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Competition, Consumer & Regulatory

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Focus: Plugging the price drip

30 November 2015

In brief: The Federal Court has found that Jetstar Airways Pty Ltd and Virgin Australia Airlines Pty Ltd contravened the Australian Consumer Law by engaging in 'drip pricing'. In doing so, the Federal Court differentiated between the types of conduct that will be considered misleading or deceptive under the ACL. Partner Jacqueline Downes (view CV), Associate Lisa Lucak and Lawyer Jessica Rusten look at the implications for business. 

 
 

How does it affect you?

  • The Federal Court has affirmed that failure to adequately disclose booking and service fees during online transactions can contravene the ACL, but what constitutes 'adequate disclosure' varies depending on context. The Federal Court confirmed that this applies to potential fees, even where consumers may be able to avoid them (for example, by using one payment method instead of another).
  • The decision is consistent with the recent enforceable undertakings offered to the ACCC by Airbnb Ireland and Vacaciones eDreams, SL. The ACCC considered that Airbnb Ireland and Vacciones eDreams, SL engaged in misleading or deceptive conduct, and made misleading representations by failing to adequately disclose mandatory service fees and/or cleaning fees during their accommodation booking processes.
  • Businesses should be alert to how their websites and online transaction platforms disclose any additional fees, particularly where:
    • the mobile applications used to sell consumer products (such as tickets and fares) may format pricing information differently or show reduced information due to constraints on display size; or
    • the fees may attach to sales or special deals that have been advertised to consumers.
  • The ACCC has recently joined an international initiative to review website and mobile sites in the travel, tourism and leisure sector to identify drip pricing. Drip pricing remains a stated focus for the ACCC and will continue to be a targeted area for the regulator.

The conduct in question

The ACCC alleged that Jetstar and Virgin had advertised and promoted airfares at a headline price without adequately disclosing that potential customers would be required to pay a booking or service fee if they paid for flights using one or more popularly used payment methods (including widely accepted debit and credit cards). The ACCC argued that although it was possible to avoid paying these fees (for example, by using POLi or an airline-branded credit card), the failure to disclose the fee at the outset of the transaction was a contravention of the ACL.

The ACCC alleged that the information was disclosed on a progressive basis – that is to say, it was dripped to consumers rather than presented in its entirety at the outset of the transaction. The ACCC argued that the these progressive disclosures had the overall effect of emphasising the most attractive feature of the promotion (the advertised headline price), while de-emphasising the existence of the booking and service fee. The ACCC claimed that this amounted to misleading or deceptive conduct and misleading representations.

The ACCC argued that Jetstar had engaged in misleading and deceptive conduct on its website in 2013 and in 2014. The conduct in 2014 was different from the conduct in 2013 following meetings with the ACCC in respect of the website:

  • In 2013, the booking and service fee was not disclosed until the end of the booking process.
  • In 2014, Jetstar amended its website in response to discussions with the ACCC. Customers who booked flights in 2014 were presented with a series of links that referenced 'Important Information' and disclosed the booking and service fees after they had selected their flights. References to 'Important Information' that disclosed the booking and service fee were included throughout the booking process (though a potential customer would have to hover their cursor or click a hyperlink to see the disclosure). This meant that the disclosure of the booking and service fee was made earlier in the booking process and customers had the opportunity to click multiple hyperlinks to read about the fees. The ACCC nonetheless pursued the allegations related to the website in 2014 because it did not consider that the amendments Jetstar made to the booking process adequately addressed the concerns that had been raised.
  • The Jetstar mobile website did not disclose the booking fee until it was added to the total cost at the end of the booking process.
  • The ACCC also alleged that Jetstar failed to adequately disclose the booking and service fee in emails it sent to consumers advertising fare specials.

The allegations against Virgin were premised upon the same propositions as those against Jetstar. The allegations against Virgin were concerned with Virgin's website, mobile site and email advertisements to potential customers:

  • The Virgin website differed from the Jetstar website in that at all times Virgin had disclosed in small print at numerous points during the booking process that credit card, debit card and PayPal bookings were subject to a booking and service fee. The amount of the booking and service fee was not disclosed until the 'Payment' page in the booking process.
  • The Virgin mobile site did not disclose the existence or amount of the booking and service fee until the end of the booking process.
  • The ACCC alleged the failure to disclose the booking and service fee in email advertisements (that directed customers to the Virgin website) was also misleading or deceptive.

The decision

The Federal Court affirmed the established principles of misleading or deceptive conduct under the ACL:

  • The court must consider representations through the eyes of a reasonable consumer, taking into account the fact that an advertisement published to the world at large is designed to be seen by a wide range of consumers. The court held that in this case the relevant class of consumers comprised those members of the public who were interested from time to time in purchasing passage for a particular journey from a low-cost airline.
  • A wide range of consumers will include informed consumers and uninformed consumers, and consumers who are likely to read fine print and consumers who are not likely to do so. The court found that the overwhelming majority of the relevant consumers would have some level of experience of navigating the internet and of using online booking processes, but that the relevant class of consumer would include both experienced and first-time users of online booking processes.
  • The court cannot assume that some readers will not be misled, even if more wary readers are not deceived by the publication.

In respect of Jetstar, the court found that:

  • the failure to disclose the booking and service fee until the end of the booking process in 2013 was a contravention of the ACL and was likely to mislead or deceive potential customers;
  • the disclosure of the booking and service fee in the booking process in 2014 was adequate and was not a contravention of the ACL. This indicated that the court accepted that the relevant class of consumers that were using the website in 2014 were able to navigate the hyperlinks to access the 'Important Information' containing the disclosure of the booking and service fee;
  • the disclosure of the booking and service fee in the 'Jetmail' emails was adequate and was not a contravention of the ACL; and
  • the failure to disclose the booking and service fee on the mobile website until the end of the booking process was a contravention of the ACL.

In respect of Virgin, the court found that:

  • the disclosure on the website (and in the email advertisements, which referred customers to the website) was adequate and not a contravention of the ACL as the existence of the booking and service fee was disclosed throughout the booking process (even if the amount of the fee was not); and
  • the failure to disclose the booking fee until the end of the booking process on the mobile website was a contravention of the ACL.

Lessons learned

Businesses should be mindful when designing websites and mobile websites that involve booking processes to ensure that there is adequate and early disclosure of additional fees that were not included in the headline price. Consideration should be given to the overall impression created by booking processes, and to the prominence of any qualifications to headline prices. This applies to fees that are not compulsory, and even where consumers are able to avoid the fee. This is particularly pertinent as more businesses move towards mobile platforms, given mobile websites are constrained in the amount of information that can be clearly conveyed to readers.

The ACCC has indicated that it intends to continue to investigate drip pricing and online pricing practices. It is recommended that businesses carefully consider the design of their booking process, and consider seeking consumer law advice if they are concerned about the adequacy of disclosure of fees.

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