Posted by Seth on January 31, 2012 under frequent flyer, News, points | 
Citibank caused quite a stir a week ago when they started sending out 1099s to folks who had received large quantities of bonus miles for opening accounts. Needless to say, there was quite the uproar, with various opinions being shared, ranging from Congress to bloggers. Well, a week has passed and the IRS have finally clarified its position. Sortof. Things are still not incredibly clear, though it is readily apparent that the IRS sees some miles as taxable and not at a particularly favorable rate.
Michelle Elridge, an IRS spokeswoman is quoted in that LA Times column as offering up three very specific bits of information about points and their taxability:
When frequent-flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law.
This part is pretty clear, though not necessarily what most folks want to hear. It suggests that Citi was correct to be sending out the 1099s and reporting the tax liability. The particularly interesting bit is the use of the term "financial account." Not only would this apply to bank accounts, but it could also be reasonably interpreted to apply to credit card and investment accounts as well. After all, those are financial accounts and the points are provided as a premium for opening the account. Not particularly good news for folks who are accustomed to churning CCs and Fidelity/Ameritrade accounts for the huge sign-up bonuses.
As for taxing "regular" levels of mileage earning on CC spend or the actual flying, that’s still safe. The IRS continues to see that as a rebate and not income, so no tax liability there.
A common analogy is buying a $500 television at a retail store and receiving a $50 manufacturer’s rebate. It’s not income, just a deemed reduction of the cost of the television.
The most complicated (and oft-debated) part of the debate might be the valuation of the miles. Many insist that the liability should be the fraction of a cent that the banks pay to buy the points from the airlines. The banks disagree, reporting the value at the full retail price as reported by the airlines. And the IRS is somewhere in the middle.
Under the income tax law the amount of income to the taxpayer is the value of the property received, not the cost that the business paid to acquire the property.
The real gray area there is "value of the property received" which is, by the nature of the property in this case, variable. And it could even be argued that the recipient actually never receives property since the T&Cs of the programs say that the points are the property of the programs. There are others who have explained how to dispute the value reported on the 1099s.
Whatever the approach consumers take, it is clear that the IRS sees these sign-up bonuses as a very different beast from the regular spend earning. And the use of the term "financial account" is very open-ended. The CC churn boondoggle may be coming to an end sooner than we all hoped.
Posted by Seth on January 30, 2012 under Flying, News |
I love when our elected representatives decide to speak up and express just how idiotic their thoughts are. I’ve heard a Representative state for the record that she thought Adobe Acrobat should be outlawed, for example, but I’m not so convinced that her view there is more ridiculous than that put forth today by Representative Tom Graves of Georgia. Graves, who represents Georgia’s 9th Congressional District (North of Atlanta, up to the Tennessee, North Carolina and Alabama borders), has announced that he will be introducing legislation which will repeal the DoT rule requiring airlines to list the full price of tickets, including all taxes, when they advertise.
This rule, put forth as part of the DoT’s consumer protection efforts, has come under attack from such legendary consumer advocates as Sprit Airlines, who is complaining the rule violates their first amendment rights because they cannot advertise one number and then charge a completely different number when the customer goes to actually make the purchase. Seems like just the sort of actions that should be protected, right?
The Congressman has a very simple premise for why the rule is bad: It prevents the airlines from indicating what part of the fare is actually the fare and what part is taxes and fees.
The federal government should not be inserting itself in the private sector to limit consumers’ ability to see how much they’re getting taxed. If the American people can’t see these costs clearly, I fear it will be easier these fees and taxes to be raised without their knowledge.
There’s just one problem with this line of thought (two, really, but I’m ignoring that the second line there isn’t a complete sentence): it is completely unfounded in reality. There is absolutely nothing in the rule that prevents the airlines from explaining in excruciating detail how much the taxes are and how much the fare is. There is nothing preventing them from reminding the consumer that there are a dozen or so different taxes and fees on the average airfare and way more on international itineraries. What the rule does, however, is prevent an airline from advertising a $9 fare which cannot be purchased for less than $20, no matter how hard you try. And that’s a good thing for consumers.
