On July 24, 2012, the U.S. Court of Appeals for the D.C. Circuit upheld1 regulations promulgated by the U.S. Department of Transportation (DOT) last year aimed at reducing “unfair and deceptive” practices within the airline industry.2 Several domestic carriers had sought review of certain provisions contained in the Department’s recently issued rule entitled “Enhancing Airline Passenger Protections,”3 arguing that some of the regulations were “arbitrary and capricious” in that they did not have a rational connection to the DOT’s stated goal of reducing alleged “unfair and deceptive” practices.
I. The Full Fare Advertising Rule
The carriers first challenged the regulation commonly known as the “full fare advertising rule,” which requires carriers to state the total price to be paid by passengers for air transportation.4 This regulation has actually been in effect since 1984, but the DOT had not enforced the regulation as written and had not required carriers to integrate taxes and fees into the base fare until recently. Under the regulation, carriers may continue to provide an itemized breakdown of the base fare, taxes and other charges, but the component fees must not be displayed more “prominently” than the total price to be paid by the customer or in the same or larger size as the total price.
The carriers argued that the full fare advertising regulation is “arbitrary and capricious” because: 1) the DOT lacked substantial evidence that advertisements that fail to list the total price to be paid by the customer are confusing or misleading, since consumers lodged only 77 complaints related to advertising in 2010, the year the DOT proposed the rule; and 2) by prohibiting carriers from prominently displaying government-imposed taxes and fees, the DOT had relegated such costs to the “fine print,”
which defeats the purpose of a rule that requires full disclosure of prices. The carriers also argued that the regulation violates the First Amendment because it abrogates the carriers’ right to engage in political speech by preventing them from highlighting the taxes and fees that the government imposes on transportation.5
The court first noted that an agency is entitled to “substantial deference” when interpreting its own regulations. Additionally, the DOT relied on substantial evidence in the form of hundreds of comments lodged during previous rulemaking sessions. The court also rejected the argument that the regulation causes government-imposed taxes to be hidden; rather, the regulation merely requires that the most prominently listed figure is the final price to be paid by the customer.
Finally, the court held that the speech at issue – advertising of prices – was commercial in nature, and the regulation does not limit the carriers’ speech but merely imposes an accurate disclosure requirement. Accordingly, the regulation need only be reasonably related to the government’s interest in preventing deception, and the court held that “it goes without saying” that the requirement that the total price to be paid be the most prominent figure in an advertisement is reasonably related to the goal of preventing customer confusion.
II. The Refund Rule
Next, the carriers challenged the regulation commonly known as the “refund rule,” which requires airlines to permit customers to cancel reservations within twenty-four hours without penalty, so long as the reservation is made at least one week prior to the flight.6 The carriers argued that the regulation violates the Airline Deregulation Act (ADA), which prohibits government regulation of airfares. They also argued that there was no evidence that a cancellation penalty is deceptive. Finally, the carriers argued that cancellation penalties are necessary to ensure full flights.
The court held that the regulation is outside the scope of the ADA because it concerns a cancellation policy, not an airfare. Additionally, the court held that the regulation is, in fact, supported by evidence in the record of “deception and unfairness” due to “vague customer service policies” that lead customers to mistakenly believe they may cancel reservations without penalty. The court also held that the DOT did consider the carriers’ concern of ensuring that their flights are full, as shown by the DOT’s limiting the scope of the regulation to reservations made at least one week prior to the departure of the flight.
III. The Post-Purchase Price Increase Rule
Finally, the carriers challenged the regulation commonly known as the “post-purchase price increase rule,” which prohibits airlines from increasing the price of airfare, baggage and mandatory charges after the customer purchases the ticket, except in the case of an increase in a government-imposed tax or fee.7
The carriers argued that the purpose of the regulation is to prevent carriers from “burying” notice regarding of the potential for post- purchase price increases in carriers’ conditions of carriage, but the regulation also prohibits raising the price of baggage, an optional service purchased after the ticket is purchased. The carriers argued that this measure was unrelated to the DOT’s stated basis for the regulation.
The court disagreed, holding that the DOT’s basis for the regulation was that passengers assume that the price of baggage advertised at the time they purchase their tickets will be the price they pay for baggage at the time of transportation, and that increasing the price of baggage – a “very commonly purchased and practically necessary” service – amounts to an unfair practice.
In denying the carriers’ petitions, the Court of Appeals held that the DOT fulfilled its responsibility of considering all the facts in the record before issuing the above portions of the “passenger protection” regulations, and that they are reasonably related to the prevention of “unfair or deceptive practices.”
1 Spirit Airlines, Inc. v. United States Dep’t of Transp., — F.3d —, No. 11-1219, 2012 WL 3002593 (D.C. Cir. July 24, 2012).
2 A discussion of this rule may be found in our April 2011 Client Alert.
3 76 Fed. Reg. 23,110 (Apr. 25, 2011).
4 14 C.F.R. § 399.84(a).
5 The First Amendment to the U.S. Constitution includes protection of a person’s right to freedom of speech. Courts have held that when speech is political in nature, it is afforded the highest level of protection.
6 14 C.F.R. § 259.5(b)(4). 7 14 C.F.R. § 399.88(a).