26 Jun 2014

ACCC takes action against Jetstar and Virgin for alleged drip pricing practices

by Bruce Lloyd, Ian Reynolds, Matthew Battersby

The Virgin and Jetstar proceedings show that the ACCC is following through on its announcement to crack down on so-called drip pricing practices by online businesses.

The ACCC's court action against Jetstar Airways Pty Ltd and Virgin Australia Airlines Pty Ltd, alleging that each airline engaged in misleading or deceptive conduct and engaged in "drip pricing" in relation to particular airfares is intended to provide a strong deterrent message to all online retailers.

What is drip pricing?

The ACCC considers drip pricing to involve the incremental disclosure of fees and charges over an online purchase process, to the detriment of consumers who might end up paying more than they realise.

Typically, drip pricing refers to instances where a "headline" price is advertised at the beginning of the booking process, and where additional fees and charges are added throughout the online purchasing process. These additional fees and charges, which may be unavoidable for consumers (eg. taxes), are then incrementally disclosed (or "dripped"), so that consumers end up paying more than the advertised headline price. The ACCC considers that these practices are commonly encountered by consumers in airline, ticketing, accommodation and vehicle rental sectors.

The ACCC's message is that although businesses can apply various fees and charges for goods and services, they must clearly inform consumers up front how much the goods would cost in total. In other words, any additional unavoidable fees and charges must clearly be disclosed at the beginning of the online purchasing process.

"The ACCC is concerned about advertising that draws consumers into an online purchase process but fails to provide sufficient upfront disclosure of additional fees and charges that are likely to apply," ACCC Chairman Rod Sims said.

The ACCC's enforcement toolbox

The ACCC is pursuing Jetstar and Virgin under the general misleading and deceptive conduct provisions of the Australian Consumer Law (ACL) (contained in sections 18 and 29 ACL) using the principles underpinning, but not the specific provision outlawing, component pricing under section 48 of the ACL. Under the component pricing rules, if a business makes a representation to consumers in any advertising medium about the partial price of a good or service, the total price must also be prominently displayed as a single figure (to the extent that it is quantifiable) upfront. This total, single price must include any tax, duty, fee, levy or other additional charges (eg. GST or airport tax), to the extent those components are quantifiable.

Jetstar's and Virgin's alleged drip pricing practices

Each airline allegedly advertised airfares which the ACCC alleges failed to adequately disclose an additional Booking and Service Fee:

  • Jetstar charged a Booking and Service Fee of $8.50 per passenger, per domestic flight if payment was made by a credit card (other than a Jetstar branded credit card) or PayPal; and
  • Virgin charged a Booking and Service Fee of $7.70 per passenger, per booking if payment was made by a credit or debit card or PayPal.

The ACCC alleges that these fees applied to the substantial majority of online bookings and should have been disclosed upfront and prominently with or within headline prices. While both airlines made some adjustments to the disclosure of these fees during the period of the ACCC’s investigation, the ACCC remains concerned about these pricing practices.

The ACCC is seeking pecuniary penalties, declarations, injunctions, corrective advertising and costs against each airline.

Key takeaways for online sellers

As part of the ACCC's Enforcement and Compliance Policy for 2014, announced in February this year, the ACCC is giving priority consideration to emerging consumer issues in the online marketplace, particularly those associated with comparator websites and drip pricing. ACCC Chairman Rod Sims also foreshadowed upcoming enforcement action in the area in a February speech to CEDA.

The proceedings also illustrate the ACCC's commitment to active enforcement as a critical part of its deterrence strategy. According to the ACCC Enforcement and Compliance Policy for 2014, "sufficient court and other enforcement action is an essential requirement for effective compliance and education."

To avoid enforcement action by the ACCC, companies who sell online (and not just those that provide booking services) will need to ensure their online booking processes are transparent upfront.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.