Although not a new phenomenon, “drip pricing” tactics have been targeted as part of the ACCC’s consumer protection enforcement agenda. As we previously blogged, drip pricing involves the incremental addition of further fees above the headline price advertised to customers throughout the booking process.  Attention on drip pricing has previously focussed on the single price obligation in section 48 of the Australian Consumer Law (ACL), but the ACCC’s current drip pricing action only alleges misleading or deceptive conduct and false or misleading representations.  This might suggest that the ACCC has concerns about whether the single price provision is applicable, or sufficient to address the issue, in these circumstances.

Last year, the ACCC took action against Jetstar and Virgin over booking and service fees payable for certain payment methods, and secured cooperation from Ticketek and Ticketmaster to provide greater clarity on additional ticketing fees on their websites. Although the ACCC’s investigations have focussed on airlines and ticket agencies thus far, Chairman Rod Sims warned that the ACCC’s action against Jetstar and Virgin should send a message to other online vendors such as hotel booking and car rental sites.  The ACCC has also been actively approaching other companies regarding their  pricing practices.

Across the Tasman, the New Zealand Commerce Commission (NZCC) has taken a slightly different pricing focus against a similar target, and is investigating Air New Zealand for “opt-out” pricing – charges automatically added to airfares which consumers must deselect to avoid paying. Arguably, opt-out pricing is a particular form of drip pricing, but additional optional fees will not fall foul of the component pricing laws, which only require the minimum single price to be displayed.

Ticketmaster and Ticketek agree to clearer disclosure of ticketing fees on their websites

In October 2014, the ACCC announced that Ticketek and Ticketmaster had cooperated with the ACCC’s drip pricing investigation into various ticketing fees charged throughout the ticketing process, and agreed to clarify certain ticketing fees. Unlike the Jetstar/Virgin fees, some of the ticketing fees were unavoidable regardless of payment method.

To address the ACCC’s concerns, Ticketek and Ticketmaster agreed to incorporate minimum Payment Processing Fees into the single ticket prices displayed on websites, being a fee for payment by credit or debit card. Each company also agreed to incorporate further charges associated with delivery or handling into the total price as soon as the customer decided variables such as ticket number and delivery method. Accordingly, certain additional fees may still be payable on top of the headline advertised price of tickets. Regardless, ACCC Deputy Chair Delia Rickard was satisfied that these measures should “give consumers more clarity up front about the total cost of buying tickets”.

Judgment reserved in the ACCC’s case against Virgin and Jetstar over booking and service fees

In June 2014, the ACCC launched separate proceedings against Jetstar and Virgin regarding “drip pricing” on their online sites in the form of booking and service fees payable for certain payment methods.  As summarised in ourprevious post, the ACCC’s action relies on misleading or deceptive conduct, and false or misleading representations, rather than the single price provision of the ACL, which requires a single price  to be displayed where it is feasible. This may be because  the booking and service fees were optional, and could be avoided if customers chose a different payment method.

Although booking fees associated with credit card payment methods are also charged by other airlines, ACCC Chairman Rod Sims explained that Virgin and Jetstar were targeted due to the high number of complaints.

On 1 and 2 December 2014, Justice Foster heard the ACCC’s applications against Jetstar and Virgin concurrently, with judgment currently reserved.

Jetstar now displays a prominent message on the first page of its booking process stating that a Booking and Service Fee of $8.50 may apply. The Jetstar message also states that some products and services have been “pre-selected for your convenience”, referring to “opt-out” charges akin to those the subject of NZCC’s Air New Zealand investigation. Virgin similarly displays a message at the start of its booking process informing customers that quoted prices include taxes and fees except for the booking and service fee of $7.70, and explains the circumstances in which it is charged.

Air New Zealand under investigation for opt-out insurance charges, following previous card surcharge investigation

The NZCC is currently investigating Air New Zealand for its opt-out insurance charges. The insurance fee is automatically charged on top of the headline price unless the consumer de-selects the option. Air New Zealand is no stranger to NZCC scrutiny of its pricing practices, have been fined NZD 600,000 in 2006 for misleading advertising of its prices and investigated in 2013 for its credit and debit card fees.

The opt-out charge of interest is a domestic travel insurance charge of NZD 10. Consumers reportedly have multiple opportunities to opt out of the charge throughout the booking process, but some allege that the pre-selection results in inadvertent purchases. Air New Zealand does offer refunds for mistaken purchases within 14 days.

The New Zealand Herald reports that the NZCC’s investigation was triggered by complaints and has continued for about a year. The NZCC is reportedly not treating opt-out pricing as “drip pricing”.

Interestingly, in December 2013, the NZCC closed its investigation into Air New Zealand’s credit card surcharges, concluding that the airline’s representations regarding its card payment fees were unlikely to be false or misleading. As with Jetstar and Virgin’s Booking and Service fees, Air New Zealand’s credit and debit card fees could be avoided by choosing a different payment method. The NZCC concluded that Air New Zealand adequately conveyed that the card payment fee is charged to recover operational costs for card payments across the business, rather than that particular transaction. It also noted that the fee was not profit-generating, suggesting there was a risk of misleading consumers if it was.

In 2006, Air New Zealand was fined NZD 600,000 for misleading consumers in numerous advertisements. The advertisements displayed a headline price exclusive of additional charges such as fuel surcharges and Civil Aviation Authority levies, which were instead displayed in fine print. Such conduct would breach Australia’s component pricing laws, which came into effect in May 2009.

Pricing scrutiny likely to continue

The ACCC’s investigations into drip pricing and the NZCC’s separate investigations of different aspects of Air New Zealand’s pricing demonstrates that regulators are closely scrutinising online booking processes and pricing tactics. The NZCC’s opt-out pricing investigation, and any further enforcement action over drip pricing and/or opt-out fees would no doubt be closely followed by airlines, ticket agencies and online vendors such as hotel booking and car rental sites. For example, Jetstar and Virgin currently include various opt-out fees in their online booking processes similar to those used by Air New Zealand: Jetstar pre-selects seat bookings and baggage options for its customers, and Virgin customers must opt-out of Ticket & Baggage Protection insurance.

The recent Financial System Inquiry, led by David Murray, also examined credit card surcharges.  The Inquiry received thousands of submissions against surcharging as part of a campaign directed at Jetstar’s booking fees.  The Inquiry’s Final Report recommended that the RBA Payment System Board improve their surcharging regulation, namely by:

  • banning surcharges for low-cost payment methods (such as debit cards);
  • setting surcharge limits for medium-cost payment methods (such as Visa and Mastercard); and
  • applying existing “reasonable cost recovery” rules to higher-cost methods (such Diners Club) and requiring this to be disclosed to customers.

There is some overlap between the ACCC’s focus on potential misleading or deceptive conduct, and the Murray Inquiry’s focus on accurate surcharging.