Fare listings like these, which are fully compliant with the rules, make it quite clear what the taxes and fees are, without violating the DoT rules:
And, yet, somehow apparently it is actually impossible for the airlines and OTAs to actually publish the information this way, as they are inhibited by the DoT rules. Strange, isn’t it, how they’ve managed to do it anyways??
I understand the complaint that nothing else in the USA is required to be marketed with the all-in price rather than allowing for customers to be surprised at the cash register. Let’s not use the examples of things that are bad for us as citizens as examples of why progress shouldn’t be made. Let’s got the other direction instead. Let’s hold hotels and rental car companies accountable, too. Let’s stop rental car companies from hiding the 50%+ surcharges until the final page of the check-out process. Let’s stop hotels from adding on $15-30 or more, per guest, per night, as a "resort fee" rather than actually including those charges in the fine print. After all, you cannot avoid paying them.
There is nothing wrong with calling attention to the fact that the average airfare has so many taxes associated with it. But pretending that there is some unwritten rule out there which is somehow preventing airlines from actually doing so is just plain lying.
Time to step up and face the facts, Congressman Graves: you’re full of it. Step up and do something that actually helps your constituents rather than lying to them. I’m sure they’ll appreciate it when elections roll around.
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Posted by Seth on January 24, 2012 under Flying, News |
Spirit Airlines is protesting the new fare rules requiring full disclosure of all costs for a flight, claiming that the government is requiring them to hide the taxes from their customers. And they’re doing it in style. Their main homepage now shows this when you visit:
If you click the link offered you get this:
Thanks to the U.S. Department of Transportation’s latest fare rules, Spirit must now HIDE the government’s taxes and fees in your fares.
If the government can hide taxes in your airfares, then they can carry out their hidden agenda and quietly increase their taxes. (Yes, such talks are already underway.)
And if they can do it to the airline industry, what’s next?
As the transparency leader and most consumer-friendly airline, Spirit DOES NOT support this new USDOT mandate. We believe the better form of transparency is to break out costs so customers know exactly what they’re buying.
The scary thing here is that I almost actually agree with them.
It is true that, by requiring the big, final price number to be displayed to the customer the actual tax burden is obfuscated. So they’re not really wrong there. But that obfuscation also prevents all sorts of other fees from being hidden, the sorts of fees that Spirit is famous for. And that’s a good thing.
Plus, at the end of the day, most customers care much less about how much of the fare is for taxes and how much is for the airline. A $300 ticket is a $300 debit on my credit card. Whether the airline keeps $150 or $250 of that doesn’t skew whether I think it is a good price for the trip.
Besides, there is nothing stopping Spirit from showing the full breakdown underneath the all-in price. That way they can continue to be a "transparency leader and most consumer-friendly airline" as they always have.
Posted by Seth on November 11, 2011 under Trip Reports |
For a few years now the United States government has been gouging potential visitors with high fees to apply for visas to visit. No guarantee that you’ll be admitted but you pay anyways. A number of countries responded in kind, either requiring a visa with a comparable fee or, in some cases, just charging the fee. Argentina is one of these countries, charging a "reciprocity fee" for visitors.
The fee is comparable to what is charged to Argentinians visiting the United States, $140. Rather than applying in advance for a visa, however, one simply pays the fee in a separate line at the airport before heading through the immigration line. But it turns out there’s a way to avoid this fee, if you happen to be a bit crazy like me.
The fee only applies for folks staying in Argentina. If you’re just connecting then you don’t pay the fee. And, much like the airlines, the definition of a connection is pretty liberal: 23 hours 59 minutes. If you over-stay you get hit with the fee on departure and it can be a bit of a mess, but so long as you have proof of onward travel departing in <24 hours you’re good to go. Rather than getting a stamp in your passport you get a stamp on the immigration form. And if you lose that you get hit with the fee. But so long as you can hold on to that piece of paper for 24 hours the transit is free of reciprocity fees.
I strongly recommend having a paper print-out of your itinerary showing the onward flight out of the country. I managed to get by with showing the immigration officer the itinerary on my phone but I got the impression he wasn’t too impressed but that performance. Show them the itinerary and explain that you are in transit and you should be good to go. I would imagine that this is an easier conversation if you speak Spanish but I managed to get by in English so it is definitely possible. It is possible that this only works for passengers in transit between countries, not folks returning to the same country from which they arrived (similar to China’s policy on transit) but it definitely worked at least twice I can vouch for.
