No Refunds Fare Rule costs Jetstar $1.95m

Budget airlines sell cheap airfares by not including ‘extras’. The basic Jetstar ‘Starter fare’ includes only a seat and carry-on baggage.

If a passenger wants ‘extras’, they can ‘customise their flight’ by purchasing a more expensive fare with a ‘flight bundle’ which might include checked baggage, in-flight entertainment, food and flight flexibility, and the right to receive a refund for a delayed or cancelled flight.

With Jetstar, fares with a ‘flight bundle’ are called a ‘Starter fare with Flex bundle’, a ‘Starter fare with Max bundle’ or a ‘Starter fare with Plus bundle’.

Jetstar admitted that from 10 April 2017 until 13 March 2018, a ‘No Refunds Fare Rule’ was applied to passengers with a basic ‘Starter fare’ and ‘Starter fare with Plus bundle’. That is, passengers were not entitled to fare refunds if their flights were delayed or cancelled.

But did the No Refunds Fare Rule contravene the Australian Consumer Law?

Breaches of the Australian Consumer Law

The Australian Competition and Consumer Commission (ACCC) took the view that Jetstar had made false or misleading representations concerning its No Refunds Fare Rule: that Jetstar had misled passengers by asserting they had no rights to refunds and resupply in the event of significant flight delays or cancellations for ‘Starter fares’ and ‘Starter fares with Plus bundle’ booked in the ‘booking flow’ on its website.

Jetstar made three representations:

1. The No Refund Representations (that no refunds were available for bookings on ‘Starter fares’) were contrary to the Consumer Guarantees under the Australian Consumer Law (ACL), which are that the flight services are to be provided with ‘due care and skill’, are to be ‘reasonably fit for purpose’ (s 60 ACL) and are to be supplied ‘within a reasonable time’ (s 62 ACL).
2. The Exclusion of ACL Representations – the No Refund Representations were that the ‘Consumer Guarantees will not apply’. In fact, the Consumer Guarantees cannot be excluded from applying (s 64 ACL). Therefore the No Refund Representations were false or misleading as to the existence of a guarantee (s 18 and s 29(1)(m) ACL).
3. The Limitation of Liability Representations were that a passenger’s rights under the ACL were limited to a seat on another flight or paying the cost of the flight (with another airline). In fact, a passenger’s rights also include termination of the contract and damages for reasonably foreseeable loss (s 64A ACL). Therefore the Limitation of Liability Representations were false or misleading (s 18 and s 29(1)(m) ACL).

Jetstar gave a s 87B Enforceable Undertaking to the ACCC to review its Conditions of Carriage to remove these representations and to make its fare refund policies compliant with the ACL.

Because of the seriousness of the conduct, the ACCC applied to the Federal Court of Australia to determine a penalty, declarations and costs.

The appropriate penalties for contraventions of the Australian Consumer Law

In Australian Competition and Consumer Commission v Jetstar Airways Pty Ltd [2019] FCA 797 (30 May 2019) Justice Perry considered that penalties of $1.95 million for the contraventions were appropriate, and ordered Jetstar to contribute $50,000 towards the ACCC’s legal costs, for these reasons:

1. It is necessary “to send a strong message of deterrence to Jetstar and other companies from providing false or misleading information about the availability of the Consumer Guarantees” and “to remind other companies of the need to carefully review their websites, including online booking and sales flows and standard terms of trade to ensure that they do not convey a misleading or deceptive impression about these consumer protections”. Specific deterrence was needed in Jetstar’s case because it had previously been prosecuted and penalised for failing to adequately disclose booking service fees when fares were purchased on its website.

2. “The representations appeared on the website in the booking flow and conditions over a lengthy period (11 months) during which a very substantial number of bookings were made on the website” (252,000 per month for flight services). “There is a reasonable possibility that some consumers may have suffered loss or damage” (i.e. loss of fares paid). In Jetstar’s favour, the Court noted that “effective mechanisms had been put in place to audit previous complaints and deal with new complaints”.

3. “The penalty is serious taking into account the size and position in the market of Jetstar”. The Court noted that “Jetstar is the third largest airline in Australia in terms of market share. It operates up to 1806 domestic flight services a week within Australia and up to 328 international flight services”. In the financial year ended June 2018, the Jetstar Group reported revenue of $3.77 billion and underlying earnings before interest and tax of $461 million.

4. A “high degree of cooperation was demonstrated by Jetstar from the outset with the ACCC investigation and in seeking to resolve these proceedings as soon as they were advised of the ACCC’s intention to commence proceedings”.

Jetstar’s new Starter Fare Rules for fare refunds

The Starter Fare Rules have been amended. The ‘No Refund Representations’ no longer exclude the Consumer Guarantees in the ACL:

Refunds on fare and Jetstar add-ons - Non-refundable, except in certain circumstances including under the Australian Consumer Law or Conditions of Carriage.

The Conditions of Carriage no longer contain the Limitation of Liability Representations and now provide for rebooking, fare credits and refunds in certain circumstances:

Where we make a Significant Change to your flight due to an Event Beyond Our Control, whether you have checked in or not, we will:

• • use reasonable endeavours to rebook you on the next available flight on our services at no additional cost to you
     
  • alternatively, if we are unable to rebook you on services acceptable to you, we will provide you with a flight credit where the purpose of your trip is void

‘Significant Change’ means a change of three hours or more to your scheduled departure time.

‘Event Beyond Our Control’ means weather events, air traffic control issues, industrial action by a third party, security issues or any other unusual and unforeseen circumstance which we cannot control and the consequences of which we could not have avoided.

If the change is not a Significant Change but we or our Authorised Agents cannot book you on another flight which you are prepared to accept, and the change means you are unable to use your Booking for its intended purpose, we will refund the applicable fare.

Conclusions

The fact that the ACCC chose to take Jetstar to court to impose a penalty was deliberate – as ACCC Chair Rod Sims said: “Businesses simply cannot make blanket ‘no refunds’ statements, because they can mislead customers into thinking they can never get a refund under any circumstances”.

The other major Australian Airlines, Qantas, Virgin and Tiger, had more nuanced refunds policies, and the ACCC was prepared to accept s 87B Enforceable Undertakings from them to correct breaches of the ACL without pursuing penalties. See