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YOU be the Judge: Should the ACCC have sued over Jetstar and Virgin pricing practices?

Recent litigation brought against two airline carriers by the Australian Competition and Consumer Commission (ACCC) raises questions about the source of the term “drip pricing”, what the case includes and excludes, and how the law works in determining conduct likely to mislead or deceive.  However, rather than leave all the fun to a Federal Court Judge, why not assess matters yourself? Complete the short survey at the end of this post and the results will be reported soon.

BACKGROUND

On 19 June 2014, the ACCC announced it had commenced separate proceedings against Jetstar and Virgin for what it called “drip pricing practices”.

The proceedings allege misleading or deceptive conduct, or false or misleading representations made in relation to particular airfares under the Australian Consumer Law.

For those wondering what “drip pricing” means, the ACCC says it is where a headline price is advertised at the beginning of an online purchasing process, and additional fees and charges are then incrementally disclosed (or ‘dripped’). This means the actual price is higher than the advertised price.

Shortly, we will turn to my ‘$29 Jetstar EOFY sale experiment’ to test this theory.

FEDERAL TRADE COMMISSION

For those wondering whether the ACCC used focus groups to come up with the term “drip pricing”, having rejected ‘dribble’, ‘trickle’, ‘splash’ and my personal favourite ‘plop pricing’, the answer is likely ‘No’. The term first gained popularity at a now infamous Federal Trade Commission (FTC) conference in the United States on 21 May 2012 about the economics of drip pricing.

According to Hotel News Now, consumer complaints apparently filed with the FTC during that FTC conference led to an FTC investigation into 22 companies about hotel resort fees not disclosed at the time of booking. These included hidden ‘resort fees’ for amenities such as newspapers, use of onsite exercise or pool facilities, or Internet access, adding as much as $30 a night to the overall cost (refer FTC press release).

The content of the FTC warning letters might well have been inspired by a 27 August 2012 letter of complaint from consumer advocates, which also referred to drip pricing practices in the airline industry (fuel surcharges) and the cruise industry (port charges).

At the conference itself, the FTC referred to a $2 printing fee that (US) Ticketmaster charged customers when they printed off a ticket from their home computer. The FTC speaker called this printing fee “extraordinary” and designed to “humiliate” the consumer. A detailed report of the FTC conference by Donna Montaldo can be found here.

JETSTAR $29 TEST

The Australian Consumer Law assesses whether conduct is misleading or deceptive by reference to the reactions of consumers, not just the conduct itself. The eye of the beholder is key. If an airline advertises a $29 fare but consumers know that the price will go up as the booking progresses, based on available options, the conduct will not cross the line even though it might be cheeky.

The ultimate question is whether the conduct has led the consumer into error. If there is no consumer mistake or misapprehension, there is no problem.

To test how the process works, I made a nominal booking of a Jetstar flight from Melbourne (Avalon) to Sydney for the EOFY Sale ending 1 July. The advertised price was $29 (the text likely had the all important ‘from’ before ‘$29’). After proceeding with available options, the total price offered was over $100 (I stopped before supplying credit card details).

What did some of these options include?

  • Pre-selected highlighted ‘plus bundle’ which included things like no change fees, a “standard seat selection” and a $5 meal voucher: $19

I then had to click back to realize my fare was indeed a ‘starter pack’ and did not automatically include these items. The ‘plus bundle’ was also called Jetstar’s “most popular”, noting that the popularity of an item might increase if it is pre-selected…

  • Pre-selected checked baggage allowance of 20 kg: $16.50
  • Pre-selected checked travel insurance: $12.95
  • Pre-selected optional donation: $2

I then repeated the exercise, this time trying to do everything possible (e.g. de-selecting each option) to end up with a $29 fare at the online checkout. I was doing okay until I was confronted with a pre-selected option of $5 for a ‘standard seat’. Was it a case of standing room only if I did not agree to this?

I initially thought so, because the Jetstar website would not allow me to continue to the next page unless I clicked on this option. Or so I thought.

Further investigation on a subsequent day revealed a hyperlink in small text under the ‘Continue’ button (which I must have missed the previous time I was on the site). By clicking on this hyperlink one could agree to be supplied with a seat which was ‘unallocated’, and therefore be eligible for the advertised price.