Once you’re past the immigration folks for your day trip to Argentina head into town and spend some of that $140 saved on supporting their economy. And expanding your waistline:
That was a great steak. And I was much happier spending the money there than on the reciprocity fee.
And a special thanks to Grahm for tipping me off to this benefit in the first place.
Posted by Seth on November 9, 2011 under frequent flyer, News, points |
Following on the heels of this summer’s award chart adjustments that saw many awards increase in cost it appears that Aeroplan, the loyalty program associated with Air Canada, is also adjusting the surcharges they levy on certain award redemptions. Specifically, it appears that the YQ fuel surcharge, to date only levied against redemptions on Air Canada flights, is now applying to flights operated by Lufthansa, Austrian and a few others.
This trend is not a new one. Recently American Airlines began charging the YQ surcharge on flights operated by partner British Airways. Delta charges a similar fee for flights originating outside the USA, even if flown on Delta airplanes, while not charging where the flights originate in the USA. Needless to say, the development is a costly one for customers.
With Aeroplan as one of the last great redemption options for the American Express Membership Rewards program this move also devalues those points a bit. Not great news at any level.
More over at View From the Wing.
Posted by Seth on October 25, 2011 under News |
United Airlines and Amadeus, one of the major Global Distribution Systems, signed an agreement to extend the availability of United fare and inventory data for Amadeus subscribers into 2013. This deal will allow travel agents using the Amadeus system to continue to sell seats to their customers.
Of particular note in the announcement, however, is not simply that the partnership was extended but that it was improved as well. Starting in mid-2012 Amadeus-based agents will not only be able to sell regular inventory on United flights but they will also be able to sell the company’s Economy Plus seating. Economy Plus is one of many ancillary services that United makes available for purchase and this deal represents the airline working with the GDS company to make such an ancillary purchase available via the GDS rather than solely directly via a Direct sales model.
With more and more airlines making the push to bring such ancillary sales wholly into the Direct model it is rather refreshing to see at least one company bucking that trend and working with their GDS partners to make the options available in a centralized and transparent manner. It will be interesting to see what other options flow into this relationship over the coming months and years.
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Posted by Seth on October 24, 2011 under News |
It is quite clear that the airlines wish it were not, and there are a number of people offering up suggestions on how to break the trend we’ve seen of pricing and marketing air travel as a commodity. But is that really in our best interests as passengers? I’m not so convinced.
The most recent claim on this front comes from Evan Konwiser via tnooz.com. The crux of Evan’s claim appears to be that:
We refuse to reward airlines by paying more for things like good service, nicer planes, quieter terminals, or shorter lines…. [B]ut then feeling indignant and wronged when the service inevitably fails to meet expectations.
I cannot argue this part of Konwiser’s claim. As travelers we do, indeed, shop based almost solely on price and ignore the rest of the details. Why? Because at the end of the day the products actually are, quite frankly, a lot like a commodity. The seat is going to be between 17-18 inches wide and have between 29-34 inches of pitch. It is going to be in a tube where you fly some hundreds of miles per hour and eventually probably get where you’re going. So where is the differentiation?
The airlines are pushing Direct Distribution architectures where they interact directly with the customer rather than using the legacy GDS systems for their fare and inventory distribution. The theory is that such means will allow the carriers to differentiate their product offerings versus competitors and tailor the sales pitch on more than just the price. As stated in the article:
Direct Connect offers some hope by differentiating the shopping experience and tying more tangible product enhancements to the purchasing decision.
By being able to connect directly with consumers at OTAs or metasearch engines via an API (or directly via the carrier web-site), airlines can in theory provide a customized experience.
They can change pricing, amenities, and features depending on who you are and what kind of trip you’re looking for.
While price is still a primary concern, it might allow airlines to throw in other “value” items that shift the decision away from pure price to a value trade-off. The more consumers actively make those choices, the more they can link the purchasing experience to the flying experience.
