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Memo to Airlines: It’s time to review refund policies, cancellation and change fees to comply with the Australian Consumer Law

The Australian consumer law regulator has served notice on airlines operating in Australia that:

In 2018 we will engage with the Airlines to discuss our expectations for change regarding:

  1. ‘no refund’ statements on the Airlines’ websites;
     
  2. excessive fees for flight cancellations and changes; and
     
  3. consumer guarantees … where flights have been cancelled or delayed;
    to ensure they comply with the Australian Consumer Law (ACL).

Refer Airlines: Terms and conditions – a Report by the Australian Competition & Consumer Commission (the ACCC) dated 20 December 2017

In this article, we will examine six examples of complaints given by the ACCC in the Report, the ACCC’s concerns and provide our comments. The six examples are selected from over 1,400 complaints against airlines received by the ACCC between 1 January 2016 and 14 December 2017.

1. ‘No refund’ statements

ACCC’s concerns

A number of airline websites state that sale, low cost and non-flexible economy fares are non-refundable. These statements most commonly appear in sections outlining the Fare Rules.

‘No refund’ statements may lead consumers to believe they are not entitled to a refund under any circumstance.

In most instances the ‘no refund’ statement is qualified in the Airlines’ Conditions of Carriage, which explain when a refund can be obtained and refer to the ACL obligations.

However, the ACCC is concerned that these qualifications are not sufficient to clarify the initial and prominent no refund representation.

Comments

For example, Jetstar has a statement on its website: Unless otherwise stated fares are non-refundable, limited changed are permitted and charges apply. It appears on the page where the fare is displayed.

The ACCC’s concerns that the consumer may be misled are the same as for ‘drip pricing’ where it successfully prosecuted Jetstar and Virgin for failing to disclose additional booking fees and charges early in the online booking process when the headline price was disclosed. For more, see my article: There’s to be no more drip pricing of booking fees since the Jetstar decision.

2. Excessive fees for cancellation and changes

Example 1

Consumer A purchased return flights from Los Angeles to Sydney for four people with an Australian airline, for a total cost of $3,500. Approximately 35 days prior to departure, Consumer A cancelled the flights. The airline charged a cancellation fee of $500 per person. This equated to a total fee of $2,000 for fares totalling $3,500 (approximately 57%).

ACCC’s concerns

The cancellation fee is excessive and therefore unfair because:

  • the amount of the fee does not take into account how far in advance the cancellation or change occurs, such as when the airline might have sufficient time to resell the seat; and
     
  • the fee represents a significant proportion of the original airfare.

Comment

The ACCC considers conditions which impose cancellation fees to be unfair contract terms: “where the size of the fee imposed by the airline to cancel or change a flight is disproportionate to the cost of the original fare, or is unrelated to costs, then concerns may arise.”

Having said that: “The ACCC recognises that the Airlines differentiate fares with different levels of flexibility. This means that a consumer often has less flexibility to cancel or change their flight details when they have purchased a cheaper fare. This is not problematic in itself.”

Example 2

Consumer B booked a flight from Melbourne to Gladstone via Brisbane. The airline cancelled the Melbourne to Brisbane flight and rescheduled it to a time which clashed with the Gladstone to Brisbane leg. The airline advised consumer B that they could be placed on an earlier originating flight, but to make this change consumer B would have to pay an $80 change fee.

ACCC’s concerns

The cancellation or the change was caused by the actions of the airline, which provided alternatives not acceptable to the consumer, yet it charged a change fee.

The ACCC is particularly concerned with fees imposed by airlines where the charges are the result of decisions or circumstances within the control of the airline rather than the consumer. A contract term that allows for the application of a change fee in circumstances where the airline has cancelled the flight is, in the ACCC’s view, likely to be unfair.

The ACCC will be engaging with the Airlines to understand exactly how, when and why these fees are charged, and is likely to take action where unfair contract term provisions are identified and not addressed.

Comment

The ACCC’s view is clear – change fees should be limited to circumstances where the consumer changes their mind through no action by the airline.

