intentioned, and for the benefit of consumers. My concern is all in the execution and the ability for the order to stay in place.
I pointed out some gray areas that may cause the executive order to stumble when put into motion. The order is highlighting the lack of competition and falls short of directly accusing the airlines of being in violation of antitrust laws or threatening an investigation from the Department of Justice.
That said, there is significant differentiation in the market already. Delta and Alaska both put guarantees in place several years ago. Southwest doesn’t charge for the first two bags anyway, Almost every airline credit card offers a waiver for these fees as do most of the loyalty programs at significantly reduced levels. Prices are also not level across the board. Some airlines charge more based on distance, domestic vs international, first bag first second, and prices range from $15-60 depending on when, how, and from which carrier they are purchased.
WiFi is also a mixed bag. JetBlue offers FlyFi which is considerably faster than most carriers. Southwest offers a differentiated option depending on which type of WiFi is required (most flights now feature free texting and light social media.) International flights that cross-polar regions whereby there is little to no satellite coverage or regions for which service is unavailable would cause problems for a broad-brush order. It’s no secret that bandwidth is diminished based on the number of connections the plane has so what could start at 20Mbps could drop to 0.5Mbps simply due to the popularity of the offering.
It also unfairly benefits carriers that have fleets without WiFi installed or none at all and serves as a disincentive to provide the service. Equipment swaps could become a problem as well in a very material way, access to WiFi is one thing, but if I don’t purchase internet service because the equipment was changed to an aircraft without a suitable power source at my new seat, I am harmed (will lose a work day on a trans-con flight) but because I didn’t directly pay for those things, there’s nothing to refund.
This will also increase the price for the customer in the end. Airlines will have to account for more baggage handlers (when it’s already hard to find employees) and this cost will be covered directly in the revenue center (checked luggage charges.) Additionally, airlines will have to build in a buffer for when things simply do not go as planned and bags, WiFi, or IFE do not work properly. That will come in the form of higher prices.
I applaud the effort by President Biden, the National Economic Council and encourage the FTC, and FCC to weigh in for consumer protection and that of small businesses. However, by including all of these unrelated consumer protections I am concerned that the order doesn’t remain intact as intended shorting the American people of all of the necessary protections it would instill.
What do you think? Are these protections the right move? Should they all be included in the order? Do you think Congress or legal challenges present a hurdle for the legality of the order?