United States: Bundle…Down: Unbundled Fees Are Here To Stay

Road warriors rejoice! Unbundled airfares have made travel simpler and cheaper. Now you pay only for what you want. If that's just a seat and the clothes on your back for a weeklong business trip, you should be happy. Indeed, the most unbundled carrier in the U.S. should have the happiest travelers. According to a recent report by the U.S. Public Interest Research Group (PIRG) Education Fund, it doesn't.1

The airline's response is that an uneducated consumer is their worst customer. They intend to teach their customers just how to fly them.2 Bloomberg Businessweek reported that the airline declared 2014 its "Year of the Customer." The goal, an airline spokeswoman said, is, "to reduce complaints by helping customers learn about how to fly Spirit to go where they want and keep more money in their pocket."

According to the U.S. PIRG report, the majority of complaints to the U.S. Department of Transportation (DOT) from 2009 through 2013 related to "flight problems". These include delays, cancellations and on-time performance. But unbundling has spurred a new wave of complaints and lawsuits attacking ancillary fees – the fees that helped turn the airlines' perennial losses into reliable profits.

Earlier Jetrader articles highlighted two lawsuits, one against American concerning baggage fees and a second against Spirit concerning its "Passenger Usage Fee" or PUF.3 Each of the suits sought class action status putting big dollars at risk. There are others. But a recent decision by the U.S. Supreme Court and additional regulation by the U.S. DOT and Congress may signal the beginning of the end of such suits filed in response to the unbundling of airfares.

First, a brief primer. The U.S. Constitution makes federal laws the supreme laws of the 50 United States. State laws that conflict with federal law are "preempted". Preemption can be express, in the language of the law, or implied. What the U.S. Congress doesn't regulate is left to the states. The U.S. Airline Deregulation Act (ADA) moved U.S. airlines from protected "public utilities" to independent competitors.

The ADA expressly prohibits states from, "enact[ing] or enforc[ing] a law, regulation or other provision having the force and effect of law related to [an air carrier's] price, route or service." Tickets sold in the U.S. are subject to an airline's contract of carriage. This is incorporated into each ticket purchased and is available from each airline, typically on its website. A passenger's rights and an airline's liability in connection with its contractual obligation to provide air services are governed (and limited) by this contract, as ultimately regulated by the DOT. The DOT does not provide a mechanism for direct compensation to passengers – they can only require that it be provided. Customers aren't entirely without recourse for a breach of DOT regulations. They can file a complaint with the DOT, but are unable to seek damages for a violation of DOT's regulations.4

In order to recover meaningful compensation for airline customers, lawyers have fashioned creative arguments to avoid preemption. But since preemption is viewed broadly, the courts have resisted allowing claims generally related to what and how an airline charges for its services.

Believing that the WorldPerks program rules gave Northwest too much discretion in terminating his membership, a high-flying rabbi brought suit under a non-contract state law theory alleging breach of an implied duty of good faith and fair dealing. The U.S. Supreme Court decided in April that the claim was preempted by the ADA as it was connected to the rates airlines charge for flights and thus subject to the oversight of the DOT.5 The customer's only recourse was to sue the airline for breach of the program rules, a claim he was not likely to win.

A trial court dismissed a federal racketeering suit against Spirit concerning the alleged deceptive manner in which its PUF was displayed on its website. 6 The court found that, under the ADA, the DOT had exclusive jurisdiction to regulate fare advertising which it had done through its "fare advertising rule". The court noted that the racketeering claim was simply a veiled attempt to bring a claim for deceptive advertising which is exclusively regulated by the DOT. This case is on appeal.

Another trial court dismissed all but a state equity claim for American's failure to refund baggage fees for lost luggage.7 The court ruled that the breach of implied contract claim (American's contract of carriage did not address fee refunds) was preempted by the ADA as being related to American's charge for services. Since that suit was filed, the DOT passed regulations requiring the refund of baggage fees paid for lost bags, but not delayed bags. The remaining claim was dismissed, ultimately a victim of the airline's bankruptcy.

Taken together these recent case decisions (plus others) and regulations, including the 2012 "Passenger Bill of Rights", confirm a strong policy to regulate airline fares, services and routes in the U.S. at the federal level. Airlines thus avoid a patchwork of potentially conflicting state laws and gain protection from customers unhappy about fees and other services. They also preserve these fees as a solid source of revenue for U.S. airlines for the foreseeable future.


1. U.S. PIRG Education Fund report, "The Unfriendly Skies Five Years of Airline Passenger Complaints to the Department of Transportation," April 2014

2. "The Most Hated U.S. Airline Is Also the Most Profitable," Bloomberg Businessweek, April 10, 2014

3. "Is that a Lawsuit in your Luggage?" (2010); "Catching the Spirit" (2013)

4. personal injury claims are not impacted by the ADA.

5. Northwest v. Ginsburg

6. Ray v. Spirit

7. Covarrubias v. American Airlines

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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