Airlines fined for drip pricing
Leading Australian airlines, Jetstar and Virgin, have been fined hundreds of thousands of dollars for drip pricing, breaching the Australian Consumer Law, following 2015 proceedings brought by the ACCC in the Federal Court.
The case against Jetstar and Virgin
In Australian Competition and Consumer Commission v Jetstar Airways Pty Limited [2015] FCA 1263, the Australian Competition and Consumer Commission (‘ACCC’) alleged that Jetstar Airways Pty Ltd (‘Jetstar’) and Virgin Australia Airlines Pty Ltd (‘Virgin’) had engaged in ‘drip pricing’.
Drip pricing is the practice of advertising a headline price but incrementally disclosing, or ‘dripping’, additional fees and charges throughout the online booking process. The ACCC argues that, as a result, consumers are required to spend more than they realise and have a reduced ability to compare offers. It is a frustration that users of online booking websites are well familiar with!
While most of the ACCC’s allegations against the airlines were dismissed, the Federal Court found that both had failed to adequately disclose the “existence and quantum” of an additional ‘Booking and Service Fee’ charged to payments at the end of online transactions and this amounted to misleading and deceptive conduct, in breach of the section 18 and section 29 Australian Consumer Law (‘ACL’).
Penalties
Penalty orders were recently handed down by the court, imposing two separate penalties on Jetstar for its website conduct and mobile site conduct, $295,000 and $250,000 respectively, to reflect the Court’s view that the website conduct was more serious as it was used by far more consumers. Virgin was ordered to pay $200,000 for its mobile site conduct.
As is ordinarily the case, the most significant influence in determining both penalty orders was the desired deterrent effect. In Jetstar, Foster J stated that the penalties imposed would be designed to “discourage similar behaviour by others” and ensure traders use booking processes “openly, fairly and frankly”. Echoed similarly in Virgin was the need to set penalties at a level which would not be seen as “an acceptable cost of doing business.”
Given that these orders are not in the higher range of the applicable penalties scale, it is useful to consider the mitigating factors considered. These include:
- the nature and extent of the contravening conduct, which both were found to be at the lower end of the spectrum;
- the corporate culture of the companies and their robust legal compliance programs;
- that neither had previously been found by a court to have contravened the ACL; and
- the size and market power of the companies. While it was noted that both are primary market players, Foster J stressed that this should only be relevant so far as to reach a sum that would be “recognised by the public as significant and proportionate to the seriousness of the contravention”.
Key take-aways
The ACCC has targeted ‘drip pricing’ practices across several industries over recent years and it remains a priority concern. Given the ACCC’s interventions of late, this case serves as a timely warning to businesses with online booking mechanisms to disclose the existence and amount of any additional fees charged as early as possible in the booking process to reduce the risk of breaching the ACL and incurring a sizeable penalty.