Excessive fees, misleading cancellation insurance products drive up airline profits at consumer expense
Release date: September 23, 2013
Washington, DC – Rising cancellation fees, unaffordable refundable tickets and misleading travel insurance marketing have become hallmarks of the airline industry’s growing drive to profit from life’s unpredictable events. Findings in a new National Consumers League (NCL) report suggest that the airlines are supplementing cancellation/change fees revenue with commissions from the sale of travel insurance policies that are often misleadingly marketed to consumers.
“The fact is, stuff happens and consumers may need to change or cancel a flight. We think it’s a bad business practice for airlines to rely on life’s unpredictability – a child’s broken arm, a parent needing to be taken to the hospital, a cancelled conference - to bring in billions of dollars in revenue,” said Sally Greenberg, NCL Executive Director. “What’s worse, consumers who want to hedge against the risk of expensive change fees by buying travel insurance often find that they aren’t covered when the unexpected happens.”
Notable statistics from NCL’s report, entitled "$tuff Happens: Airlines Benefit Handsomely From the Unexpected … and Consumers’ Fears About It," include:
- Cancellation/change fees now account for more than $2.5 billion in airline revenue, an increase of more than 176 percent since 2007;
- Annual sales of travel insurance and related services increased by approximately 46 percent from 2006-2012 to $1.9 billion;
- Trip cancellation/interruption policies -- the type most often marketed to consumers by airline Web sites and online travel agencies -- accounted for 94 percent of travel insurance premiums in 2012, an increase of more than 22 percent since 2006;
- Refundable tickets are not an affordable alternative for most consumers. On average, the least-expensive refundable ticket is 350 percent more expensive that the least-expensive non-refundable ticket (which make up more than 80 percent of all tickets sold).
As a hedge against rising cancellation/change fees and prohibitively expensive refundable tickets, it is logical for consumers to look to travel insurance. Unfortunately, travel insurance policies are misleadingly marketing by online travel agencies and airline Web sites. Terms like “worry-free” and “peace of mind is only a click away,” encourage consumers to purchase add-on travel insurance policies during the ticket-buying process without learning about the significant limitations and exclusions hidden in the fine print of these policies.
“In comparison to a potential $200 cancellation fee, 5 percent of the cost of the ticket for travel insurance may seem like a great deal to many consumers,” said report author John Breyault, NCL Vice President of Public Policy, Telecommunications and Fraud. “All too often, however, consumers find that the protection they thought they had is denied due to pre-existing condition exclusions and other fine print.”
To address the linked issues of rising cancellation/change fees, unaffordable refundable tickets and misleadingly marketed travel insurance, NCL is recommending that cancellation/change fees be reduced to zero for changes made more than 5-10 days prior to a trip, consumers be allowed to transfer their tickets to another traveler without a fee and that standby fees be eliminated, among other reforms.
To read the full report, click here.
About the National Consumers League
The National Consumers League, founded in 1899, is America's pioneer consumer organization. Our mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. For more information, visit www.nclnet.org.