Airlines hosed down over drip pricing

Published On 13/03/2017 | By KWM | Consumer protection

The Federal Court has imposed penalties totalling $745,000 for misleading ‘drip pricing’ practices on airline websites during 2013 and 2014:

  • Jetstar was ordered to pay $545,000 for beaching s 29 of the Australian Consumer Law by making false representations on its website and mobile site; and
  • the Court imposed an agreed penalty of $200,000 in respect of false representations on Virgin’s mobile site.

The two decisions provide an insight into the way courts can be expected to deal with finely balanced differences of opinion between regulators and large corporate parties. They are also a good case study for the impact of ‘proactive cooperation’ as a factor in the setting of penalties.

Airlines left wet

The recent penalty decisions follow an earlier decision by Foster J on the legality of the airlines’ online booking practices. In November 2015, James Gould reported on this blog that the Airlines had been left wet after the Court’s initial drip pricing findings, noting that:

Essentially, they had advertised airfares for sale at a headline price without adequately disclosing to potential customers that they would be required to pay a booking and service fee for payments made using one or more popular and commonly used payment methods, including paying by widely accepted debit cards and credit cards.

As James noted, the Court only found some of the relevant booking procedures to be false and misleading. The adequacy and timing of the disclosure of relevant fees was important – where the airlines had taken appropriate steps to disclose the existence and amount of the fees early in the booking process the relevant representations were held not to be false or misleading.

Make it rain

Following the decision on liability, the ACCC sought penalties of $300,000 and $250,000 from Jetstar for two contraventions in relation to its website and mobile site (respectively). Jetstar contested the penalties, arguing that the two representations should be treated as the same course of conduct, such that a single penalty of $100,000 should be imposed. On the other hand, Virgin agreed with the ACCC that an appropriate penalty would be $200,000.

Jetstar

Jetstar’s decision to contest the penalty got a damp reception — Foster J effectively accepted the ACCC’s penalty case, reducing the website penalty by $5,000 and imposing the mobile penalty sought by the Commission. His Honour also rejected Jetstar’s ‘course of conduct’ argument, noting that the two representations occurred at different times and on different media.

The Court ultimately held that the contraventions were not trivial but were not at the most serious end of the spectrum, based on factors including:

  • the conduct was deliberate but pursued in the reasonable belief that it was in compliance with the law — in effect, it ‘reflected a robust (but incorrect) view of the law’;
  • there was no evidence of loss or damage before the Court, though there was some likelihood of consumer harm;
  • there was evidence of contrition, a compliance program and cooperation with the ACCC during its investigation.

There was some disagreement about the extent and relevance of Jetstar’s engagement with the ACCC. It appears Jetstar’s response to the ACCC’s concerns was tepid rather than warm. The Court characterised its cooperation as reactive, and noted that it had stood its ground with the approval of senior management. This supported a more significant penalty but did not warrant a large difference.

Virgin

By contrast, Virgin and the ACCC filed joint submissions in support of a penalty of $200,000, which the Court accepted was appropriate in the circumstances. Justice Foster observed that the actual harm caused by the conduct was insignificant. As with Jetstar, the Court noted that Virgin reasonably believed that it was operating within the law, although that belief had proved to be incorrect. Finally, the Court accepted a submission that Virgin had proactively engaged with the ACCC by proposing to work with the ACCC on adjustments to aviation industry practice regarding the disclosure of non-compulsory fees.

Key take outs

The penalties imposed in the drip pricing proceedings are fairly insignificant in light of the size of the corporations involved. This outcome was consistent with the Court’s assessment of the severity of the contraventions, which appears to have been largely informed by:

  • the finely balanced legal question involved, which the Court appeared to accept was an issue on which reasonable minds could differ; and
  • the absence of any demonstrable harm to consumers in light of the limited duration of the booking practices.

The case is also interesting because of the different approaches taken by the two airlines to their interactions with the regulator, which appear to have resulted in a $50,000 or 20% differential in the penalties imposed in respect of the website conduct. This difference is consistent with Foster J’s comments that Jetstar’s decision to stick to its guns ‘support[ed] a more significant pecuniary penalty’ but that this factor did not warrant a ‘large difference’ in penalty.

Image Credit: Flickr / DVIDSHUB

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