On 7 March 2017 the Federal Court of Australia ordered airlines Jetstar Airways Pty Limited and Virgin Australia Airlines Pty Ltd to pay $545,000 and $200,000 in pecuniary penalties respectively for ‘drip pricing’ practices in contravention of the Australian Consumer Law (ACL).
What is ‘drip pricing’?
The Australian Competition and Consumer Commission (ACCC) defines drip pricing as the act of advertising a headline price at the beginning of an online purchasing process and then incrementally disclosing (or ‘dripping’) additional fees and charges which may be unavoidable. This can result in consumers paying more than the advertised price or spending more than they realise.
In relation to drip pricing the ACCC Chairman, Rod Sims, has said:
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.
History of the litigation
In June 2014, the ACCC instituted separate proceedings in the Federal Court against Jetstar and Virgin, alleging that each airline engaged in misleading or deceptive conduct and made false or misleading representations in relation to particular airfares.
In November 2015 Justice Foster of the Federal Court found that:
- Jetstar had made false or misleading representations about specific advertised airfares on its website and mobile site; and
- Virgin had made false or misleading representations about specific advertised airfares on its mobile site,
in breach of sections 18, 29(1)(i) and 29(1)(m) of the ACL.
Section 18 of the ACL provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.
Section 29(1) provides that a person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:
(i) make a false or misleading representation with respect to the price of goods or services; or
(m) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.
Jetstar’s and Virgin’s drip pricing practices
In summary, the conduct which amounted to drip pricing by the airlines was as follows:
- In May 2013 Jetstar advertised on its website fares for flights from Brisbane to Melbourne from $139 per person on selected travel dates and from Melbourne to Brisbane from $109 per person on selected travel dates. Similarly, in March 2014 Jetstar advertised on its mobile site fares for flights from Melbourne to Sydney of $85 per person on selected travel dates. However, Jetstar charged a booking and service fee of $8.50 per passenger if payment was made by a credit card (other than a Jetstar branded credit card) or PayPal. The booking and service fee was not disclosed until the very end of the booking process when the consumer arrived at the payments page.
- In similar circumstances, in April 2014 Virgin advertised on its mobile site fares from Brisbane to Sydney from $85 per person on selected travel dates. However, a booking and service fee of $7.70 per passenger was charged if payment was made by a credit or debit card or PayPal. Again, the booking and service fee was not disclosed until the very end of the booking process.
In each of the above three instances, the Federal Court found that there had been a contravention of the ACL because the existence and amount of the booking and service fee was not disclosed until the consumer reached the payments page of the website.
Penalties imposed on Virgin and reasons of the Federal Court
The Court ordered Virgin to pay a pecuniary penalty of $200,000. In making the order, Foster J took into account a range of mitigating factors, including:
- a lack of evidence of any consumer actually being misled by Virgin;
- Virgin’s belief that it was operating within the law and the fact that the belief was not unreasonable (notwithstanding it was incorrect);
- Virgin’s corporate culture, which is conducive to complying with the ACL;
- Virgin’s cooperation with the ACCC during the investigation phase of the proceedings by providing information and documents on a voluntary basis, and during the penalty phase of the proceedings by reaching agreement with the ACCC in relation to costs;
- the fact that Virgin has not previously been found by a Court to have contravened the ACL; and
- Virgin’s behaviour, which showed contrition, acceptance of responsibility and a willingness to facilitate the course of justice.
Penalties imposed on Jetstar and reasons of the Federal Court
The Federal Court ordered Jetstar to pay pecuniary penalties of $295,000 in respect of the website pricing and $250,000 in respect of the mobile site pricing due to the fact the misrepresentations on the website were more serious than those made on the mobile site because its website is utilised far more often by customers to make flight reservations. In making the orders, Foster J took into account the following mitigating factors:
- a lack of direct evidence in relation to any quantifiable loss or damage suffered by consumers or competitors as a result of Jetstar’s conduct;
- Jetstar’s belief it was operating within the law and that the belief was not unreasonable (notwithstanding it was incorrect);
- Jetstar has had a compliance program in place since 2007 which is detailed, focussed and ongoing and is generally effective in ensuring that Jetstar complies with the law;
- the fact that Jetstar was unlikely to repeat the contravening conduct, evidenced by a change in booking processes on both its website and mobile site;
- the fact that Jetstar had not previously been found by a Court to have contravened the ACL; and
- Jetstar’s apology, which the Court regarded as evidence of contrition.
However, the Court also noted that Jetstar had not fully-cooperated with the ACCC since the commencement of the proceedings and that any cooperation with the ACCC in 2013 and early 2014 was not entirely voluntary. Rather, it was in response to “significant prodding” from the ACCC.
Companies which sell online are able to apply various additional fees and charges for goods and services.
However, these proceedings serve as a reminder that consumers must be clearly informed upfront as to how much the goods and services will cost in total. In other words, any additional unavoidable fees and charges must clearly be disclosed at the beginning of the online purchasing process.
Sydney Ian Robertson, Partner
T: +61 2 8083 0401
Melbourne Dan Pearce, Partner
T: +61 3 9321 9840
Brisbane Paul Venus, Partner
T: +61 7 3135 0613
Disclaimer The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.