Europe has been a model citizen for protecting consumer rights when it comes to air travel. The US led the world in protecting customers just a couple of years ago but has since gone away from recent reforms. With unbelievable fare sales priced side-by-side with mistake fares, consumers deserve more than airline “get out of jail free cards.”
Accountable Marketing Was The Issue
Airlines needed to be compelled to honor mistakes because not doing so could be dangerous. Allowing airlines, or any other business for that matter was out-of-compliance of the rest of US consumer protection. Bait and switch is always a concern for skeptical consumers and unscrupulous airlines could post one price that they never intended to deliver in order to lure customers in the door. However, just as a retail store can’t advertise one price and not honor it when customers arrive to purchase the item, an airline shouldn’t be able to advertise a price that can’t be booked by a customer. A grocery store shouldn’t be able to advertise $.10 Ribeyes and draw customers in the door only to tell them that it was an obvious mistake and they are now more expensive nor can airlines.
There have been unscrupulous marketers before. I mentioned in another post that RyanAir was nearly sued by European and British marketing oversight committees over their use of 1 cent and 1 penny fares. The problem with which trade commissioners took issue was that a fare advertised for a price (such as £.01) should be complete at that price with nothing more required. While it’s no secret that RyanAir and other Ultra Low Cost Carriers (ULCCs) make their money on ancillary charges and not on the airfare itself, what RyanAir was marketing was not achievable – guests had no option to avoid processing fees and checkin charges.
US Regulators were looking to make the situation clear before similar marketing efforts took place in the US. They had some foresight in my opinion, warding off potential issues from ULCCs as the likes of Spirit, Frontier, and Allegiant have entered the market.
I covered some of these issues some time ago, and was asked to speak about them here. However, the rule still has not been updated and desperately needs to be.
CFR 399.88 Was Awesome
On June 24th, 2012 the DoT’s CFR 399.88 went into effect. The rule had specific language which made certain that any fare, mistake or otherwise should be honored by the airline and could not be subject to post-purchase price increases. Here it is from the horse’s mouth:
Ҥ 399.88 Prohibition on post-purchase price increase.
(a) It is an unfair and deceptive practice within the meaning of 49 U.S.C. 41712 for any seller of scheduled air transportation within, to or from the United States, or of a tour (i.e., a combination of air transportation and ground or cruise accommodations), or tour component (e.g., a hotel stay) that includes scheduled air transportation within, to or from the United States, to increase the price of that air transportation, tour or tour component to a consumer, including but not limited to an increase in the price of the seat, an increase in the price for the carriage of passenger baggage, or an increase in an 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. A purchase is deemed to have occurred when the full amount agreed upon has been paid by the consumer.
(b) A seller of scheduled air transportation within, to or from the United States or a tour (i.e., a combination of air transportation and ground or cruise accommodations), or tour component (e.g., a hotel stay) that includes scheduled air transportation within, to or from the United States, must notify a consumer of the potential for a post-purchase price increase due to an increase in a government-imposed tax or fee and must obtain the consumer’s written consent to the potential for such an increase prior to purchase of the scheduled air transportation, tour or tour component that includes scheduled air transportation. Imposition of any such increase without providing the consumer the appropriate notice and without obtaining his or her written consent of the potential increase constitutes an unfair and deceptive practice within the meaning of 49 U.S.C. 41712.” Bold emphasis is mine.
As clear as day, a purchase is deemed to have occurred when the full amount agreed upon has been paid by the consumer. In some cases, this would automatically exclude some mistakes where another price was shown through the process, then drops by error at checkout. The 4 mile mistake fare from United to Hong Kong is one that comes to mind, as much as it breaks my heart to say.
The CFR 399.88 was perhaps too generous. The evolution of the rule as practiced included not only tickets that traversed the US (originated, destined for or connecting within) but also sold by a company or website based in the United States. In some cases, this allowed for tickets that were wholly outside of the US to be honored simply by being purchased on a US website like Expedia or Orbitz.
It was vague to a fault. For example, the price agreed on the United 4 mile mistake at checkout was in fact 4 miles, but that’s not the price that was advertised. The language of the rule wasn’t necessarily clear in that regard. The language didn’t really stipulate in regards to points and miles, would this then constitute a purchase? Do miles hold an intrinsic and determinable value? The credit card companies that buy them from the airlines would say they do, as would the customers who purchase miles from the airline. Even the airline’s shareholders would agree there is a value to the miles as they are seen as a liability on the company’s books, yet the rule wasn’t clear as to whether or not award redemptions should be included.
