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Court Rules 2-1 Aviation Consumer Protection Rules Constitutional
By Jim Douglas

July 25, 2012 - In a stunning ruling by the United States Court of Appeals in Washington DC on Tuesday ruled that in a 2-1 decision that air carriers must prominently display the total cost of a ticket, including taxes, when advertising airfares. 

Back in April 2011, the Department of Transportation announced new airline passenger protections rules, “Enhancing Airline Passenger Protections”, among those rules airlines and travel agents were required to post the total cost of a ticket “All In Fare Ad Rule”.

Airlines were required to prominently disclose all potential fees on their websites, including but not limited to fees for baggage, meals, canceling or changing reservations, or advanced or upgraded seating. 

In addition, airlines and ticket agents were required to refer passengers both before and after purchase to up-to-date baggage fee information, and to include all government taxes and fees in every advertised price. Previously, government taxes and fees were not required to be included in the up-front fare quotation.

Back in January 2012, Representative John Graves (R) along with several House GOP members had introduce legislation to cancel a series of Department of Transportation (DOT) aviation consumer protection rules that include requiring airlines to show all costs at the time an airline ticket is purchased, providing baggage refunds, mandating that airlines can not impose increases to a ticket once it has been purchased, requiring ticket refunds, among other regulations that protect consumers. In addition the GOP House of Representatives is also attempted to remove the Tarmac Rule which prohibits airlines from keeping passengers on the tarmac for over three hours. However that initiative failed in the House. 

In February 2012, Allegiant Airlines was fined $100,000, Continental $120,000, US Airways $45,000 for violating DOT’s new price advertising rule. Spirit Airlines added a $2 fee in defiance of new DOT consumer regulations. Sprit Airlines, Southwest Airlines and Allegiant Travel Co. (ALGT) filed separate lawsuits against the government’s new consumer protection rules (all lawsuits were consolidated with Spirit’s - Spirit Airlines Inc. v. U.S. Department of Transportation, 11-01219, U.S. Court of Appeals for the District of Columbia.



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.

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