Airlines in deep water over drip pricing

Published On 20/06/2014 | By Susan Zhuang | Consumer protection, Enforcement, Litigation

The ACCC has launched Federal Court proceedings against Jetstar Airways (“Jetstar”) and Virgin Australia Airlines (“Virgin”) in relation to so-called “drip pricing” of airfares on their online sites. The ACCC alleges that the airlines engaged in misleading or deceptive conduct, and made false or misleading representations, by advertising certain airfare prices without disclosing the additional fees and charges that were applicable for most payment methods.

What is “drip pricing”?

The ACCC has described “drip pricing” as a key enforcement priority numerous times this year, most recently in Commissioner Jill Walker’s speech on competition issues in the aviation industry (see our blog post here).

Drip pricing involves advertising a certain “headline” price to customers at the start of a booking process and then incrementally revealing additional fees and charges as the customer goes through the booking process to payment. The ACCC has noted that “drip pricing” is prevalent in online bookings for airfares, event tickets, car rentals and hotels. The ACCC considers drip pricing to be detrimental to both consumers and competition in general.

The allegations against Virgin and Jetstar

The ACCC alleges that Virgin and Jetstar advertised certain prices for domestic airfares without adequately disclosing an additional “Booking and Service Fee” that was payable for a large majority of online bookings. Jetstar charged a $8.50 fee per passenger per flight for non-Jetstar branded credit card or PayPal payments and Virgin charged a $7.70 fee per passenger per booking for credit card, debit card or PayPal payments.

The ACCC claims that Jetstar and Virgin should have disclosed these additional fees “upfront” and prominently displayed the fees with, or as part of, the headline airfare price. The ACCC noted in its press release that, since their investigation began, the the airlines have changed their disclosure of these fees, but it has clearly been insufficient to allay the ACCC’s concerns.

The ACCC is seeking pecuniary penalties, injunctions and corrective advertising against the airlines, as well as declarations and costs. Both proceedings are listed before the Federal Court in early August for scheduling conferences under the Fast Track system.

Drip pricing vs component pricing – a technical difference

In 2012, the ACCC brought proceedings against AirAsia for advertising airfares at certain prices without also specifying, as a single figure, the total price including the applicable taxes and charges. In that case, the ACCC took action under the component pricing provision in section 48 of the Australian Consumer Law (“ACL”). Section 48 of the ACL prevents companies from representing a part (or “component”) of a price without also displaying, in a prominent way, the total price as a single figure. The single price must be at least as prominent as the part or component price. This requirement has existed since 2009, when the component pricing laws were introduced as section 53C of the then Trade Practices Act.

In these new proceedings against Jetstar and Virgin, instead of the single price provision, the ACCC has relied on the prohibitions on misleading or deceptive conduct and false or misleading representations in sections 18 and 29 of the ACL. The relevant difference is that:

  • For Virgin and Jetstar customers, the Booking and Service fees were optional, as customers can avoid the fees by choosing a different payment method,
  • For AirAsia customers, the taxes, fees and charges payable for the relevant airfares were unavoidable.

Under the component pricing provisions, the single price that must be displayed need only be the minimum price for the goods or services. For Jetstar and Virgin customers, the minimum price for the airfarestechnically excluded the Booking and Service Fee. Customers could pay by direct deposit, POLi or Jetstar-branded credit cards to avoid Jetstar’s additional fee; and by POLi to avoid Virgin’s additional fee. In reality, the ACCC asserts the majority of online bookings did attract the Booking and Service Fee.

This quick analysis demonstrates that drip pricing tactics will, in some cases but not always, also breach the component pricing laws of the ACL. It also demonstrates that the general misleading or deceptive conduct and false or misleading representation provisions can apply to pricing practices that do not technically breach the ACL’s specific laws on pricing.

The ACCC has indicated that it is investigating drip pricing practices in other industries.

We will keep you updated as these cases, and other drip pricing investigations, progress.

Photo credit: nekidtroll / flickr / creative commons attribution 2.0 generic (CC BY 2.0) (cropped and remixed to B&W)

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About The Author

is a solicitor in the Competition and Regulatory team of King & Wood Mallesons, based in the Sydney office. As an avid online shopper, she takes a keen interest in consumer protection issues.

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