Two sets of proceedings were commenced in June 2014 by the ACCC against two Australian airlines, Jetstar and Virgin, alleging contraventions of the Australian Consumer Law, as a result of alleged conduct known as ‘drip pricing’.
What is ‘drip pricing’?
Drip pricing involves advertising a headline price at the commencement of an online purchasing process, with additional fees and charges (such as “booking” or “service fees”) added on part way through the purchasing process. The ACCC is concerned that consumers end up paying more than the advertised price or spend more than they realise. Consumers are often so far through the payment process that they accept the additional charges, rather than cancel the transaction.
The ACCC is also concerned that drip pricing has negative effects on competition as well. ACCC chairman, Rod Sims has explained the concern that other businesses which have ‘more transparent’ pricing practices have difficulty competing on a level playing field with those engaged in drip pricing.
The conduct alleged
The claims made are very similar. Each alleges that the airline engaged in misleading or deceptive conduct and made false or misleading representations in relation to particular airfares.
The alleged representations were made on the airlines’ websites and mobile sites for certain domestic airfares at certain prices. The ACCC says that those prices were only available if the consumer made the payment in particular ways.
Jetstar is said to have charged a Booking and Service Fee of $8.50 per passenger, per flight, if payment was made by a credit card (except for Jetstar branded credit cards) or PayPal, which fee was not adequately disclosed.
Virgin is said to have charged a Booking of Service Fee of $7.70 per passenger, per booking, if payment was made by credit or debit card or PayPal, which fee was not adequately disclosed.
The airlines both gave consumers opportunities to pay for their flights without incurring payment / credit card fees. However, the opportunities to avoid these fees were limited. The overwhelming majority of consumers pay for their flights using methods which inevitably incur the payment/ credit card fee. The ACCC says that these fees should have been disclosed upfront and prominently either with or within the advertised headline price.
The ACCC is seeking pecuniary penalties, declarations, injunctions, corrective advertising and costs against each of the airlines.
Both matters are before the Federal Court in Sydney in August.
Previous action by the ACCC against Air Asia X for similar conduct was successful given that Air Asia X did not adequately disclose upfront compulsory and unavoidable fees and charges in their prices. The challenge in these proceedings is that the fees which the ACCC has taken issue with are not unavoidable, though most consumers incur them. That subtle difference is likely to be an issue in these proceedings.
A number of industries have historically, and still currently, engage in drip pricing. They include ticketing (entertainment), accommodation and vehicle rental businesses.
The ACCC is undertaking investigations of these sectors, and we should expect further action on drip pricing, as it has been a stated objective of the ACCC this year to give priority to issues in the online marketplace.
The same argument could be mounted in relation to postage fees – a supplier/ retailer may allow goods to be purchased from their shopfront or via their website. In this situation, how should the supplier represent their pricing, should the majority of their consumers purchase goods via the supplier’s website and invariably incur a postage fee? It may be that the current proceedings will provide some clarification for the standards expected in relation to pricing.