Domestic airlines Virgin Australia, Jetstar and Tiger Airways have agreed to stop pre-selecting the extras services offered on their online booking platforms following discussions with the Australian Competition and Consumer Commission. Virgin Australia decided to cease the pre-selection of travel insurance on their platform after the ACCC raised its concerns with the airlines. Jetstar and Tiger Airways followed suit within 48 hours, deciding to stop pre-selecting extras.
The ACCC’s Concern With Pre-Selecting Extras
The ACCC instigated talks with the domestic airlines due to concern that pre-selecting extras was unfair to consumers. The tactics included pre-selecting add-ons such as travel insurance, checked baggage, seat selection and even donations to charities. Instead of customers being required to select the extras they wanted to add to their flight purchase, the airlines would automatically select these extras and add them to the final price. Customers are required to un-select the extras if they do not want them.
The opt-out business practice concerned the ACCC who believed it was unfair for customers who would inadvertently pay more for the flights. The ACCC looked to the New Zealand Commerce Commission (NZCC) who took similar action against New Zealand businesses to stop the use of pre-selection and opt-out practices because it breached the Fair Trading Act (similar to the Australian Competition and Consumer Act 2010 (Cth)).
What are Pre-Selections?
Pre-selections are a type of drip pricing tactic, which is a business practice for which both Virgin Australia and Jetstar were fined earlier this year. In April 2016, the Federal Court found that the airlines had not been transparent about the pricing because they did not include the booking and service fees in their advertised price.
While it is acceptable for businesses to advertise the lower basic fee to attract customers, Australian Consumer Law requires that the businesses disclose any additional fees or charges that may be added to the base fee. The Federal Court found that Virgin Australia and Jetstar had been misleading and deceptive by not disclosing the booking and service fees.
Unlike booking and service fees, which are mandatory fees charged by the airlines, travel insurance and checked baggage are, by definition, ‘extras’ that not all customers choose to purchase.
Tiger Airways have argued that pre-selection of travel insurance and checked baggage helps their customer – travel insurance is important, and customers will save money by pre-purchasing checked baggage rather than pay the higher price at the airport. It has been found, however, that travel insurance through airlines is significantly higher than through independent providers. The ACCC’s rationale is that customers shouldn’t have to opt-out of unnecessary services when it can be just as easy for them to tick the box if they wanted.
Opt-Out Practices and Unfair Terms
The ACCC has also questioned other opt-out tactics including automatic contract renewals or rollovers. Automatic contract renewals or rollovers require the customer to actively opt-out if they do not wish to extend the contract.
Last year, the Federal Court found that Christmas hamper retailer Chrisco included unfair terms in their lay-by contracts allowing Chrisco to continue taking fees through direct debit even after the purchase price had been paid. The terms required the customer to ‘opt-out’ of the direct debit plan once they had paid for their lay-by order.
Similarly, if the ACCC considered pre-selection to be unfair, they could take similar action. As it is, the ACCC are pleased that the airlines are voluntarily amending their pre-selection methods although they had previously threatened further action if the airlines were not compliant.
The ACCC encourages consumers to consider whether practices or terms in a contract are ‘unfair’ by questioning the following:
- Detriment to the customer;
- Whether the term is necessary to protect the interests of the business; and
- Whether the term brings about a significant imbalance between both parties’ rights and obligations.
The ACCC’s concern is that the airlines’ pre-selection practice causes the consumer a financial detriment due to a lack of transparency. A customer could easily overlook a selected tick box so that they pay for an item they did not intend to purchase.
If you have any questions about whether your business’ terms could fall foul of the ACL, get in touch with our consumer lawyers on 1300 544 755.