Consumers: Low-Cost Flight Information

Lord Alderdice Excerpts

Monday 27th February 2012 Lords Chamber

[Lord Alderdice]

My Lords, I am sure that it is not only in your Lordships’ House but outside it that many will be gratified by the noble Lord, Lord Mitchell, securing this debate to draw attention to the problems of what are described in the Question as low-cost airlines but are probably more correctly described as no-frills flyers. They are no longer low-cost for many people, which is the issue that I want to focus on. As the noble Lord, Lord Black of Brentwood, indicated, the advent of these no-frills flyers introduced many people to the opportunity to go to places that they had not been to before, or had been to and wanted to return to much more frequently than they could previously afford. On the face of it, this is an excellent thing; it is the democratising of airspace in many ways. However, it has led to many unexpected, untoward and, in some cases, counterproductive effects for people.

First, it meant that many more people flew. For those who are concerned about the environment, this was not entirely a positive outcome. Indeed, one of the results was increased pressure on the Government to raise the taxation of all airlines to deal with the fact that more people were flying, and it would be a good idea to reduce the number though taxation for the environment’s sake.

However, the consequences went much further than this. The airlines were able to operate as low-cost in the first few years because they started off paying their staff much less than the established airlines did. They had smaller fleets and when they enlarged them they kept to the same models of aircraft, which were much cheaper for them to service and replace than the traditional airlines. However, when it became clear that, even with these benefits, it was not possible for them to keep their low prices, they tried to keep the reputation for low prices by the headline price being low and all the other additions being added in.

One could look at that as a simple, tactical sales device—outlined by the noble Lord, Lord Mitchell, so elegantly and in such detail that there is no need for me to go into it in great detail—but the purpose of the whole exercise is effectively to continue to deceive the population into thinking that these are low-cost flights when in truth that is no longer what they are. All sorts of things that one would deem to be the proper costs of any operator and that have been described by the noble Lord—their insurance, their administration, the provision of boarding cards and so on—were separated out as though somehow these were other charges. The idea that was put about by Michael O’Leary and others was that, in order to enable more people to be able to afford to fly, people should not have to pay for things that were only in the interests of some of the fliers. For example, if you do not want to bring many suitcases with you, why should you pay a large amount for those who are? That seemed like a noble argument—that everyone should have the possibility of flying without paying for things they did not want and that only some people would want. In fact, as has been demonstrated in this debate, that is not where we are now. It became more and more an operation of deceit which reflected a culture which had developed with some, but by no means all, of the no-frills flyers.

I became aware of this culture when I took a Ryanair flight—something I did not make a habit of doing before and made a determined effort never to do again—to France with my wife. Unfortunately, during the short time we were there we had an accident and she was unable to walk to the plane when we got back. She needed to have a wheelchair to take her to the plane. We never suspected that it would not be possible to get a wheelchair without booking in advance and paying for it, but that was absolutely the position of Ryanair. When we subsequently checked we could find no other airline in the world that was charging people for the use of a wheelchair, but that was the Ryanair position. When it was challenged—not by us, but by others—at a European level, the company lost but they found another way of putting a charge on: 50p for everyone to pay for the disabled.

To me, the issue was not that precise problem, though it was of itself significant; it was what it represented about the culture that had developed in Ryanair. It was not a culture that was concerned to democratise airspace—that had a feeling that ordinary people ought to have the chance to travel more, enjoy more holidays and see more of the world. It was a dishonest and uncaring culture for people who were simply seen as milch cows to be treated very much as milch cows and herded through in as large numbers as possible.

People find themselves in increasing difficulty because they started by believing that they could fly to Perugia or wherever and could get themselves an inexpensive home. That would mean they would continue to have to fly there and it became increasingly problematic for many of these people to maintain themselves. Added to this is the fact that, in many places, this is the only way to get to that particular area. Most of the airports subsidise Mr O’Leary. He actually asks to be paid to fly to their airports while most UK operators find they have to pay the British Airports Authority and others in order to maintain a service. When a local authority that pays Mr O’Leary the subsidy says it is not in a position to pay any more he simply, at the drop of a hat, stops flights to that area and all the people who have become dependent on those flights find that it is impossible for them to continue. That is just part of the culture which has developed.

One might say that it is up to people to watch out for themselves and that this is just one airline or a small number of them. This is not so. When you introduce this kind of commercial practice it becomes increasingly difficult for other airlines to function without adopting similar practices. This was the problem in the banking world. I remember asking the chairman of one bank if it was really the case that most of the people on the board of the bank understood the complex instruments that were now being used in banking. He laughed and said that hardly a single one had the remotest idea. All they knew was that the other banks were doing this and making a profit so they had no alternative but to go down that road or lose custom. That is what has happened in the airline industry, not only in the way of charging but also in the way of treating the customers. It is not just a question that the buyer should beware. The whole airline industry has been adversely affected by this negative, disrespectful way of treating customers which cannot be sustained economically without all the complaints and difficulties which have already been referred to.

