By Mark Armstrong, Solicitor
5 May 2020
At a time where travel companies and travellers are facing serious challenges with global travel restrictions forcing urgent changes to travel plans, and heightened sensitivities around cancellation costs, the ACCC has had a timely victory in this area. One of Australia’s most well-known travel agencies, STA Travel Pty Ltd has been found in breach of the Australian Consumer Law (ACL) for using misleading advertising in relation to a product that claimed to allow customers to change flights without paying any additional fees. The Australian Competition and Consumer Commission (ACCC) was successful in its case, with the Federal Court ordering that STA pay $14 million in penalties for the false or misleading claims. STA Travel’s advertising strategy was problematic from a misleading or deceptive conduct perspective, as well as a pricing perspective, as many customers still paid cancellation charges. This case reinforces that price transparency is still key to avoiding severe penalties.
STA Travel tout themselves as ‘the world’s largest student and youth travel company’ and are widely regarded as having cheap flights due to the exclusive range of student and under-31 fares offered. When purchasing airfares from STA, customers are given the option to buy a MultiFLEX Pass: if the traveller decides to change their flight, they will have to pay the difference in the cost of the airfare and applicable taxes, but the Pass enables the traveller to make the change(s) without paying any additional fees or charges. Depending on the type of Pass purchased, changes to flights can be made once (for the purchase of a $49 ‘OneFLEX’ Pass), three times (for the purchase of a $99 ‘3 Change’ or ‘MultiFLEX’ Pass) or an unlimited number of times (for the purchase of a $149 ‘UltimateFLEX’ Pass).
For travellers wishing to travel on a more flexible itinerary, this appeared to be an enticing offer and between 2015 and 2019, STA Travel estimates that it sold approximately 16,000 MultiFLEX Passes each year, although the ACCC alleged that STA’s MultiFLEX Passes have been sold since at least September 2011 with over $12 million in revenue generated from MultiFLEX Pass sales alone. Despite the claims of fee-free changes made in STA Travel’s advertising, the ACCC alleged that approximately 63% of customers who used their Pass to change flights were charged additional commissions or other fees, including airline change fees. In almost 25% of cases, the additional charges paid by Pass holders were more than double the additional airfare and tax imposed by the airline, and in 12% of cases, Pass holders paid an additional charge, even though the airline had charged STA Travel nothing for the change.
The ACCC initiated proceedings in the Federal Court against STA Travel on 27 March 2019 on the basis that the representation that MultiFLEX Pass holders would not be charged any fees for date changes was false or misleading. After STA Travel admitted liability and made joint submissions with the ACCC to the Federal Court, STA Travel was ordered to pay $14 million in penalties and contribute to the ACCC’s legal costs.
Misleading or Deceptive Conduct and the ACL
The ACCC’s case was based on the ACL, in Schedule 2 of the Competition and Consumer Law Act 2010 (Cth), which is the greatest source of rights and protections afforded to all consumers. A key consumer protection is contained in section 18(1) of the ACL, which holds that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
The ACCC’s assertion that STA Travel engaged in misleading or deceptive conduct was bolstered by the wording of section 4 of the ACL, which holds that if a person makes a representation with respect to any future matter and the person does not have reasonable grounds for making the representation, the representation is taken to be misleading. Logically, stating that consumers will not be charged additional fees if they purchase a particular product, only to then charge said customers additional fees, makes it clear that STA Travel did not have reasonable grounds to make such a representation and had therefore engaged in misleading or deceptive conduct.
In addition to the above, the ACCC also relied on ACL protections against false or misleading representations about goods or services, and misleading conduct as to the nature of services. Section 29 of the ACL prohibits making a range of false or misleading representations, including under subsection (1)(g), that goods or services have uses or benefits. Further, under section 34 of the ACL, a person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services. The entire purpose of buying a MultiFLEX Pass was that travellers gain the benefit of not having to pay additional fees if they changed their flight. On that basis, STA Travel’s claims that MultiFLEX Pass customers would not have to pay any further fees were held to be false. One point to note is that as of the date of this publication, the three MultiFLEX Passes are still available for purchase from STA Travel, and are accompanied by wording such as, “With MultiFLEX we’ll waive all the date change fees, so you’ll just pay the difference in fare and taxes – if there are any” and “MultiFLEX allows you to change your flights without having to pay the change fees every time your plans change”. If STA intends to continue to charge additional fees after a customer has purchased a Pass, its current advertising may still well be problematic.
This sort of product may be lawful and offer legitimate benefits to the consumer, if it truly does offer greater flexibility and lower costs for cancellations. However, it will be fundamental to ensure that any advertising claims promoting the product are accurate and clearly disclose that potential cancellation charges may still apply.
ACCC warns of increased scrutiny on cancellations and refunds
Flight Centre has only very recently come under fire for enforcing its cancellation fees on individuals facing COVID-19 related travel disruptions. Flight Centre’s announcement on Saturday of its decision to cease charging cancellation fees has been welcomed by the ACCC. Flight Centre’s terms and conditions specified that customers would be charged $300 per person for cancelling an international flight or $50 for a domestic flight. However, following pressure from the ACCC, customers who paid Flight Centre’s cancellation charge from 13 March 2020 will now be refunded. Additional fees charged by tour operators or airlines will still apply, however, several companies that form part of the Flight Centre group, including Aunt Betty and Student Universe will also stop charging cancellation fees. The ACCC was prepared to challenge Flight Centre in court over this matter, but were pleased with Flight Centre’s decision as it would allow for a prompter resolution than that reached via litigation. Importantly for all travel providers and consumers with cancelled travel plans, the ACCC chair, Rod Sims, noted that, “[the ACCC] are continuing to discuss issues in relation to refunds and cancellations with the travel sector and encourage that travel providers treat consumers fairly in these exceptional circumstances”. In response to certain providers altering their refund policies and applying them to prior bookings, the ACCC has issued guidance warning against engaging in such conduct. Given the uncertainty surrounding the future of international travel, the ACCC’s warning and increased scrutiny on this topic, businesses across this sector will need to remain vigilant.
A Note on Component Pricing
Separately to the issue of misleading and deceptive conduct there are specific laws on component pricing. Section 48 of the ACL holds that customers must be presented with a single price for goods or services and if a single price is not appropriate, the supplier must present the price as a minimum total amount. The “single price” is the minimum quantifiable consideration for the supply of the goods or services at the time of the representation. Another matter for consideration in making price claims is whether there are other components of the price that are quantifiable at the time of making the claim that should be properly included in that total price. Arguably, it would not be possible at the time of the claim here for STA to be able to properly quantify all potential permutations of a cancellation charge that may or may not arise. However, with certain specific claims relating to cancellation costs this may be a relevant consideration. Ultimately, any possible fees or charges should be disclosed and not hidden. This is particularly important in advertising material and suppliers need to ensure that their advertising is transparent and discloses any potential costs that will be borne by consumers.
What does this mean for you?
Given the heightened focus on cancellations for travel and many social, sporting and other activities, it is likely that cancellation charges and policies will continue under the spotlight.
Reviewing your current advertising practices to ensure they cannot be construed as being misleading or deceptive is prudent. In doing so, it would also be wise to consider the manner in which you advertise prices and ensure that they are clear, accurate and not misleading. Advertising must reflect the true nature of the product or service being advertised and the price listed should accurately reflect the product. Given the substantial penalties businesses can face from non-compliance with the ACL, maintaining transparency in advertising and pricing is paramount.