Anita M. Mosner is a Partner and Jennifer M. "Jenn" Nowak is an Associate in our Washington DC office.
The U.S. Department of Transportation (DOT) has reversed its previous enforcement stance which required airlines to honor all fares purchased by consumers, even when the published fare was an obvious mistake. The new policy was announced on Friday, May 8 and will remain in effect until a permanent policy is put into place.
Enforcement of Mistaken Fares under DOT's Post-Purchase Price Increase Prohibition
A regulation promulgated as part of the 2011 Enhancing Airline Passenger Protections II (EAPP II) Final Rule prohibits airlines from increasing the price of air fare after the consumer has purchased a ticket. (14 C.F.R. § 399.88.) DOT's guidance accompanying the EAPP II rule interpreted this prohibition as equally applicable to mistakenly published fares, even if would be clear to any reasonable person that the price was offered in error. Until now, DOT has required carriers to honor such fares purchased by consumers unless a carrier can prove that the consumer acted fraudulently or manipulated the carrier's system to obtain the fare. This often requires carriers to honor extremely low fares to consumers who know that they are purchasing a mistaken fare, and who use social media to encourage others to take advantage of such mistaken fares.
Indications of a Shift in DOT's Stance on Mistaken Fares
Having been made aware of the fact that customers were going to great lengths to take advantage of these mistakes, and being aware of differences in treatment in other industries, DOT appears to have recognized that its strict interpretation may be resulting in unintended consequences. In the May 2014 Enhancing Airline Passenger Protections III (EAPP III) Notice of Proposed Rulemaking, DOT solicited comments on how mistaken fares should be handled, acknowledging that some consumers were gaming the system or acting in bad faith when purchasing mistaken fares that were posted on frequent flyer blogs and travel deal websites.
In February of this year, DOT for the first time published a statement explaining that it would not be requiring United Airlines to honor thousands of tickets purchased from United's Denmark website which listed fares in Danish Krone throughout the purchasing process and required purchasers to enter "Denmark" as their billing location in order to complete the purchase. DOT stated that it does not intend to enforce the post-purchase price increase rule when the fare offer is not marketed to consumers in the United States. Further, DOT stated that in order to obtain the fare, U.S. purchasers had to manipulate the website search process by misrepresenting their billing address country as Denmark, which DOT considered to be evidence of bad faith by the large majority of purchasers.
New Policy on Honoring Mistake Fares
As of May 8, DOT will no longer require carriers to honor mistaken fares as long as the carrier (1) demonstrates that the fare was a mistake, and (2) makes the purchasing consumer whole by refunding the ticket and reimbursing the passenger for any reasonable, actual and verifiable out-of-pocket expenses made in reliance on the purchase price of the ticket (such as non-refundable hotel accommodations). Carriers are permitted to require passengers to provide proof of such costs in order to provide a refund.
The requirement to cover reimbursable costs will force carriers to move quickly to detect and notify passengers promptly of any mistaken fares published in error. This may prove challenging with online travel agencies and travel agent sales. There is also likely to be a lot of back and forth about what is (and what is not) a "reasonable" out of pocket cost and will require airlines to amend their policies to cover this change. While this is a big symbolic win for carriers, the challenge will be to find a way to implement this rule that insulates carriers from fraudulent hotel claims, fees for connecting flights, tour bookings, etc.
The May 8 policy will remain in effect until DOT publishes a permanent ruling on treatment of mistaken fares, whether in the EAPP III Final Rule or otherwise.
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