But the Direct approach still doesn’t address the largest issue – that the travel experience is decoupled from the purchase point. Yes, an airline can advertise that they only charge $6 on board for booze instead of $7 or that they sell fresh food rather than just snack boxes. They can even integrate the purchase process at the time of the transaction to get you a discount (and there is ample evidence of many airlines doing this today with bag fees). But that’s not going to drive purchase behavior. Certainly not enough to offset a $20 difference in price in most cases.
I am afraid that I must concede that the trend towards the Direct model – where the airline can "tailor" the offering to the known customer, including skewing the price if they so choose with little to no transparency – is one that seems unlikely to be stopped any time soon. Such a trend will, for the near term, make it more difficult for customers to effectively compare the total cost of a journey, just as is the case today due to variations in bag fees for most customers on most airlines. It is hard to see how this is good for the consumer, especially when the product is essentially the same other than schedules.
If an airline were to offer some distinct difference and market on that then perhaps they’d beat the price comparison pressures. Midwest did so for quite some time with their larger seats and cookies in flight. But they couldn’t maintain that difference as they expanded to compete with the larger carriers. And there is scant evidence that any other carriers would be able to either.
I’ve written previously, railing somewhat against the Direct model and the potential impact it can have on customers. I’ve got nothing against the airlines offering up more data about the services and associated costs of the various bits of the travel experience. Far from it, actually, I’m hugely in favor of the airlines sharing that data in a consistent, indexed and searchable manner. The difference is that I want to see the data shared across a common platform so that everyone can see all the bits and compare them rather than the airlines only showing some parts to some customers and other parts to others.
Becoming a market leader should come from actually having the best product, not from obfuscating the details and hoping no one notices that you’re toying with them on the cost side of the equation. Maybe it is a chicken and egg game where no one is willing to pay for the better product because no one knows about the better product. But if that were really the case then it seems unlikely that United Airlines would have committed to keeping EconomyPlus in their fleet post-merger or that Delta would have matched the product with their deployment of Economy Comfort fleet-wide which was announced yesterday. And those airlines seem quite content to keep offering the product, knowing that they’ve monetized and commoditized it.
Blame the GDS companies if you must for not adapting quickly enough, but the airlines are still mostly to blame for not actually offering a substantially different product from each other. And why should they when consumers have demonstrated time and again that they are rarely going to pay for it?
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Posted by Seth on September 28, 2011 under Flying, News |
The United Kingdom has long been known for a rather brutal tax known as the Airline Passenger Duty ("APD") assessed on departing passengers. The fee is variable based on the distance of the flight and the cabin of service, with premium cabin passengers paying twice as much as folks riding down the back and the cost for travel to the USA at £120 (~$180 these days) up front. The tax is, depending on who you ask, designed to offset the environmental impact of all the flights or to simply discourage people from flying.
Apparently, however, rather than meeting either of those goals in Northern Ireland is has a different effect: It drives traffic across the border to the south. Departures from Dublin incur minimal taxes (~$5 these days) and shuttle service between Belfast and Dublin is cheap and readily available. The net effect is that passengers are simply skipping out on flights from Belfast and the British Treasury is getting none of the cash.
That’s changing now as apparently someone finally realized that it is possible to tax a product out of existence. The government has chosen to slash the long-haul APD for flights out of Belfast. Currently the only service affected is a daily flight between Newark and Belfast on Continental Airlines which was apparently in danger of disappearing. That service will remain, in part thanks to this change,
…maintaining Northern Ireland’s vital economic air link to North America, and Northern Ireland will gain a fresh opportunity to develop other long-haul routes to the rest of the world.
The APD for long-haul flights will be reduced to match the short-haul rates. That’s a difference of £48 for economy class passengers and £96 for folks up front (passengers will be charged £12 or £24).
No word yet on whether Continental will be letting customers save some money thanks to this tax cut or if they’ll be raising their fares to compensate for the cut in the taxes and pocketing the difference for themselves. I’m betting on the latter.
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Posted by Seth on September 12, 2011 under Flying, frequent flyer, Mileage Run, Trip Reports |
Anyone ever tried to buy a round of drinks for an entire airplane? I did today and the logistics were surprisingly complicated. Maybe that’s because no one ever does this sort of thing. Or because it is ridiculous. But that mostly just describes me so I gave it a go.
