So you’re shopping for a flight home over the holidays. Or you’re looking for a hotel room for a friends’ getaway at the beach. Or, heaven forbid, you’re desperately hoping to have a chance to see Taylor Swift. As a savvy digital consumer, you search various websites and apps, looking for the best deal. A discount airline can get you home for just $97! The Hyatt overlooking the sand is only $225 per night! And the tickets are affordable! What a steal!

But by the time you’ve added all your personal and payment information, the total airline charges are actually $140, the hotel had increased to nearly $300 per night, and those tickets for even the worst seats have jumped way out of your price range. Sound familiar? It has happened to nearly every consumer buying in these industries, and the reason is “junk fees”—extra charges lumped into the final price that rarely are disclosed in the initial offering price, the one that got you to click in the first place.

Junk fees include additional charges for people to select their seats or check a bag on an airline; park their car or use Wifi at a hotel; and simply complete the transaction for concert tickets. These fees go to the airline or hotel or concert venue; they are separate from things like taxes or regulatory fees. The providers also know how much they will be charging in junk fees. They simply choose to make those added costs nontransparent to consumers.

By separating out the main ticket cost from the junk fees, the providers attract more clicks and interest from consumers. Then, they require the registration and transaction process to reach virtually the last step, when the consumer clicks “purchase,” before revealing the fees. For many consumers, having spent time already finding and completing the registration process, the thought of losing all that effort is aversive, so they simply buy at the higher price.

Because of how common those fees have become, it also appears that consumers mostly have grown accustomed to them and write them off as unavoidable. Accordingly, estimates indicate that hotel fees cost travelers $3 billion per year, and the airline industry takes in a whopping $102.8 billion for charging people to get assigned seats and such.

But regulators note that hiding actual costs is not in consumers’ best welfare, and Congress has vowed to impose mandates that service providers disclose all of them. Some famous names that will be affected by such legislation include Frontier and Spirit in the airline industry; Marriott and Hyatt among hotel chains; and Live Nation (which owns Ticketmaster) and Seat Geek in the entertainment sector.

Many of these service providers have reacted to the threat of new legislation with promises to be more transparent in their pricing—though not to lower their overall prices. Furthermore, they have little motivation beyond legal mandates to do so. Many of these companies are still reeling from the difficult times and loss of sales imposed on them during the COVID-19 pandemic. In their attempts to regain revenue, and leverage consumers’ renewed willingness to go out and do fun things, like travel or attending concerts, they will consider nearly any tactic to encourage purchases. They thus have a good reason to promise a low price, based on their confidence that consumers will become sufficiently drawn in by that price to start the purchase process that they will not choose to leave it before buying.

 

Discussion Questions

1. Are junk fees a legitimate pricing tactic or an unfair strategy? Could it be considered a bait-and-switch tactic?
2. How do you react when the final price you must pay is much higher than you expected, based on your initial search for a plane ticket, hotel room, or concert ticket?

Sources: Brian X. Chen, “Watch Out for ‘Junk Fees’ When Booking Travel Online,” The New York Times, June 15, 2023; Ben Sisario, “Ticket Giants, Under Pressure from Biden, Promise Transparency on Fees,” The New York Times, June 15, 2023