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DOT EXPECTED TO ENFORCE NEW AIR RULES AGGRESSIVELY
Travel agents who fail to comply with the new DOT rules that went into effect this week run the risk of “draconian” penalties, as the department is likely to make an early example of violators.
That’s the view of industry attorney Jonathan Harriman. Harriman and other industry members are urging agents to take a close look at the rules on baggage fee disclosure, airfare advertising and post-purchase price increases and make appropriate changes.
“These rules will significantly impact the regulatory environment in which travel agencies operate and failure to comply could result in substantial penalties,” said ASTA CEO Tony Gonchar. (For a description of new DOT fare and fee rules, please see related story, “An Agent-Friendly Guide to New DOT Disclosure Rules.”)
Dramatic impact on agents
The new rules could require agencies to make fundamental systems and programming changes and to re-train frontline employees, ASTA stated.
The rules are also expected to have a sizable impact on agency-tour operator business dealings.
The DOT’s advertising rules go into effect on Jan. 26. Its fare hike and fee disclosure rules took effect on Jan. 24.
While some new DOT fare rules became effective in August 2011, the rules taking effect this week “may have the most dramatic impact on an agency,” Gonchar said.
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Penalties for violating the rules can be sizable, said travel industry attorney Alexander Anolik of Tiburon, Calif.
Travel Market Report asked Anolik and his law associate Jonathan Harriman to discuss the DOT’s new rules and what agents can expect.
What should agents do to make sure they are complying with the new DOT rules?
Anolik: Closely review the new regulations and speak to their travel attorney. A few hours of legal consultation is much cheaper than even one day’s worth of penalties.
What are the penalties for violating the rules?
Anolik: The penalties are substantial. The statutory penalty is $27,500 per violation. It increases for each violation and/or each day the violation continues.
Is DOT proactive about enforcement?
Anolik: The Department of Transportation is proactive about enforcement and has an entire office dedicated to finding and punishing violators. Be aware that many agencies are turned into DOT by other agencies that are caught with a violation.
Last year, DOT issued nearly $6 million in penalties against agents and carriers for noncompliance. We expect increased enforcement in 2012 due to the new laws.
Harriman: Get ready for the first wave of penalties in April and May. DOT will give everyone two months to get their act together. Then they will come down hard and make examples of OTAs, airlines and tour operators. This is the way they work – make an example of one company in each segment of the industry.
Penalties are draconian. The average fine for an advertising violation can cost an agency $57,225 – and that is for a small agent.
What benefits do the rules provide to agents and consumers?
Anolik: Consumers enjoy most of the benefits from the new DOT rules. Although short of a Passenger Bill of Rights, these rules make serious efforts to protect consumers from unfair practices and re-civilize the air travel experience.
Agents will certainly enjoy some benefit from the more complicated rules, but this benefit will be outweighed by the additional costs of compliance.
Harriman: One minor benefit is that the new full fare advertising rule is simple and straightforward – what the consumer pays for a ticket is what you have to advertise.
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That’s a change from the 1990s’ DOT rule letting agents break out fares and fees, a Byzantine rule that was very complicated and that many agents got wrong – and were fined $40,000 (as a result).
Are there any drawbacks for agents?
Anolik: Absolutely. Compliance with the new DOT rules will not be easy. The new advertising rules will dramatically change the way airfares are advertised and will required a complete overhaul of most agent websites – especially for OTAs.
As always, there will be agencies that make incorrect changes or completely fail to make the required changes.
This will result in brutal penalties and lots of publicity by DOT, which is looking forward to an opportunity to get the word out and ensure industry compliance.
How will the ban on airfare increases after full payment affect tour operator-travel agent engagement?
Anolik: The new price increase regulations will force tour operators to heavily modify their established booking procedures.
Harriman: It will change the booking process for tour operators. I see them wanting deposits as early as possible and pushing off full payment as long as possible. They will provide full fare disclosure, and then wait it out before they purchase the air so they can lock in the price later on and limit their liability if there is an airfare increase.
Anolik: The agent is paid full commission on the booking, as compared to the deposit [the tour operator receives]. It helps agents’ cash flow and overrides for the consortium – and you want that all in as early as possible so the consortium hits its override level.
Harriman: So agents probably want consumers to pay as soon as possible to lock in prices, whereas the operator does not want full payment [too far in advance], because of the liability for an airfare increase that they cannot pass on.
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