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Hidden fees lurk in online tickets

If you purchase an airline ticket from an online travel company, don't be surprised if you end up paying more than the advertised fare.

Comparing airfare prices online may sometimes seem as useful as comparing apples to oranges.

Millions of people use the Internet to shop for rock-bottom airfare, but in many cases the actual amount they pay is slightly higher than what they are quoted.

Along with bidding on auctions and trading stocks, buying travel tickets is one of the most successful forms of consumer e-commerce. The big three travel sites--Travelocity.com, Expedia and Orbitz--compete fiercely to provide the best service and price.

But some sites are taking advantage of ambiguous federal regulations to post quoted fares excluding special fees. While this typically results in a difference of just $5 to $10, critics say more fees are planned that could widen the discrepancy.

In addition, though the travel sites disclose all costs before an actual purchase, critics say that displaying several prices might mislead customers.

"We don't feel that it's up to the consumer to play 20 questions before they find out what they are paying," said Bill McGee, editor of Consumer Reports Travel Letter, a consumer advocacy magazine that tests and reviews services.

For much of the past year, the U.S. Department of Transportation has cracked down on airlines and travel agencies that separate certain fees, a violation of regulations requiring that quoted fares state the full price charged to the customer. Seven companies in 2001 did not include the fuel fees in the fares and were fined a total of $242,000, according to DOT spokesman Bill Mosely.

"The rule helps protect consumers against bait and switch," the DOT said in a letter sent to Expedia, which was fined $40,000.

However, the department has failed to take such a hard-line stance against new service fees, pitting some travel sites against those that are still playing by the old rules.

Specifically, in December the DOT granted a temporary waiver to Orbitz to separately charge its new $5 service fee while regulators consider whether to change regulations.

While the fare and the fee can be found on the Orbitz site itself, many consumers search multiple sites or use search engines to find the lowest fares, and those will display the fare only--not including the fee.

Although tacking on small service fees to a hotel or car rental bill has long been accepted practice, it isn't considered acceptable among the rabid bargain hunters on the Net. Even a $5 difference can mean going with one flight over another. On a long list of fares, a higher-priced ticket may not appear near the top and could be overlooked by a consumer.

Orbitz and other major online travel sites, such as Expedia and Travelocity, have not traditionally charged a service fee, instead relying on airline commissions for revenue. But in the past year, the economic downturn has prompted some major carriers, including Continental and Northwest, to end the commissions, typically 5 percent per ticket with a $10 cap.

The move cut deeply into the bottom line for the online agencies, which had earned up to half their revenue from the commissions.

Fee crackdown
In 2001, the Department of Transportation fined these companies for not including a fuel surcharge in fares:

• US Airways: $50,000

• Northwest Airlines: $50,000

• Lowestfare.com: $40,000

• Expedia: $40,000

• Vacation Express Holdings: $30,000

• Grand Bahamas: $30,000

• Vanguard Airlines: $2,000

Source: DOT
In response, Orbitz announced its $5 service fee, and Travelocity began charging a $10 service fee on Northwest flights. Expedia, meanwhile, avoided a fee by negotiating private deals with the airlines to make up the lost revenue. Priceline.com has charged $3.95 on its fares for a long time.

Orbitz spokeswoman Carol Jouzaitis said consumer focus groups have indicated that they prefer separate fees as long as the total price is displayed before the transaction is completed, which the DOT required the company to do as a condition of granting the waiver.

Airfare already includes the cost of various fees and taxes, including a 7.5 percent federal tax on domestic tickets and as much as $18 in local airport taxes. Some extra fees are triggered by customer requests, such as the standard $5 to $15 fee for shipping and handling of paper tickets.

In February, fares will include a federally mandated security fee of up to $10 per round-trip ticket. That fee will help pay for the federal government to oversee security operations at the nation's airports.

Before the Internet, computer reservation systems used by travel agents lumped all costs together when advertising fares. Some analysts and consumer advocates say Web travel agencies should simply be required to do the same thing.

The DOT waiver for Orbitz prompted rival Travelocity, which includes its new $10 service fee in the cost of the fare, to formally object in a letter to the DOT. It said the waiver gave Orbitz a competitive advantage since customers would see a lower fare on the Orbitz site.

"The department has substantially modified its prior enforcement case precedent," Travelocity wrote, citing the Expedia fine over the fuel surcharge. "We believe that certain aspects of (Orbitz's service fees) compel more immediate attention from the department."

The DOT said the exemption will remain while it reviews the service fee issue, but there is no timetable for when the review will be completed.

The letter is just the latest salvo in an ongoing battle between the sector's major players. The biggest player, Travelocity, is backed by the giant computer reservation system Sabre. Fast-climber Orbitz, currently No. 3 behind Microsoft-backed Expedia, was created by a consortium of airlines and has a guarantee from them to offer their lowest online fares. Travelocity and Expedia have accused Orbitz of employing anti-competitive tactics, which Orbitz denies, reiterating that its practices have already been reviewed and approved by federal regulators.

In the robust online travel sector, Expedia and Travelocity and discount travel site Priceline are profitable, and Orbitz anticipates becoming profitable sometime this year. Analysts expect the airline industry in general to shake off 2001's slump, with online travel capturing $14 billion in customer spending.

How customers react to whether fees appear as part of the airfare is up to debate.

Five dollars here or there isn't going to make a difference, according to Philip Wolf, chief executive of travel research group PhoCusWright.

"You want customers to have all the information, but what's the difference when you buy from Amazon? They don't factor the costs of shipping into their advertised price. Nobody cares," Wolf said.

But Frank Matthews, an avid shopper for online travel deals, thinks separating the fees will backfire.

"I suppose that it's the nature of advertising to state as low a cost as possible," Matthews said. "The key figure is the final cost. The only result of hiding fees will be that the user gets farther into the purchase prior to backing out as they check for other sources."

The DOT needs to set standards that require travel sites to make things simple for consumers, Forrester Research analyst Henry Harteveldt said.

"Orbitz is certainly not trying to hide anything. But all the Web sites need to blend the fees and fares together and show the final price to consumers first," said Forrester Research analyst Henry Harteveldt.

"Consumers don't like nasty surprises," he said.