One mistake fare caused CFR 399.88 to be tested early on. As Myanmar (formerly Burma) opened up to outsiders for the first time after 25 years of military rule, some fares sold originating from Yangon (RGN – formerly Rangoon) were miscalculated due to currency fluctuations. While fares, including a pair of one-way tickets my wife and I bought to bring us home after a sabbatical in Thailand, were cancelled. Under pressure to comply with the rule, they were reinstated within a few weeks. My wife and I flew home in business class from Yangon to Bangkok to Seoul to Los Angeles in September of 2012, some of which was on the upper deck of an A380… for roughly $400 each.
Another problem with the rule was that in some cases, no remuneration whatsoever for the tickets were required. Therefore, under contract law (Matthew can weigh in on this as he sees fit) if something was exchanged for nothing, it’s not legally a transaction. Therefore the “purchase” wouldn’t fall under the protection of the rule even though the price agreed (“$0”) was paid in full.
CFR 399.88 Is Now Toothless
After a United.com mistake fare I described in another post caused prices to be displayed for less than the taxes imposed by the destination government alone (the UK’s Air Passenger Duty), the DoT stepped in and backed United. The issue of displaying the improper price in Denmark Kronor lasted 12 hours and was widely reported by blogs and forums everywhere. It was also clearly a mistake and not a sale.
United immediately cancelled the premium cabin fares and despite receiving thousands of complaints from the public, the DoT not only backed the carrier’s decision to cancel the tickets, but also changed the enforcement of the rule.
“As a matter of prosecutorial discretion, the Enforcement Office will not enforce the requirement of section 399.88 with regard to mistaken fares occurring on or after the date of this notice so long as the airline or seller of air transportation: (1) demonstrates that the fare was a mistaken fare4 ; and (2) reimburses all consumers who purchased a mistaken fare ticket for any reasonable, actual, and verifiable out-of-pocket expenses that were made in reliance upon the ticket purchase, in addition to refunding the purchase price of the ticket.”
The amendment to the rule stated that they would no longer hold airlines accountable for their mistakes but now allowed poorly-thought promotions they could call mistakes. It did add, however, that airlines cancelling tickets would be responsible for any non-refundable travel arrangements.
This led the truly unscrupulous, and terribly bold to follow their mistake fare bookings with immediate non-refundable hotel and car rental purchases. The theory is two-fold.
- The non-refundable arrangements really are not at risk as they are protected further by the revision of the rule and the nature of the rule itself prior to revision.
- It could compel an airline to honor their mistake. Allow me to explore that further.
Let’s assume a specific mistake fare, the sub $450 business class fares from Washington DC to Beijing on American Airlines. The base fare was $0, though the carrier-imposed fees were $300+ and in fairness, those are separate from taxes, just a separate way to price revenue into the airfare. A separate post could be written about how those surcharges work but this isn’t that post. The airline will net $350 for the seat on that flight despite listing a $0 base fare.
If a consumer suspected that American Airlines would not honor the flight, or if they genuinely did not know that this was a mistake and booked their accommodations prior to cancelation, the airline might be compelled to reconsider the cancelation of individual tickets sold. For example, had I booked the spectacular Park Hyatt Beijing (we did) in cash at $220-300/night (we didn’t, we used points) for a ten-day stay, American Airlines could cancel the tickets but they would also have to pay $2,200 to $3,000 in this example for the non-refundable hotel expenses. In that instance, American would gain nothing in revenue but expense thousands on the chance it could resell that seat for more. Alternatively, the airline could take the $350 in revenue and fill a seat that may or may not have flown empty or served as a free upgrade for elite customers. It’s their decision to make.
In either case, it’s not advisable as far as I am concerned, to book a mistake fare and then immediately load it with non-refundable additions. Notably, Gary Leff among others, advise that when booking mistake fares or those with questionably-low pricing, to avoid committing to non-refundable add-ons. That’s sound advice.
An Ambiguous Rule Is Not Good For Anyone
How can consumers trust an agency that refuses to follow the rule that they made themselves? They claim that their rule was abused by bad actors, but how irresponsible for the DoT to leave nothing in its place? In fact, it has been more than two years since they stated that CFR 399.88 wouldn’t be enforced, amended the rule and declared they would set out to replace it.
But they haven’t. This isn’t legislation, the DoT doesn’t need to bother congress to get this handled. This is a rule they can replace in their own department and in two years they just haven’t found the time to protect both consumers and carriers in the last two years while at the same time noting that what they have in place is not going to work.
In the interim two-year period the landscape has also completely changed. WOW and Norwegian, Spirit, Frontier, TAP and even the US3 (Delta, American, United) have only narrowed the gap between fare sales and mistake fares. It’s now more than ever that consumers need a replacement or reinstatement of this rule.
I’m a business person and a consumer. I have freely stated above that the original CFR 399.88 was probably too generous to US consumers and didn’t adequately protect airlines against those who might be manipulating the purchase process in unforeseen ways. So clarify that. Add some language to the original work that states a manipulation of currency or process disqualifies consumers from the aforementioned protections. Though it would implicitly block me from great fare sales, I think it’s a fair concession.
