Call it a single price, a total price or a final price, the Australian Consumer Law requires businesses to show an all-inclusive price in their advertising.

The Australian Competition & Consumer Commission (‘ACCC’) will pursue businesses which fail to display an ‘all-in’ price in their advertising by requesting undertakings and corrective advertising, and by instituting court proceedings for restraining orders and substantial penalties.

Airlines compete by advertising low air fares because they offer a very similar product – they fly the similar routes and use similar aircraft. According to travel industry surveys, most consumers select an airline to book air travel because it offers cheap air fares.  Airlines therefore have a great commercial incentive to advertise cheap fights and lowest fares, with a flight price stripped of all non-essentials.

The question is - What does the Australian Consumer Law require to be included in an advertised flight price? This question was recently answered in this decision -

The ACCC takes AirAsia to court on flight price representations

Recently, the ACCC was successful in the Federal Court of Australia in securing a pecuniary penalty of $200,000 and a declaration to comply with the law requiring a single price to be displayed in proceedings brought against the self-styled ‘low cost airline’, Air Asia. The decision was handed down on 14 December 2012 and is reported as ACCC v AirAsia Berhad Company [2012] FCA 1413.

The facts were that for a period of 10 months, between 21 March 2011 and 20 January 2012, AirAsia published air fares for international travel from Australia on its website. The air fares displayed excluded taxes, fees and other charges which the consumer was required to pay.

The consumer would start the booking process on the website, enter the departure and destination details. The customer would click the search button to go to page 2 to see the available flights and the air fares displayed in the ‘Select Flights’ section. Next to the air fares, was the statement “Fares shown EXCLUDE taxes and fees”. On pages 3 and onwards in the booking sequence, the single total price for the air fares (including taxes and fees) was displayed. On page 9 the single total price was displayed where the flight was to be confirmed before payment was made.

The Federal Court (Justice Tracey) held that the statement on page 2 that “Fares shown EXCLUDE taxes and fees” was not effective to overcome the breach of the law requiring a single price to be displayed, for these reasons –

  • Quoting a price lower than the actual amount payable is ‘seductive’. As a result, the consumer may well be attracted to the fare and ‘grudgingly pay the additional imposts rather than go to the trouble ... of looking elsewhere’.
  • By advertising in this way, the company ‘will also obtain an advantage over competitors who are compliant.’ He added ‘The relevant errant conduct continued over many months and had the potential to influence thousands of bookings.’

As ACCC chairman Rod Sims put it “Consumers must have accurate price information, and in turn, airlines require a level playing field on price representations in this competitive industry where consumers are price sensitive”.

What is the law on single prices?

Section 48 of the Australian Competition Law, provides –

(1) A person must not ... make a representation with respect to an amount ... unless the person also specifies, in a prominent way and as a single figure, the single price for the goods and services.

The components that must be included in the single price are listed in sub-section (7).

(7) The single price is the minimum quantifiable consideration for the supply of the goods and services ... including each of the following amounts ...

(a) a charge ... payable to the person making the representation

(b) the amount [of] ... any tax, duty, fee, levy or charge imposed on the person making the representation

The ACCC explains – ‘Businesses must provide a single figure that reflects the total price to be paid. This does not mean that businesses cannot show the various components that make up that price, but if they do, they must also show, in a prominent way, the total price to be paid.’

How did the Court determine the penalty?

The Court considered several relevant matters in determining an appropriate penalty –

  • The fact that the warning - ‘Fares shown EXCLUDE taxes and fees’ was displayed early in the booking process did not carry much weight in mitigation because the price was ‘seductive’.
  • The ACCC did not produce evidence of consumer loss or evidence that competitors suffered loss of custom. This was considered a mitigating factor.
  • The ACCC had alerted AirAsia to the section 48 requirements not long before the present contravention occurred. This should have led to AirAsia ‘exercising particular vigilance’ to ensure that it displayed a ‘single price’. This counted against AirAsia.
  • The absence of previous contraventions counted in favour of AirAsia.
  • AirAsia established that the conduct was inadvertent rather than reckless or deliberate. The failing was identified as the ‘inadequate delegation and supervision by “more senior operational personnel and management”.’ This was a mitigating factor. Had there been a corporate culture of non-compliance, this would have been an aggravating factor.
  • The fact that AirAsia had given an undertaking to publish air fares as a single price for the next 3 years in compliance with section 48 was relevant to the Court not granting an injunction or corrective advertising.

The financial penalty imposed was $200,000, as against the ACCC’s submissions that a financial penalty of between $520,000 and $650,000 would be appropriate.

The Court gave force to the undertaking given by AirAsia by making a declaration to the effect that it would comply with the single price requirement for 3 years.

The Court did not agree to the request by the ACCC that AirAsia publish corrective advertising on its website.

How do airlines in Australia display their flight prices on their websites?

Since the ‘clarity in pricing’ law took effect on 25 May 2009, airlines have ceased to advertise an air fare, then add fare surcharges such as fuel levies, departure taxes and so forth. Some airlines ceased to do this much earlier than 2009 because the ACCC has been urging airlines to advertise a single price since 2005.

By 4 March 2011 most major airlines had changed their websites to display all-inclusive prices to comply with an ACCC notification.

The current practice for airlines advertising departures from Australia is to include surcharges, fees, charges and taxes in the flight price.

Click here to view table.

What is not included in the single price?

Although the ACCC discourages the practice of component pricing, the airlines have managed to exclude two significant items from being included in the single flight price, and yet comply with section 48. These are -

Booking and Service fees – Each airline charges a “Booking and Service fee’ per passenger per flight. The fee ranges between $8.50 and $30 on top of the price. How is it that the airline is not required to include that fee in the flight price? The answer is that each airline allows one method of payment which does not attract a charge, such as BPAY/direct deposit, POLi Direct Payment, a gift voucher or the airline’s branded MasterCard. Note that the Reserve Bank of Australia is currently considering whether to require the payment fee to be a percentage charge, rather than a flat fee charge, to better reflect the credit card provider’s method of charging.

Fees for checked baggage – increasingly, airlines are charging separately for all checked baggage (i.e. baggage in the hold), not simply for excess baggage. The justification for not including this charge in the price is that the passenger can choose not to take checked baggage.