It is serious, because it is like a virus which pervades things and deteriorates them, and that is exactly what has been done. It becomes very difficult to reverse the process unless there are some regulations or pressures that require operators to behave in a different way. Here is where government comes in. I have some questions for the Minister. Which? submitted an OFT super-complaint on credit and debit card charges in March 2011, leading to a promise from HMG just before Christmas last year that the Treasury would ban excessive card surcharges by the end of 2012, with a consultation in the early part of this year. On 8 February, the Financial Secretary to the Treasury, Mark Hoban MP, said:

“We have brought forward legislation to tackle excessive and opaque card charges with the aim of banning above-cost surcharges from mid-2014”.

I am glad it is moving ahead, but it seems to have slipped by 18 months over the period of the consultation. Why has this delay arisen?

It would be perfectly possible for the Government to press the airline operators—not just Ryanair—to differentiate out clearly those elements of their charges which are properly being paid to Governments as a tax from lots of other things that they describe as levies, surcharges and fees and which they bunch in as though they were being imposed on the airlines by the Government and other authorities. It is actually just a deceit because they are part of their own essential operating costs that would be absorbed by any other business. Is it possible for the Government to ensure a degree of transparency, clarity and honesty in these charges?

--- Later in debate ---

[Earl Attlee]

My Lords, I am grateful to the noble Lord, Lord Mitchell, for introducing this Question for Short Debate and to all other noble Lords who have contributed.

In an open free-market economy such as ours, with its age-old emphasis on enterprise and initiative, there can be no objection to firms choosing business models that suit their aims, even if it causes them reputational issues. My noble friend Lord Black of Brentwood described some of the benefits of low-cost airlines. They have been innovative and successful, and have grown into important players in the aviation industry, employing substantial numbers of people and utilising great amounts of capital. Schedule airlines, operating to different business models, are holding their own. I should therefore like to add to the premise of the noble Lord’s debate that people buying scheduled airline tickets on the internet also need access to the information they require.

The UK aviation market is diverse and supports consumer choice. What suits a solo flyer with no baggage might not suit a family of four with hold baggage who would like a meal on their flight. The UK’s aviation market has evolved to support these different needs. As a consequence of this diversity and choice, air fares can come with a range of extras, fees and charges. Airlines are required to publish on their websites the information about these fees and charges, but it can be hard for consumers to compare them when they are shopping around for the best price for an air ticket, as has been pointed out by many noble Lords.

The Government’s position is to support the aviation consumer in two principal ways. First, there must be transparency about what is and what is not included in the price. The consumer must know how much to pay in total before he clicks to accept the deal. Secondly, adequate information must be provided for the consumer to make an informed choice on which airline to fly with, regardless of the business model that that airline follows. I will give examples in support of that position.

EU Regulation No. 1008 sets out common rules for the operation of EU air services. Crucially, it sets out the transparency requirements for the display of air fares. Prices are required to be displayed inclusive of all unavoidable and foreseeable taxes, fees and charges at all times. Optional services such as checked baggage or priority boarding are required to be offered on an opt-in basis only. These services should be clearly and unambiguously displayed at the start of the booking process. These requirements are designed to ensure that consumers are able to compare the prices of flights across a number of airlines and that consumers select only the optional extras that they require. The requirements are strongly supported by the Government.

I now turn to another specific proposal that will significantly help consumers. We wish to help purchasers to compare services from different providers on the basis of accurate information. Aviation markets can deliver best value only where objective service information is freely available so that passengers and freight owners have genuine choice between suppliers. We have therefore included in the Civil Aviation Bill currently being considered in Committee in another place a new information duty on the CAA either to publish, or to arrange for the aviation sector to publish, consumer information and advice that it considers appropriate to help people to compare aviation services. This new publication duty would allow the CAA to move into areas where it cannot always obtain information from public sources, such as delays, complaints, baggage handling and environmental performance. The CAA would be able to penalise companies that withheld the data requested. The CAA must also ensure that the benefits of providing information outweigh the costs, so that it does not duplicate existing information or provide data that consumers do not want. The best protection for consumers in terms of choice and value lies in the operation of a competitive market. Consumers need clear information on price and service quality in order to make informed choices, and to ensure that markets deliver consumer benefits in practice. I look forward to discussing these, and other, aspects of the Bill further when it is introduced into your Lordships’ House.