3. Consumer Guarantees: Changes and cancellations by the airline

Example 3

Consumer C booked return flights from Brisbane to Canberra. The airline cancelled the return flight so consumer C sought a refund for his return flight. The airline refused to provide a refund unless Consumer C paid an $80 fee.

ACCC’s concerns

In this example, the concern is that the consumer is “receiving only a partial remedy or no remedy where they may be entitled to one” without payment of a fee.

Example 4

Consumer D purchased two tickets for his family members. At the gate, the airline said that the flight was overbooked. The airline offered to place the two passengers on a flight the next morning but required a $50 change fee per person. The fee was later refunded as a ‘gesture of goodwill’ by the airline.

ACCC’s concerns

In this example, the concern is that “when consumers do receive a remedy, the airline represents that it is providing the remedy out of ‘goodwill’, in circumstances where the consumer was entitled to a remedy under the ACL”.

A related concern is “the Airlines appear to offer remedies to consumers on an ad hoc basis, rather than through a consistent and reasoned application of their policies and procedures”.

Example 5

Consumer E booked a same day return flight from Sydney to Canberra. Prior to take off, the flight was cancelled due to a mechanical fault. The delay extended beyond the departure time for Consumer E’s return flight from Canberra back to Sydney. Consumer E sought a refund from the airline, but was advised that the airline does not provide refunds, and was provided with a flight credit instead.

ACCC’s concerns

In this example, the concern is that airlines are issuing a travel voucher or credit with the airline instead of offering a cash refund or compensation. “These travel vouchers or credits often contain conditions on how to use it and when it needs to be redeemed. The ACCC’s view is that these travel vouchers or credits are not equivalent to a refund, and should not be used as a substitute when a consumer is entitled to a refund under the ACL”.

Example 6

Consumer F booked a flight from Sydney to Melbourne. The flight was cancelled prior to take off. Consumer F was informed there would not be a replacement flight and that she would only be entitled to a refund. After booking a flight with another airline for the next day, Consumer F was informed that the original airline had rescheduled her flight for the next day. Consumer F was provided with a refund for the original fare but was denied a refund for the additional cost of rebooking her flight with another airline.

ACCC’s concerns

In this example, the concern is that when “an airline cancels or delays a flight and the consumer has to book an alternative flight, either with the same or a different airline, and the airline refuses to refund or compensate the consumer for this additional cost.”

Is the airline’s reason for cancellation within its control?

ACCC’s concerns

The ACCC’s concern is that while the conditions provide “More generous remedies for cancellations and delays for events within the Airline’s control”, there is no common definition for the terms “events within the Airlines’ control” and “events outside the Airlines’ control”.

The ACCC’s concern is that the absence of a common detailed definition can lead to speculation that “an airline’s decision to cancel a flight due to low passenger numbers has been presented as being cancelled for a different reason”.

Comment

The ACCC should seriously consider adopting a standard definition of ‘extraordinary circumstances’ and the notion of ‘an airline taking reasonable measures to avoid extraordinary circumstances’ as is found in European Union Regulation (EC) No 261/2004 to determine if an event is outside the Airlines’ control.

European case law has established that:

  • Mechanical failure leading to a cancellation is not outside the actual control of the air carrier, because the maintenance and proper functioning of the aircraft is the carrier’s responsibility;
     
  • Natural disasters such as volcanic ash clouds are outside of the actual control of the air carrier.
     
  • Bird strike damage leading to a cancellation is outside of the actual control of the air carrier, if it has taken the necessary preventative measures;

The EU’s fixed compensation entitlements are not advocated. They are punitive and defective because of their ‘one size fits all’ nature.

Conclusion

All airlines operating in Australia, particularly domestic but also international airlines offering air services to Australian consumers, need to take heed of the Report and review their conditions for refund policies, cancellation and change fees, to ensure they comply with the Australian Consumer Law.

The ACCC has overcome its reluctance to intervene in complaints by consumers against airlines, and is in fact inviting consumer complaints. It ended the Report by warning it may bring test cases against airlines which fail to change their conditions:

While we do not ordinarily pursue individual consumer matters, in this area, where steps are not taken, the ACCC may need to action a number of individual matters to effect broader changes.

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