Airbnb and eDreams have promised to change their online booking platforms to ensure that their headline prices will include service, cleaning and payment fees payable, in place of their current practice to add the fees to the headline price later in the booking process (which is known as drip pricing).
They have given court enforceable undertakings to formalise their promise to the Australian Competition & Consumer Commission (ACCC).
Refer ACCC Media Release 193/15 (13 October 2015)
The undertakings address the ACCC’s concerns that consumers who search for accommodation and flight listings on online platforms: websites, mobile sites and application software (apps) might be misled when they see the headline prices: The advertised prices might not be cheap when extra charges such as service fees and/or cleaning fees (Airbnb) and service fees and payment fees (eDreams) are added.
Why is the ACCC cracking down on drip pricing practices for online bookings?
The ACCC is the Australian regulator responsible for compliance with the Australian Consumer Law.
The ACCC has taken a keen interest in misleading pricing practices in the airline, ticketing, accommodation and vehicle rental sectors. Its major concern is drip pricing in the online marketplace. It explains:
Drip feeding consumers with information about charges can cause detriment to competition and result in consumers paying a higher price than the advertised price or spending more than they realise (ACCC Chairman Rod Sims quoted in Media Release)
To crack down on misleading pricing practices, the ACCC relies on the misleading or deceptive conduct provision (section 18), the false or misleading representations as to price of services provision (section 29(1)(i)) and the requirement to display a single price provision (section 48) of the Australian Consumer Law.
The ACCC has prosecuted budget airlines (Jetstar and Virgin) for drip pricing in relation to airfares. A decision is pending. This follows its successful AirAsia prosecution – for my case note click Flight Price Advertising – Is it a single price?
The ACCC describes drip pricing as:
Drip Pricing is where a headline price is advertised at the beginning of an online purchasing process and additional fees and charges (which may be unavoidable for consumers) are then incrementally disclosed (or ‘dripped’). (Media Release)
The ACCC explains that it is not the fees, it is the way the fees are disclosed, that raises concerns:
The law does not prevent traders from charging fees. However, it does require that fees are disclosed clearly to avoid consumers being misled. (Mr Sims in Media Release)
Why did the Airbnb and eDreams pricing practices attract censure by the ACCC?
Airbnb’s business model is to connect travellers with local accommodation hosts (peer-to-peer). It charges a service fee on all accommodation bookings, which varies between 6-12% of the base accommodation rate, depending on the length of the stay. Airbnb charges a cleaning fee on accommodation bookings, if the host requires it. Airbnb collects the service fee and the cleaning fee.
What Airbnb failed to do was to display the service fee and cleaning fee on the accommodation listing page (search results) as part of the headline price. Instead, the fees were displayed on a later page, the payment page, as additional fees which were added to the price. Therefore, the actual price payable per night was greater than the price displayed as payable per night on the accommodation listing page.
The ACCC said that this was a breach of the misleading or deceptive or false provisions because the total amount payable should be displayed in the headline price.
eDreams business model is an online flights and hotel booking service. It charges a service fee on air ticket bookings which varies between $8 and $30, and applies per person per route. eDreams also charges a payment fee which varies depending on the payment method.
What eDreams failed to do was to display a headline price which included the service fee and the payment fee, on the page where the consumer’s selected flight / hotel details appeared.
The headline price displayed on the mobile site and the app was misleading or deceptive or false because it failed to disclose the fees. The price display on the eDreams website was also in breach of the single price provision which states that the headline price must include mandatory fees, where the fees are quantifiable.
The undertakings given to the ACCC by Airbnb and eDreams for improved pricing practices
The ACCC accepted court enforceable undertakings (known as Section 87B Undertakings) from Airbnb and eDreams. The form of the undertakings was agreed. The undertakings are obtained administratively, not through court proceedings. They are entered on the ACCC public register.
Airbnb (Airbnb Ireland) undertook that for 3 years its headline price would include the service fee and cleaning fee (where quantifiable) on its websites, mobile sites and application software where accommodation listings are displayed. Where the fees are not quantifiable, the existence of the fees must be disclosed. In addition, it must establish a consumer compliance program. To view click Airbnb Ireland Undertaking
eDreams (Vacaciones eDreams) undertook that for 3 years it would have at least one fee free payment method (with no mandatory fee), display clear information about conditions applying to price availability and display a headline price for each payment method used. In addition, it must appoint a compliance officer to administer training to eDream employees. To view click Vacaciones eDreams Undertaking.
How should travel and leisure industry businesses display headline prices?
When a headline price is displayed online, it must include or disclose all fees payable.
- The service fees, booking fees, etc must be included in the headline price, if they are quantifiable.
- The existence of service fees, booking fees etc must be disclosed where the headline price is displayed, if they are not quantifiable. Use of an asterisk beside the price would achieve this.
Leisure Industry suppliers and booking platforms who fail to do so are likely to be pursued by the ACCC as part of its focus on drip pricing practices in the online marketplace.