We share consumers’ concern about the high level of payment surcharges applied by some companies, and that often people are not aware of the level of these charges until almost the end of the booking process. This makes it difficult to compare prices and shop around for a good deal. It is not right that a business tries to hide the true cost of its services by implying that its prices are made up of elements beyond its control when they are not.

What are the Government doing? First, consumers are already protected against misleading pricing under the Consumer Protection from Unfair Trading Regulations. Secondly, as mentioned by my noble friend Lord Black of Brentwood, last December the Government announced their intention to consult on early implementation of the payment surcharges provision of the new European consumer rights directive ahead of their transposition deadline in 2014. The provision will ban businesses, in scope, from charging customers fees which exceed the costs for using that means of payment. The Government plan public consultation on early implementation within the next few months, with the aim that new UK rules could take effect by the end of 2012. The Government will publish guidance prior to the change taking effect to help businesses adjust their pricing strategies to comply with the provision. I stress that this work is about ensuring transparency in headline prices, and not about price control. The aim is to ensure that only the true cost of using a particular means of payment can be charged separately where a business wishes to do so.

I have been asked several questions. I will my do best to answer them, but if I fail, I will of course write in the usual way. On the general point about ticket transparency and how consumers can effectively compare prices, including hidden charges, the Civil Aviation Authority has published a table showing the optional charges which apply when booking with major airlines operating in the UK. This is a valuable tool which will assist consumers in making informed decisions when booking flights.

The noble Lord, Lord Mitchell, asked me when we will stop airlines charging huge fees for printing a boarding pass at check-in. The business model adopted by some well known carriers requires passengers to check-in online and print their own boarding pass. This is legitimate so long as people are clearly aware of it. There is no restriction on the level of charge that an airline may impose for this service. The sum of €40 has been widely quoted. This appears rather excessive, and is unlikely to reflect the true cost to the airline of printing a pass. This practice, along with the identity of the carriers which employ it, has been well published, including in your Lordships’ House tonight. Wherever possible, consumers should take steps to avoid liability to pay the charge. If this appears unfeasible, it is perhaps a factor which they should take into account before booking the flight.

The noble Lord, Lord Mitchell, also talked about the EU 261 levy. EU Regulation 261/2004 gives air consumers rights to assistance and compensation in the event of their flight being cancelled or delayed for over three hours, or if they are denied boarding—that is, bumped off the flight for someone else. In April 2011, Michael O’Leary announced that Ryanair would impose a €2 EU 261 levy on its air tickets. This was marketed as a measure forced on the airline by the EU. In fact, it is a form of Ryanair self-insurance to pay for the obligations that Regulation 261 imposes on the airlines.

The noble Lord, Lord Mitchell, also asked how often consumers compare prices effectively, including hidden charges. I have mentioned the Civil Aviation Authority table. He also asked about the refund of taxes when passengers do not fly. Government taxes, such as air passenger duty, should not be paid if the passenger does not fly. Many carriers will refund this element of the fare on application. However, they may charge an administration fee for doing so and in practice this may swallow up most or all of the amount due to be repaid to the consumer.

My noble friend Lord Alderdice told us, with some justification, about his distressing experience of no-frills airlines. EU Regulation 1107/2006 gives those who are disabled or who have reduced mobility rights to travel. Wheelchair access to aircraft is not chargeable.

My noble friend also talked about the Which? super-complaint. In 2011, the Which? consumer magazine submitted a super-complaint to the OFT, calling for it to investigate excessive surcharges for paying by credit or debit cards.

My noble friend Lord Alderdice also asked about the delay in the implementation of the consumer rights directive until 2014. Although the directive will take two years to come into effect throughout Europe, it is due to be transposed into national law by mid-2014. The OFT has said that companies should be up-front about charges straight away, and the Government propose to consult on early implementation in the UK.

My noble friend also asked what assessment has been made of the effectiveness of Article 23.

[Lord Alderdice]

I asked whether what the Minister in another place said was true—that implementation would be delayed until the end of 2014.

[Earl Attlee]

My Lords, I think it is probably better if I concentrate on answering as much as I can and, if necessary, write to my noble friend.

Aviation is fundamentally an international business. The Government do not intend to introduce tighter restrictions on airline pricing policies in isolation. The European Commission has undertaken a fitness check on the fare transparency requirements, during which it has taken evidence from airlines, the travel industry, enforcement bodies and consumer groups. Its findings have yet to emerge but we understand that the evidence suggests that the rules are not enforced consistently across Europe.

In conclusion, we take this matter seriously. I am grateful to the noble Lord, Lord Mitchell, for posing his Question this evening.