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Airlines secretly cash in on unused tickets

Outraged over a spike in airfare for pre-booking an aisle seat, Consumer Advocate Ralph Nader talks with Msnbc.com's Dara Brown about his ordeal and what consumers can do to protect their pockets.

With so much talk about airline fees lately, you might overlook perhaps the largest source of ancillary revenue for the industry — and a big headache for you — that lets airlines make money for nothing. A lot of it.

If you've ever been on a "full" flight that was full of empty seats, perhaps you've wondered: What happens to the paid fares when passengers don't show up for flights?

The airlines keep much of the money, of course. No-show fliers get vouchers for the unused value of their tickets good for a year from booking, but stiff change fees often eat heavily into that value. And much like unused gift cards, their value disappears into thin air when not used by a strict deadline.

No one knows how much money the airlines make on unused, expired tickets — they aren't required to say — but experts suspect it's a gigantic haul.

"The airlines collected $6 billion for baggage fees last year, and undoubtedly it's more than that. ... This is an issue that has been around a long time," said travel expert Chris Elliott, author of  “Scammed.” "Just look at the rates of overbooking on flights — 10 to 20 percent — that's how many no-shows the airlines expect."

Consumer advocate Ralph Nader has been on a crusade for the past year trying to figure out how much money the airlines are making by flying nothing and trying to nudge the industry toward a more forgiving policy.

"We're talking billions of dollars," he said. "My drawer is often full of unused tickets because plans change. The point is, why a year? The statute of limitations for contracts is three to six years."

Before you assume Nader is tilting at windmills, recall that a similar Nader crusade helped force airlines to compensate passengers when they were kicked off overbooked aircraft.

Nader recently sent letters to all major U.S. airlines asking how much they earn from unused tickets. He got a polite refusal delivered by the industry group Airlines for America, which called the information "confidentially and commercially sensitive."

"Consumers understand that if nonrefundable tickets cannot be used, their value will be lost," the letter said.

The letter, signed by association general counsel David Berg, goes on to say expiring airline tickets are no different from time limits on refund policies of "other retail shopping outlets, from clothes to computers, and are neither deceptive nor unfair."

Nader wasn't impressed by the airlines' response.

“The writer was thrashing around for every analogy he could find, filling the page and a half with non-sequiturs," Nader said. For starters, any analogy between clothes and airline ticket return policies breaks down pretty quickly. After all, if the time to return a sweater has passed, you still get to keep the sweater.

Undeterred, Nader has filed a request under the Freedom of Information Act with the Transportation Department seeking the same data.

But is it really unfair for airlines to keep the money spent on unused tickets and to load up restrictions on refunds?

One convincing argument offered by the industry is that plane tickets are a "perishable" item, akin to concert tickets. Once the plane leaves the ground with an empty seat, an airline can't make money off it, so why should it be expected to offer easy refunds? No one who buys a ticket to a rock concert or a sporting event expects a refund if they miss the event.

Of course, that analogy breaks down, too. Airlines do, in fact, make money off seats sold to no-shows — they overbook. And concert tickets are much easier to sell when buyers' plans change. Most airline tickets aren't transferable.

But the key argument put forth by the airline industry is that traditional, self-regulating market forces take care of the problem. Consumers don't have to buy discounted non-refundable tickets. Full-fare tickets, which can be changed at will and offer refunds, are always an option.

"Consumers can choose between airlines with different service options and select tickets that vary in price, depending on their flexibility," Berg said in his letter to Nader.

Not really.

Something is seriously wrong with the price of refundable tickets. Nothing says "broken market" like swollen prices that bear no resemblance to the value of a product offered and show no signs of price competition.

The gap between refundable and non-refundable tickets is absurd. An airline industry official tried to argue the point with me during a recent chat and priced a one-way, nonstop ticket between New York and Chicago. Non-refundable cost: $112. Refundable cost: $870. Clearly, free market forces are not at play and are not effectively offering a variety of choices and conditions.

No one really believes refundable tickets are a genuine option: On the refund portion of its website, Continental Airlines states clearly that "most tickets are not refundable."

"It has nothing to do with value," Nader said. "It has to do with algorithms. It's not like you're getting a real break with non-refundable tickets. The computer has permitted this to happen. The airline could never do all the calculations which allow them to take advantage of consumers in this situation with humans — it would be too labor-intensive."

Nader isn't optimistic that the Transportation Department will offer him any useful information about unused ticket revenue, but he's already shaking the trees at another government agency: He's pestering the Federal Trade Commission's anti-trust division to investigate. He believes that because most airlines have exactly the same policy about unused tickets, there's evidence of collusion and price fixing. As evidence, he points out that, while he asked multiple airlines for data, he got a single response from an industry trade group.

"They are colluding to achieve to a uniform policy so they don't have to look over their shoulder," he said. "I've never seen anything like this. They are colluding over the information. It has got to be slapped down."

When asked about this accusation, Steve Lott, a spokesman for Airlines for America, pointed to the letter the agency had already sent Nader. It says the trade group responded on behalf of the airlines "as a matter of convenience."

"DOT for decades has been well aware of air carrier policies and has not objected to them. Many of those policies are far superior to refund policies available to consumers in most other industries," Lott said.

The truth of the matter is that airline no-show and refund policies are unique and need to be evaluated as their own beast. If they were Nordstrom-level, no-questions-asked liberal refund policies, airlines wouldn't ever be able plan anything, as fliers would book and cancel trips constantly.

On the other hand, a harsh no-refund policy — something that was floated in the dark airline industry days after 9/11 — would be anti-consumer and probably hurt the industry by making fliers gun-shy. A clear middle-of-the-road policy is called for, along with better refundable ticket options.

The real problem is that today's no-show policies are tilted too far in the airlines' favor.

"An even bigger rip-off is when you do try to use (a ticket credit) and you get hit with a $150 change fee and the fare differential, and the credit is essentially useless," Elliott said. Also, many consumers miss the fact that the credit is valid only for one year from the original booking — not from the day of the flight or the day of cancellation.

"I hear from people every day who misunderstand that and are told their voucher is worthless," he said.

Of course, the truth is straightforward: The airlines need the money.

"The airlines are so woefully mismanaged right now that if they didn't do this, they would be unprofitable and would cease to exist," he said.

RED TAPE WRESTLING TIPS

There are many honest reasons that consumers miss flights. Even though airlines' stated polices on their carriage of contract may sound strict, many make exceptions. A common one: the "flat tire rule."

If you are late to the airport because something happens on your trip there, many airlines will simply put you into the next available flight where there's room, often without a change fee. Just ask nicely.

Elliot also points out that while airlines rarely offer full refunds, consumers can get a little money back when their unused ticket value expires. Some taxes, such as passenger security fees, are eligible for refund. Airlines won't automatically offer tax refunds; you'll have to ask.

It's always a good idea to see whether Southwest Airlines is flying your way, as it has the most understandable change fees in the industry.

And as always, when life intervenes on your plans, don't be afraid to call the airline and ask for an exception. 

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