Pursuant to its authority to regulate “unfair and
deceptive” practices in the airline industry, the
Department of Transportation issued a final rule
entitled “Enhancing Airline Passenger Protections on
April 25, 2011. Spirit Airlines and others challenge
three of the rule’s provisions the requirement that the
most prominent figure displayed on print advertisements
and websites be the total price, inclusive of taxes the
requirement that airlines allow consumers who purchase
their tickets more than a week in advance the option of
canceling their reservations without penalty for
twenty-four hours following purchase; and the
prohibition against increasing the price of air
transportation and baggage fees after consumers purchase
their tickets.
Sprit Airlines argued its case before the Court of
Appeals, the carrier asserted that the government
violate the carriers rights to engage in commercial and
political speech, a violation of the First Amendment
(The First Amendment of the United States Constitution
protects the right to freedom of religion and freedom of
expression from government interference). “Contrary to
the airlines’ repeated suggestions, nothing in the
Airfare Advertising Rule requires airlines to hide taxes
or, as Spirit’s website puts it, the ‘Government’s
Cut,’” said U.S. Circuit Judge David Tatel. However,
U.S. Circuit Judge David Tatel said the rule violates
the First Amendment because it dictates how airlines
“may convey information criticizing the taxes and fees”
paid by customers. “The government is thus attempting to
restrict speech critical of the government.”
Prior to 1978, the federal government regulated the
fares airlines could charge and the routes they could
fly, and had authority to take administrative action
against certain deceptive trade practices, Federal
Aviation Act of 1958. That changed in 1978 when Congress
passed the Airline Deregulation Act, which, among other
things, eliminated the government’s ability to set
airfares on the theory that “maximum reliance on
competitive market forces would best further efficiency,
innovation, and low prices as well as variety and
quality of air transportation services.” Notwithstanding
these changes, the government, through the Department of
Transportation (DOT), retained authority to prohibit
“unfair or deceptive practices in air transportation or
the sale of air transportation.” Pursuant to that
authority, DOT issued a final rule entitled “Enhancing
Airline Passenger Protections.”
The first relates to the advertising of airfares. Since
1984, DOT has required that any advertised price for air
transportation disclose the “entire price to be paid by
the customer to the air carrier. Prior to the rulemaking
at issue here, DOT allowed airlines to advertise the
pretax price of tickets provided that the advertisement
clearly disclosed the amount of the tax. For example,
airlines could advertise a “$167 base fare+ $39 taxes
and fees” even though consumers would have to add these
two numbers to arrive at the total, final price they
would have to pay $206. DOT reaffirmed this policy in
2006.
But in the challenged rule, DOT, citing consumer
confusion, revised its policy to require airlines to
state the total, final price $206. Under this so-called
“Airfare Advertising Rule,” airlines remain free to
provide an itemized breakdown (displaying to the
customer the amount of the base fare, taxes, and other
charges), but they may not display such price components
“prominently” or “in the same or larger size as the
total price.” Id. In subsequent guidance, DOT explained
that airlines may not list price components “in a more
prominent place on a webpage or in a print advertisement
than the advertised total fare.”
In
other words, to ensure that consumers will clearly
understand what final price they will have to pay, the
total cost must be the most prominent figure. DOT
describes this as a change in “enforcement policy.” DOT
issued the second challenged provision, the “Refund
Rule,” in the context of a broader effort to curb
deception and unfairness in the airline industry.
Relying on customer feedback and Office of Inspector
General reports, DOT found that many airlines failed
either to provide consumers with clear customer service
plans or to adhere to whatever plans they did provide.
Accordingly, DOT ordered U.S. carriers to adopt customer
service plans that address a list of topics, including
whether the airline “allows reservations to be held
without payment or cancelled without penalty for a
defined amount of time.”
But in a later rulemaking, the one at issue here, DOT
found this insufficient and that further steps were
necessary to “ensure that plans are specific and
enforceable.” It found that some airlines had adopted
“vague” policies that made it “difficult for a consumer
to know” what exactly to expect. For example,
Allegiant Air’s plan told customers that they could
“cancel their reservations up to 24 hours before the
scheduled time of departure, but failed to mention that
there are significant fees associated with
cancellation.”
Responding to such shortcomings, DOT proposed
“establishing minimum standards for the plans,” which
would “result in consumers being better informed and
protected,” the idea being that anything less than the
guarantees contained in the rule constitutes an unfair
practice or has an unacceptably high risk of deceiving
customers. One such requirement, the Refund Rule,
directs airlines to allow passengers to cancel
reservations without penalty for twenty-four hours “if
the reservation is made one week or more prior to a
flight’s departure.”
Finally, the “Post-Purchase Price Rule” prohibits
airlines from increasing the price of the seat,” the
“price for the carriage of passenger baggage,” or the
“applicable fuel surcharge, after the air transportation
has been purchased by the consumer, except in the case
of an increase in a government-imposed tax or fee.”
Beginning with their challenge to the Airfare
Advertising Rule, the airlines argue that there is
nothing inherently deceptive about listing taxes
separately and that DOT lacked substantial evidence for
concluding that doing so is deceptive in practice. By
the airlines’ count, only six commenter’s suggested that
existing airline displays were confusing or misleading,
and just two of those pointed to the exclusion of taxes
from base fares as the source of their confusion. The
airlines also emphasize that in 2010 (the year of the
rulemaking), there were only 77 complaints about
advertising, as compared, for example, to 3,336 about
flight-related problems.
|