American Express offers a $200 credit to platinum charge cardholders to offset the various fees airlines will hit you with these days. The catch is that it can only be used against one airline and once you choose the carrier you’re stuck with that choice for the whole year. Most of my flying is on airlines where I have status and I rarely check a bag, even when I don’t have status. Plus I get upgraded a fair amount so food and booze are often part of the deal. Nearly a year into the program’s existence I haven’t figured out a scenario where I could reasonably spend that $200.
Sitting a lunch with a friend in Anchorage I decided that today would be the day. I was going to commit my $200 in "fees" credit to Alaska Airlines and get my money’s worth. It is my first flight ever on Alaska and probably my last for the year so committing to spending the $200 on my own is too tall a task. But with a little help it shouldn’t be much of an issue. After all, it is a flight to Honolulu and folks should mostly be pretty happy about that, right? A free drink should make it even better.
After stowing my bag in the overhead bin I made my way back to the galley to explain my plan to the flight attendants.
Me: Hi there! I’ve got a strange situation here. I want to buy drinks. A lot of them.
FA: Huh?
Me: I want to buy the first round for the whole plane. That’s probably 40-50 drinks, right?
FA: Huh?
OK, so the quotes aren’t entirely verbatim, but the confusion expressed by the FAs was pretty close. We spent the next 10 minutes chatting about my scheme and trying to figure out the best way to handle the logistics. One option was for her to run the card 30+ times and have me hand the receipts to the lucky drinkers. We threw that one out pretty quickly as way too much work. Eventually we agreed that they’d just do a normal beverage service but rather than charge everyone they would just tally the total drinks consumed and I’d pay the bill at the end of the service.
Because the offer was only revealed after the drink was ordered the initial damage was actually rather limited. We didn’t quite get to the $200 threshold on the first pass. This, of course, raised another issue of trying to figure out how to spend the rest of the credit on board. I made a sign, figuring I’d walk through the cabin offering up the drinks that way.
Ultimately, however, that seemed less friendly. So I just started asking folks if they wanted a drink. I’m wearing a Hawaiian shirt that is similar in color to that of the flight attendants so A few people confused me for that; I even had one ask how to fill out the agricultural declaration form. But once I explained that I’m just a guy buying drinks for anyone who wanted one I did manage to get a few takers. Pretty soon my sales efforts were rewarded and the $200 credit (and a few dollars more) was over. I was willing to keep going (a bit) but the third beverage service is about to start and that means free mai tais for everyone!
I had entirely too much fun on this flight. I don’t know why but flights to Hawaii make me want to have more fun than most. Also, a special thanks to the crew from Alaska Airlines who were willing to help me out on this ridiculous bit of entertainment.
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Tags: Alaska, Alaska Air, Alaska Airlines, American Express, Anchorage, elite status, fees, Hawaii, Honolulu, Mileage Run, PacificLines, Trip Report, upgrade
Posted by Seth on August 26, 2011 under Flying, frequent flyer, News |
American Airlines announced yesterday that they have expanded their Preferred Seating product offering. While this is being spun as making more seats available to all customers they are conveniently overlooking the part where such availability comes at a price – starting at $4 per seat per segment. This paid option starts at the 24-hour check-in window and will be available throughout the check-in period.
For customers interested in select aisle and window seats near the front of the main cabin, Preferred Seats are available for purchase as early as 24 hours prior to departure with prices beginning at $4 USD per flight.
Taking a look at a seat map for a flight with no customers yet booked one can get some ideas of what the seating options are. The forward two-thirds of the aircraft no longer offers aisle or window seats for free to non-premium passengers. That’s pretty rough. The MD80s are actually worse than the 737-800s, I think, as the two seat side is pretty much entirely blocked. There are significantly fewer free aisle or window seats available.
American is quick to point out that passengers choosing to not pay for a seat assignment will be given one for free. If there are still middle seats left to be assigned those will likely be the free ones. The company also points out that not all blocked seats are Preferred. Some are Preferred Plus, reserved only for elites and full fare customers. So the fee a non-elite pays for a seat assignment doesn’t even necessarily get them a particularly great seat.
