Abstract We examine the impact of a January 2012 enforcement action by the US Department of Transportation that required US air carriers and online travel agents to modify their web interfaces to incorporate all ticket taxes in up-front, advertised fares. We show that the more prominent display of tax-inclusive prices is associated with significant reductions in consumer tax incidence, demand, and ticket revenues along more heavily taxed itineraries. In particular, the fraction of unit taxes that airlines passed onto consumers fell by roughly 75 cents for every dollar of tax. These results present evidence of consumer inattention in a novel institutional setting featuring quasi-experimental variation in tax salience, economically significant tax amounts, and endogenous price responses.
Citation Bradley, Sebastien, and Naomi E. Feldman. 2020. "Hidden Baggage: Behavioral Responses to Changes in Airline Ticket Tax Disclosure." American Economic Journal: Economic Policy , 12 (4): 58-87 . DOI: 10.1257/pol.20190200 Choose Format: BibTeX EndNote Refer/BibIX RIS Tab-Delimited
chaogenus on October 30th, 2020 at 16:17 UTC »
Title seems to be inaccurate, Airlines subsequently lost revenue. is not what the study found...
In other words, when customers are shown the actual price of ticket options they choose the most cost effective option. When airlines were hiding fees many consumers were tricked into purchasing tickets that resulted in fees that added to revenue.
Now one might assume that this drop in hidden fee revenue means that "Airlines subsequently lost revenue" but this assumption would be false. An MIT study of airline revenue provides some insight and in fact shows that revenues actually increased in 2012, 2013, 2014, and even in 2015 when markets were slowing the revenues exceeded 2012 and prior years.
eveningsand on October 30th, 2020 at 14:29 UTC »
I vaguely remember pricing out a trip to Ireland from Los Angeles in 2008.
The advertised airfare was about 60% of the total actual cost; the full price included the remaining 40% of fees, taxes, government charges, etc. That ticket nearly doubled in cost.
gizzowd on October 30th, 2020 at 14:11 UTC »
Which they've now made back (billions) in baggage fees. Somehow, I don't feel sorry for them right now.🙃