How should airlines be required to handle mistake fares?
Of course we all love it when mistake fares happen and they’re honored and we get to travel the world at insanely cheap prices, especially in business or first class.
I’ve never been a fan of suing to try to enforce these fares. Nor have I been a fan of the Department of Transportation requiring that they’re honored. Earlier this month I was at Duke Law School discussing how the DOT should address the issue, which prompts me to share some thoughts here.
My own view has always been that I’m comfortable booking mistake airfares (nothing morally questionable about doing so) — that if an airline is going to transport customers to the other side of the world and back in business class for about a hundred bucks, I’d sure like to be one of those people.
But I also don’t think they’re morally required to do so. At least as long as they follow some basic principles.
Here are some challenges with mistake fares.
- We really don’t always know what fares are mistakes versus what’s an intentional sale. Some cases are obvious to most consumers, but there have even been obvious errors that were intentional. Drawing bright lines is hard.
- After a certain amount of time we really do assume mistake fares are going to be honored. If airlines can renege on a fare, there needs to be a limit on how long airlines have to renege.
- A rule where airfare isn’t really ‘confirmed’ would be bad public policy. If folks don’t know for sure they have a seat, that’s a problem. Airlines do overbook and try to shift customers to other flights. Qatar, prior to joining oneworld, was known for downgrading passengers traveling on United award tickets when they had sold out their business class cabin. There wasn’t a ‘mistake’ but customers had little recourse. That’s not fair, and it’s not good for airlines or the economy when customers can’t rely on their travel plans.
Mistake Fares Present Tough Questions
Back in 2005 Washington Dulles-based Independence Air loaded mistake fares intentionally into their system around midnight. They waited until a few tickets were purchased and then called the Washington Post in the morning, with the message that you never know what kind of great deals you might get at flyi.com! It was a guerrilla marketing campaign for an airline that didn’t pay to distribute their fares through computer reservation systems.
When United sold $1100 business class tickets Los Angeles – Auckland via Sydney in 2007, then spokesperson Robin Urbanski called honoring the tickets “the right thing to do.”
In October 2009 British Airways had $40++ tickets from the US to India. With fuel surcharges and taxes they were over $500. That’s not an obvious error like $0 or $50. The airline canceled the tickets, and the Department of Transportation ordered that they cover expenses consumers incurred in detrimental reliance on the purchases. In that case over 1000 tickets were sold.
In the fall of 2011 Korean published a sub-$500 fare New York JFK – Palau. The fare was available for several days. About 300 people bought tickets. $500 for coach isn’t obviously a mistake. Korean spent 2 months discussing internally what to do and consulting with regulators, so that they notified customers who by that time assumed they could travel that their tickets were being cancelled. AMost people took refunds. Some people paid an extra couple hundred dollars to fly. Korean lost some small claims cases.
The Department of Transportation Requires Airlines to Honor Mistake Fares, But Doesn’t Want to Anymore
Department of Transportation regulations require airlines to honor mistake fares. That’s actually pretty unambiguous, and has been since January 2012.
Does the prohibition on post-purchase price increases in section 399.88(a) apply in the situation where a carrier mistakenly offers an airfare due to a computer problem or human error and a consumer purchases the ticket at that fare before the carrier is able to fix the mistake?
Section 399.88(a) states that it is an unfair and deceptive practice for any seller of scheduled air transportation within, to, or from the United States, or of a tour or tour component that includes scheduled air transportation within, to, or from the United States, to increase the price of that air transportation to a consumer after the air transportation has been purchased by the consumer, except in the case of a government-imposed tax or fee and only if the passenger is advised of a possible increase before purchasing a ticket. A purchase occurs when the full amount agreed upon has been paid by the consumer. Therefore, if a consumer purchases a fare and that consumer receives confirmation (such as a confirmation email and/or the purchase appears on their credit card statement or online account summary) of their purchase, then the seller of air transportation cannot increase the price of that air transportation to that consumer, even when the fare is a “mistake.”
A contract of carriage provision that reserves the right to cancel such ticketed purchases or reserves the right to raise the fare cannot legalize the practice described above. The Enforcement Office would consider any contract of carriage provision that attempts to relieve a carrier of the prohibition against post-purchase price increase to be an unfair and deceptive practice in violation of 49 U.S.C. § 41712.
It’s entirely predictable and was predicted that this rule would mean consumers would benefit from pretty much all mistake fares (which aren’t as common as they used to be as a result of better digital tools). The Department of Transportation is shocked by “bad actors” buying mistake fares in “bad faith.”
They’ve chipped away at their own rules, arguing that airlines aren’t required to honor tickets when:
- There’s merely a connection in the US but travel is to and from other countries (Swiss’ decision not to honor tickets between Yangon and Canada with a connection at New York JFK)
- The correct price is displayed during the booking process but not at final purchase (United’s 4 mile Hong Kong mistake)
- Currency conversion errors where consumers had to book on a site intended for individuals outside the United States (also United)
A current Department notice of proposed rulemaking asks for help in coming up with a way of undoing the requirement that mistake fares be honored, while continuing to prohibit airlines from increasing prices after purchase when consumers didn’t actually know there was a mistake.
What’s a Better Rule?
One approach would be to say that airfare is just like everything else and ought to be subject to the same common law rules and Federal Trade Commission regulations — in other words, there’s nothing inherently special about airfare versus hotel prices, or vacuum cleaners.
Nonetheless, the DOT has the power to regulate here and so they certainly will. Given that I do think we can come up with a reasonable and clear approach.
There are mistakes, and then there are mistakes. Some are intentional. Some are modest or even large discounts and some are out of this world.
It’s truly special when you can fly business class roundtrip to New Zealand for less than the price of coach. It’s even better when the airline says standing behind their fare is “the right thing to do.”
But I don’t think we can expect that. In order not to honor a mistake fare, a think a policy could make sense like:
- An airline should have to certify that they’ve made a mistake. A submission to the DOT certifying under penalty of perjury that the fare in question was indeed an error.
- The error must be obvious and egregious. If an airfare is an 80% or 90% discount from the lowest paid fare (inclusive of all fees and surcharges) sold on the route in the previous 30 days, and it wasn’t offered intentionally, it seems reasonable to accept that it was an error.
- The submission has to be made in a timely manner. Customers generally have the right under current DOT rules to put airfare on hold for 24 hours, or to cancel within 24 hours of ticketing. It seems like airlines should be able to cancel a mistake within 24 hours.
- They should communicate clearly with customers. Individually contact customers within 24 hours of purchase indicating that they’ve submitted to the DOT that the tickets in question were a mistake and won’t be honored.
Would that seem fair to you?