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?
While I have never bought a mistake fare, I would love to! But, I do think that what you have put forth would be fair.
Sounds like a fair proposal.
Interesting. I especially like your 24-hour rule. It will obviously hurt to see mistake fares go away, but I say this on the customer-side only. My take is two-fold: first, we all make mistakes. Like you say, if I can correct a mistake within 24 hours, why could the airlines not? And second, thinking that buying a ticket constitutes a contract: if under the price and terms of the mistake fare one party (i.e. customers) gains an “unfair” advantage over the other (think, potential cost savings vs. lost revenue), does it remain a valid contract?
I would add that whatever time the airlines are given to correct the mistake should also be the time frame that consumers are.given to cancel their purchases.
I like your proposals. I also agree with Chris – give airlines and passengers the same window (be it 24 hours or whatever) to decide they made a mistake.
Is there any way for you to formally submit your suggestions to the DOT?
I would slightly modify the cancellation policy to mirror the airline’s own DOT policy on cancellation: If the airline allows cancellation of a confirmed ticket within 24 hours of booking, then they can cancel an honest mistake fare. If, however, the airline only allows a 24 hour hold, and doesn’t allow cancellations once booked (cough…AA…cough), then that airline can only cancel mistake fares that are under a 24 hour hold.
This seems like a sensible set of suggestions. With regard to the mistake being obvious, I would favor a rule that requires the airline to demonstrate to the DOT’s satisfaction that the fare is “clearly a mistake” and then give some examples of what would be acceptable proof. For example, if business class can be bought for less than the lowest price economy fare on the same flight (as was the case with the recent AA TPAC mistake) then this is clearly a mistake without reference to any other flights.
Also, if obtaining any fare involves a deliberate act of deception or misrepresentation, such as the one that involved stating ones credit card billing address as Denmark, then I thing the airline should be allowed to cancel the ticket at any time without recourse.
I generally agree with your proposal. I have been concerned that the abuse of the DOT rule will erode the protections that consumers should have. I would put forth that the airlines should have the same cancellation window that consumers are allowed, 24 hours, but only in cases where the fare was obviously and certified to be a mistake. Consumers still need to be assured that the ticket they have purchased cannot be cancelled at the airlines whim and that fares will not be marketed, however briefly, which the airline has no intention of honoring for without consequences for the airline.
I have to disagree with giving airlines a blanket approval to cancel tickets within 24 hours just because they believe it was a mistake fare. The problem is figuring out what IS a mistake fare. The airlines can abuse this right to cancel.
I think that if the airline FILES a fare (to Atpco for example), then consumers should assume the fares are correct. The airlines can easily change the fares, usually every hour if they want to. They can also empty out seat availability if they think they made a mistake. They are not powerless today.
However, I think we need to distinguish between a “mistake” fare where the airline accidentally loads a much lower fare and a system “glitch” like a conversion error. I think a glitch is much easier to prove that another party is causing the error and depriving the airline of its full revenues. However, it is much more difficult to prove a mistake filing. Are we required to check if a business class fare is indeed more expensive than a coach fare? And if so, then we should not buy the business class ticket because it might be a mistake?
What about a situation like the UA 4 mile deal where some people booked and flew before UA had a chance to react? Once travel commences should the carrier be able to cancel the remainder of the ticket?
“A Modest Proposal” – is this intended as satire?
This should be applied then to all transactions then, cars, movie tickets, groceries, furniture etc. Sounds stupid. Many states have retail advertising laws that state the price marked is the price the seller must honor. Bait and switch tactics are illegal. Imagine ordering a pizza and when you go to pick it up dominoes says it is $29 not $19 as listed on their web site.
@Arcanum while I did submit a comment on the DOT rule in question (on airfare pricing transparency, not on this issue), it is too late to submit comments at this time to that particular notice of proposed rulemaking.
Gary, while it may be too late to submit comments in response to a past NPRM, you can always submit a petition for rulemaking and open up a new docket.
Prima facie, it sounds fair to “match” the 24 hours consumers are given, but it’s not a fair match, because I’ve invested several hours before booking. I know people book first and figure out later, but I cannot afford to do that. When I see a good fare, I require at least a few hours to incorporate that into my schedule. I weigh the likelihood of it being honored and whether anything is dubious about it (e.g., United Denmark booking fare), before I commit. But it’s a real commitment (even if I clicked on something wrong). The airlines should be at some disadvantage because they did not make that same investment, and their scale affects more people. My mistake costs them nothing, their mistake costs a hours of productivity from many people that are bargain hunters.
I’d give them 6 hours, no more. Even if they don’t fix their problem in time, that’s plenty of time to announce they’re not honoring anything in the last 6 hours, or going forward.
I disagree that it’s a two-way street. The airline is in full control of their sites and fares. The consumer is in control of nothing, other than whether to buy at the price offered. You dawdle, come back in 20 minutes, and the price shot up $100. You book, come back in a week, price dropped $100. This stuff happens every day, and with the dynamic nature of airfares, “locking in” a price is sacrosanct.
The Domino’s example above is also inaccurate. The appropriate analogy would be buying the Domino’s pizza for $19, and later that night, they told you they wanted another $10 since they screwed up.
Obviously that sounds ridiculous, and it’s just as ridiculous with air or any other travel. Travel providers seem to think that because people are purchasing in advance, they can manipulate the deal before the service commences. They shouldn’t be able to, period.
How would you like to accept a job offer, and have them change the salary or terms materially before you start? Or order a piece of furniture and have the change the price on you before delivery?
The companies that file the fares need to take responsibility for their actions. As we’ve seen from this regulation, airlines have invested in better technology, and we see fewer mistake fares. That’s the solution. Keep this law on the books, and improve your technology so this doesn’t happen. Then it won’t be an issue (or it will happen so infrequently, it won’t matter).
The issue only remains because the airlines with bad technology keep screwing up.
I agree with the premise that there has to be some middle ground on this. Clearly, the belief by some that the DOT rules entitle purchasers to $5 flights to Hawaii, mistake or not, has been abused by our community. But I agree it’s not always clear that a mistake is a mistake. I just got home from the UAE using the Christmas Day mistake on Etihad. That was definitely one that I didn’t think was a mistake, in part because it happened on Christmas Day, even though it’s on an airline based in a muslim country.