Mark Pestronk
Q: My agency signed a group agreement with a major U.S. carrier to accommodate a planned trip for a corporate client’s 50 employees who won an incentive trip. In return for a discount business-class fare with few restrictions, our agency was required to pay for at least 10 seats with $400 deposits, unless we canceled at least 120 days before the departure of the outbound flight. Now, because of high demand for its business-class service, the airline has notified us that it is going to cancel our group contract and refund our deposits, leaving us stuck with no choice but to find much higher-priced seats on the same or another airline. Does the airline have the legal right to cancel our contract? Do the travelers themselves have any legal rights as passengers? Finally, do we have to arrange for alternate transportation and pay the difference out of our own pocket?
A: Think of airline group contracts as you would think of hotel or cruise group contracts. If your agency signs one, then its rights are governed solely by the express terms of the contract.
The typical airline group contract does not provide much in the way of enforceable rights. To the contrary, these contracts typically allow the airline to cancel or terminate the contract at any time for any reason.
After exercising its right to terminate, the airline typically has no further obligations to you. Indeed, under some contracts, the airline does not even have to refund your deposits.
So, you see a key difference between hotel group contracts on the one hand and airline group contracts on the other: while, as you know, hotels typically retain the right to overbook or otherwise fail to accommodate the group, their contracts typically require them to put the group up at another property without additional cost to you.
The airline’s rules tariff applies to passengers, not to entities such as travel agencies that commit to buy seats. Once the group’s passengers are ticketed, then the passengers have some rights under the airline’s general rules tariff or conditions of carriage. If the airline does not follow its tariff obligations, the passengers can successfully sue for breach of contract, but this does not help you in your current predicament.
If your contract with the corporate client required you to put together an incentive trip for a fixed price, then you are stuck in the middle: You must make alternative airline arrangements and pay the additional costs, but the client has no obligation to reimburse you.
To prevent such unfortunate outcomes in the future, you can take three measures. First, get the client to sign the airline contract or, if you don’t want the client to know your net price, get the client’s consent to sign as agent for the client.
Second, as an additional or alternative step, try to get the airline to provide, in its contract, that it will pay the difference between the group fare and the lowest price of an alternative flight on it or another carrier. While I have never heard of an airline agreeing to such a clause, it is worth a try.
Third, in your contract with the corporate client, try to specify that the client is responsible for price increases due to supplier cancellations.