Key Points:

Businesses need to ensure that all fees and charges above the headline price are prominently disclosed so as not to be missed by the reasonable customer as early as possible in a booking or transaction process.

 The Federal Court has recently upheld the ACCC's concerns over drip pricing in Australian Competition and Consumer Commission v Jetstar Airways Pty Limited [2015] FCA 1263. The decision represented a success for the ACCC in its pursuit to tackle the use of "drip pricing" practices.

The decision will assist businesses in determining the limits of promotional and advertising practices they can lawfully engage in, and is particularly important for firms that use internet platforms and apps to supply customers.

"Drip-pricing" practices

"Drip pricing" is the practice of incrementally disclosing additional fees and charges in a transaction or booking process in a manner that can mislead consumers who are not aware of the charges when they commence the process. This practice usually occurs in online sales and can involve promoting an attractive quoted price (or, "headline price"), which is lower than the actual amount which the consumer will have to pay in order to receive the relevant goods or services.

Headline prices can be misleading

It is now clear that an advertised headline price can amount to a misleading representation if additional fees and charges are not adequately disclosed early in the booking process. However, this risk can be minimised where:

  1. the existence and amount of extra costs and fees (such as credit card surcharges or booking fees) are prominently disclosed;
  2. the "prominent disclosure" draws the attention of a reasonable consumer to the existence of the additional fees or charges (eg. through size, colour, positioning and content of the disclosure); and
  3. the disclosure occurs as early as possible in the online booking or transaction process, ideally at the same time the headline price is advertised (and not only at the payment stage of a booking process).    

If corrective or qualifying material is published prominently and in close proximity to the headline price, no misleading or false representation is made

ACCC v Jetstar: misleading headline prices

In the online booking process offered by both airlines a "booking and service fee" ($8.50 and $7.70 for domestic flights, respectively) was imposed on the majority of consumers for certain forms of payment, such as credit cards, debit cards and PayPal. In most cases, this fee was not clearly disclosed until the payment stage of the booking process.

The Court held that the airlines engaged in misleading "drip pricing" practices by encouraging consumers to enter their online airfare booking systems through the promotion of an attractive headline price, and progressively "dripped" information (including the booking and service fee) to consumers at a later stage in the process.

Lessons learned: "Dominant message" / "Prominent disclosure"

The Court asked what dominant message a rational person would reasonably consider the headline price advertised by the airlines to represent. A determination of the "dominant message" of a headline price can involve a consideration of all the circumstances of the case, including the timing, size, colour, positioning and content of any relevant disclosures, such as extra fees or charges. The overarching consideration will be whether these fees and charges are adequate and "prominently disclosed".

The dominant message conveyed by the headline prices advertised on both airlines' mobile phone sites was that the prices were "firm sums". The Court found that the headline prices effectively 'seduced' customers into the airlines' "marketing web", and the headline prices were subsequently misleading. For one airline, the Court stated that its mobile site required customers to "undertake a series of 'relatively annoying' steps in order to ascertain the existence of the booking and service fee and the circumstances in which it will be charged." The fact that both airlines disclosed the existence and amount of the booking and service fees at the payment stage, before the customer made the final decision to purchase the service, was not sufficient to negate any misconception created by the headline price.

However, not all headline prices will be misleading. One airline also advertised "from" fares on its website home page, which the Court determined did not represent "firm prices". Instead, the "base fare" was clearly expressed to be subject to conditions and a reasonable customer would not expect it to remain that price.

Importantly, the Court also acknowledged that changes made to Jetstar's website in September 2013 meant that from that date it adequately and "prominently disclosed" its booking and service fee to customers, which was then disclosed at the same time as the headline price in the form of a pop-up box, next to the selected flight.

The ACCC is looking for other examples of drip pricing

The ACCC is currently sweeping a range of websites and mobile apps for practices that could be characterised as drip pricing, and is in particular targeting the travel, tourism and leisure sectors.

Businesses need to ensure that all fees and charges above the headline price are prominently disclosed so as not to be missed by the reasonable customer as early as possible in a booking or transaction process. You may need to review your online pricing practices to ensure the disclosure of extra fees and charges accords with this principle.