Airline pricing study informs ongoing litigation
In 2024, the U.S. Department of Transportation (DOT) mandated that airlines fully disclose fees up front when passengers book flights in an effort to make pricing more transparent and enable consumers to better compare their options. Several airlines sued to block the rule, and as the case undergoes the appeals process, a research study conducted at East Carolina University is helping shed light on the subject.
Students in Dr. Nicholas Rupp’s class participated in a study of airline pricing models and their impact on consumer choices.
“On the airlines’ websites they don’t make it easy to conduct searches that provide transparent fares,” said Dr. Nicholas Rupp, professor of economics. “They use what’s called drip pricing, with add-ons for seat choice, baggage, early boarding and other service fees.”
By the time the consumer checks out, he said, a fare that’s advertised at $99 might cost more than twice as much. And the consumer can’t find out what that total fare is until after submitting their personal information and completing a lengthy check-out process.
“The DOT wants more transparent pricing in order to make price comparisons easier,” Rupp said.
Rupp’s students participated as subjects in the study, comparing online prices for four itineraries involving two full-fare airlines, two low-cost airlines and four online travel agencies.
“For example I asked them to find the cheapest fare with one checked bag, one way, on Spirit,” Rupp said. “Then, for the same itinerary on the same day, others were asked to use Orbitz.”
Orbitz shows the bag fee up front, he said, while Spirit requires consumers to go further into the process.
“The experiment documents that when matching up the identical itinerary, consumers can more quickly identify the cost of the trip using an online travel agency,” Rupp said. “The process is quicker, more transparent and more accurate.”
Rupp said the study, which was published in Transport Policy and has been cited in the court case, supports the DOT’s position that consumers would save time and money if the airline websites followed the agencies’ model of more upfront and transparent pricing.
The study estimates that the rule change involving increased price transparency would save U.S. consumers between $251-$300 million per year from reduced search times and improve consumers’ accuracy when estimating total ticket costs.