The company is also advertising that active-duty military get free access to these Preferred seats. The fine print suggests that might actually only apply when they are ticketed on military fares, but it is not clear how this will actually apply at the airports.
Lest folks think that only non-elites are losing out here, it seems that elites are actually losing in some scenarios. Yes, they now get complimentary access to more seats (including bulkheads) which is a benefit, but they are also losing the ability to have companions on a separate reservation granted the good seats for free. That’s not so great.
Finally, there is one awesomely awful quirk in the new policy with respect to award tickets. While AAnytime Award tickets (double miles) are considered premium and will get the seats for free the same cannot be said for MileSAAver level (normal rates) tickets. In fact, these tickets are expressly ineligible for even paying for the seats.
We’re excited to provide you with even more options to customize your travel experience based on your needs.
Apparently paying more for the exact same seat assignment is a great new option for customers. I’m not buying it.
Posted by Seth on August 9, 2011 under frequent flyer, News, points |
I’ve written many times about my love for free award changes as a top-tier elite. It is one of the most valuable benefits of airline status to me and one that I use a ton. It is not uncommon to find that a better seat/route/time might open up with award inventory just a day or two prior to departure as the operating carrier realizes that they will not be able to sell the seats and they are willing to take some points off the books in exchange. In fact, my most recent Lufthansa first class experience was a direct result of one such change, with the seats becoming available about 48 hours prior to the flight and me making the change about 36 hours prior to travel.
Had I been using Delta SkyMiles that change would not have been possible.
In a new policy announced today and which takes effect on 15 August 2011, Delta has stated that all awards will be considered non-refundable and non-changeable at 72 hours prior to departure. This comes just two weeks after the announcement that the awards would expire at the time of departure. The change applies to all SkyMiles redemptions, including those of Diamond and Platinum elite members.
Customers who would book a mid or high tier award as a hedge against nothing being available would previously be able to change that award to a low tier seat – and save a lot of miles – if the award inventory opened up. And if those seats were to open up it was quite commonly 48-72 hours out. With this new policy making that change – from high/mid to low at 48-72 hours out – is now impossible. Sure, the passengers can take the chance that the low will open up anyways (Delta is spinning this change as something which will "make those seats available to other members and ultimately increase award availability."). But that’s a pretty stupid bet to make from a customer perspective.
There are a couple interesting things that the change shows. For starters, apparently there were 400,000 awards that were not flown (and presumably refunded) nor canceled prior to departure in the prior year according to the Delta representative announcing the change. There were 1,000,000 awards that were sitting booked at 72 hours out that were never flown. That’s a lot of award miles that would be forfeit should the customers not make appropriate changes. It is not hard to see where Delta got the idea to make this change.
Another interesting bit is that they made these two announcements only two weeks apart. That’s two adjustments to the same policy, a policy that had existed for a long time with no variation, announced so close together that it is hard to believe someone competent actually approved the timing of the decision. If you’re still considering changing it further, particularly when that further change is so similar to the initial one, why not just wait until you’ve made a final decision and announce the change then? Sure, the change sucks for customers. No doubt about that. But the fact that it was changed twice in such a short period is truly pathetic.
Finally, the announcement of the change and its retroactive impact on the validity of existing award reservations is questionable. The program terms includes conflicting information on that topic:
Delta and its program partners reserve the right to change program rules, benefits, regulations, Travel Awards, fees, mileage Award levels, and special offers at any time without notice. This means that Delta may initiate changes, for instance, impacting partner affiliations, rules for earning mileage credit, continued availability of Awards, or blackout dates. … Unless otherwise stated, the terms and conditions of the SkyMiles Membership Guide and Program Rules in effect at the time of your travel, request for a benefit, or other transaction will govern the transaction.
Those are the first and last bits of the same paragraph. It is not hard to believe that the last line says that the rules in effect when I conducted the transaction – issuing the award reservation – should apply to that reservation. Based on everything Delta has stated so far, however, they will be using the first line as their policy and applying this change to existing bookings as well.
Ultimately this is just another in the long line of changes made to the SkyMiles program that devalues the points for their members. At least in this case the folks in Atlanta know that the change is not going to be well received. Didn’t stop them from making it, though.
They’re not known as SkyPesos for nothing, folks.
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