Wednesday, 1 August 2012

That's the Spirit -- Airline Challenge to Advertising and Fees Regulations Fails

Nothing new under the sun is to be found in Spirit Airlines v. Department of Transportation, but the facts are interesting.

Although the U.S. air transportation market is largely deregulated, DOT retains the authority to prohibit "unfair or deceptive practice[s] . . . in air transportation or the sale of air transportation”.

They issued a new rule with three provisions which were the subject of challenge. First, airlines were required to display the total, tax-inclusive price of their tickets. Breaking the price down into its component parts was still acceptable (Spirit, amusingly, breaks down the price with several headings, including "Government's Cut" and "unintended consequence of DOT regulations"), as long as the total, tax-inclusive price was the most prominent number displayed. Second, airlines were compelled to allow passengers to cancel their flights without penalty up to 24 hours after purchase. Third, airlines were prevented from increasing the price of incidental services (such as baggage charges) after the consumer had purchased their ticket.

My sympathies as a consumer are certainly with DOT on this one. And the law turned out to be on their side too.

A majority of the Court of Appeals for the D.C. Circuit rejected the airlines' First Amendment claim that the price display provision was unconstitutional: as a regulation of misleading speech and not an affirmative limitation on what the airlines could publish, only a rational basis was required from DOT. This was not difficult: "it goes without saying that requiring the total price to be the most prominent number is reasonably related to that interest" (slip op. at p. 15). Nor, the Court unanimously held, was the price display provision arbitrary or capricious as a matter of administrative law, because it was based on the "reasonable theory that this prevents airlines from confusing consumers about the total cost of their travel" (slip op. at p. 9).

The refund provision was also upheld unanimously. DOT was entitled to rely upon its experience of consumers being mislead by airline cancellation policies. The new guarantees were "crafted after canvassing industry norms and gauging consumer expectations" (slip op. at p. 18) and were thus reasonable and supported by evidence.

Finally, the price increase provision easily survived, the Court accepting DOT's submission that "increasing the price of these very commonly purchased and practically necessary services (like the ability to carry bags onto the flight) amounts to an unfair practice" (slip op. at p. 21). It was significant that DOT had clarified its initial position. Taken literally, the price increase provision would freeze the prices of in-flight meals and beverages at the point of purchase. Ever reasonable, DOT agreed to hold a new notice-and-comment procedure before enforcing the price increase provision, with a view to clarifying its scope. This doubtless helped them to overcome the arbitrary and capricious hurdle.

Judge Randolph dissented on the First Amendment issue. Given the way in which airlines like Spirit use price breakdowns to highlight the costs of regulation, Judge Randolph took the view that political speech was a casualty of the price display provision. Accordingly, it was subject to heightened scrutiny, which it could not survive. As he concluded, "one of the abiding principles of the commercial speech cases is that the government may not restrict speech on the basis that someone somewhere may misread a particular advertisement" (dissent at p. 8).

A good day in court for the frustrated airline traveller.