At the same time, if Best Buy prices 60″ TVs for $90 instead of $900 and they take 12 hours to correct the problem while tens of thousands are sold, I expect them to honor the price whether it was made in error or not. Just because it’s a mistake doesn’t mean it’s without cost or penalty, yet that’s exactly what the airlines are suggesting. And yes, if you find a 60″ TV that should sell for $900 on sale for $90, I will not think less of you for purchasing 10 of them. Consumer protection laws against bait and switch say nothing of “bad actors”, there is no protection voiding the legality of a purchase based on whether you suspect the pricing to be mistaken or accurate.
Why is this a moral issue in air travel but not elsewhere? In air travel and hotels it should be even less of an issue than in retail. For example, using the same case of mis-priced TVs at Best Buy, the company will have an actual out-of-pocket cost for the inventory, shipment and holding of the product while an airline has a perishable and renewable product every single day with product held in-house with few true out-of-pocket costs. If an airline sells five more seats in business class for $350 instead of $2000, yes they lose out on the revenue potential of those seats, but the out-of-pocket additional costs are in the tens of dollars. A carrier like American might add $10 for pajamas, $15-20 for catered meals on the flights (though based on the catering I have seen – they overpaid), perhaps he airline spend $20 more dollars on booze for those customers. What’s the exposure – $50? In the example of the Beijing flights, it’s not as if they are losing money on the flights as the United Denmark example would have.
If the FTC doesn’t care whether I buy 100 TVs while knowing that they are incorrectly priced (placing the burden on the seller and not the buyer to determine the correct prices) why then should I give the seller carte blanche to decide later if the price was correct if the product is airfare? Especially when there are accurately priced products at or below the price paid on a consistent basis.
It’s just not good enough.
What do you think about the DoT’s CFR 399.88? How would you amend or replace the rule?
I think your average US airline passenger would benefit far more something similar to the EU261/2004 regulation then from CFR 399.88.
I agree. We need an enforced rule on the books. It’s the wild, wild west right now.
EU261/2004 doesn’t cover against post-purchase price increases the same as CFR399.88.
The case for bait and switch tactics is important for the few bargain fare hunters, but the vast majority of the traveling folk would benefit more of putting some pressure on the airlines for operational reliability and passenger care.
Seems that I’m reading view from the wing, not live and let’s fly. Somebody is biting more than she can chew…..
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“Add some language to the original work that states a manipulation of currency or process disqualifies consumers from the aforementioned protections. Though it would implicitly block me from great fare sales, I think it’s a fair concession.”
To me this seems like the most reasonable compromise. On the one hand, I strongly believe that since airlines have constructed their fare rules to severely punish consumers for the smallest of mistakes on their end, the airlines should also be forced to eat mistakes on theirs. On the other hand, I do have problems with consumers unfairly taking advantage of situations through currency/residency manipulation. I see that as consumers unfairly trying to profit off of something they were never entitled to, anyway.
I would also like to see some language added that imposes substantial penalties if an airline intentionally misrepresents a legitimate promotion as a “mistake”. I doubt the US3 would try such a thing given the blast furnace of bad publicity if they’re caught, but I could certainly see an unscrupulous foreign carrier (cough…Ethiopian…cough cough) doing it. I.E., advertising a $1,000 J fare, having second thoughts, then calling it a “mistake”.
I think on the last part of your comment (penalties to carriers for poorly thought out marketing) that it would be harder to prove. Much like a mistake fare on the same day as Golden tickets for Qatar last month. Who is to say which is which?
Symmetry between the consumer and the airline would seem fair. I have the right to cancel a ticket with no penalty within 24 hours of booking, the airline should have the same. But after 24 hours of they haven’t cancelled it and made the customer aware they should be required to honour it.
This means hold off making non-refundable bookings for 24 hours, which isn’t unreasonable. But after that you are sure there won’t be an issue.
Dom, I think that would be a move in the right direction. However, there have been a few times where even 24 hours would not be fair to consumers over an airline who made a poor decision or even a hotel chain.
Hyatt quickly learned after a snap decision to match any status from any hotel group to spite SPG that it was a poor decision and quickly rescinded the offer. Qatar offered business class fares from Vietnam to the US earlier this year for less than $800 (in connection with a fare sale they called the Golden Ticket) but that was taken down after 12 hours and passengers were told the fares would be “honored”. Is that fare so different from today’s Air New Zealand Sydney to Los Angeles $1,000 fares in business class? How is one a mistake and the other a fare sale and how should a consumer know the difference? And until there is a rule in place, even the 24 hours may offer the airline marketers a get out of jail free card while consumers don’t know if they are booking a legitimate fare.