THE ACCC CASE

The ACCC does not appear to be suing Jetstar in relation to any of the above pre-selected ‘options’. Its announced claim is limited to an $8.50 fee per passenger per flight for non-Jetstar branded credit card or PayPal payments. I did not come across this fee, likely because it is applied only if one used, say, a non-Jetstar branded credit card at the point of purchase.

The ACCC’s case is therefore likely a narrow one. Its argument might well be that the automatic application of the payment fee at point of purchase eliminates any true ‘option’ for the customer, unless the customer sufficiently knows in advance that an acceptable payment method will avoid the fee.

In turn, Jetstar, as one example, has introduced what appears to be a prominent new warning at the commencement of the online booking process:

Important booking information

A Booking and Service Fee of $8.50 per passenger, per domestic flight and $8.50 – $12.50 per passenger, per international flight applies in some circumstances.

Some products and services throughout our booking process have been pre-selected for your convenience.

The reference to pre-selection intrigues. The does not appear to be central to the ACCC case (although it might have been foreshadowed in pre-action correspondence) and yet makes an appearance in the disclosure.

To explain why the ACCC might not be pursuing the pre-selection issue at this stage, judges are often inconsistent about how much consumer error will lead to a finding of misleading or deceptive conduct. For some judges, if only a few people are likely to be misled, that is enough. For others, a significant proportion of consumers must labor under a misunderstanding for the conduct to be misleading.

With this in mind, the ACCC possibly doubts whether it has enough evidence to satisfy the question: Does the consumer think by mistake that the advertised (low ball) airline price is what he or she will actually pay, or has the consumer been conditioned to recognize that the advertised price is just the starting point?

Ben Sandilands, writing for Crikey, would be the sort of person the ACCC would be worried about:

“To be blunt, most regular flyers might be surprised by the ACCC action, in that most of us are well aware of ‘drip’ pricing, and automatically take card fees into account when choosing an airline, and have inbuilt reflex untick the box responses to silly pre-selected options that seem designed to catch out cretins.”

Christopher Elliot, a consumer advocate for the blog “On your side” might well disagree:

“If drip pricing doesn’t seem like a big deal to you, ask yourself: When was the last time you made a purchase decision based on a published price, but then discovered at the checkout that it would cost more? It happens a lot more than you think.”

Relevant issues for a court on the question of pre-selection could include:

  • The price sensitivity of consumers and their propensity (or not) to investigate the fine print text when purchasing tickets online;
  • The layout of the websites and the ease with which customers can locate conditions and disclosures;
  • Any difference in consumer expectations depending on whether the customer is new or familiar with the online booking processes;
  • Whether the ‘option’ provided is real or illusory based on the nature of the option (e.g. a seat) and the ease with which one can or cannot de-select; and
  • Whether it is appropriate to pre-select options for consumers at all, or whether consumers should be required to opt-in each time to illustrate they have made the choice.

YOU BE THE JUDGE

Information is knowledge, and so rather than speculating further, shall we collate the data?

Please complete the following short survey. I will provide the results, and we can see what it tells us.

And as an FYI, this is not intended to be a survey of unimaginable statistical rigour, with non-leading questions targeted evenly to all Australians in all states of Australia using Bureau of Statistics information to help. Quite the opposite! This survey is purely for interest, and for water cooler discussion.

3 Responses to “YOU be the Judge: Should the ACCC have sued over Jetstar and Virgin pricing practices?”

  1. MsSamMcHugh

    Great article, loved the quiz.
    Last night just experienced drip pricing in a new (totally blatant) way looking at flights with Spirit Airlines. Spirit promotes its ‘bare fares’, so I wasn’t surprised to see an extra cost for a check in bag (because I’m used to Jetstar, Virgin and Tiger), but even I was surprised to see an extra cost of $40 per person per bag to bring on a carry on bag! It really is all about what the customer expects (and conditioning the customer to expect extra fees). More on Spirit’s ad campaign here: http://skift.com/2014/07/10/spirit-airlines-boasts-about-all-the-things-it-doesnt-have-like-in-flight-wi-fi/

    Reply
    • Natalie Hickey

      I do like the tag line ‘home of the bare fare’. Looking at Spirit’s brand promise, if you know the fare starts with just a seat, then a comparison is possible. No more apples and oranges.

      Reply

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