Mark Pestronk
Mark Pestronk
Q: I've been in the travel agency business since before airline deregulation, and I remember that airlines and agencies used to get fined by the government for rebating, and the airlines used to try to stamp it out. Somewhere in the back of my mind, there is the notion that rebating on international airfares is still technically illegal but that the law is just not enforced. Is that correct? I ask because a major competitor of my agency just started a direct marketing campaign offering a 5% discount on business-class airfares, and I am wondering if that is legal. If it is, does a carrier have the right to tell the agency to stop it anyway?

A: The law still prohibits airlines and agencies from selling international tickets at less than tariff prices, by discounting or rebating. It also prohibits selling at a markup from the tariff prices.

Section 41510 of Title 49 of the United States Code states, "An air carrier, foreign air carrier or ticket agent may not charge or receive compensation for foreign air transportation that is different from the price specified in the tariff of the carrier that is in effect for that transportation; and refund or remit any part of the price specified in the tariff."

The word "tariff" means the document is on file with the DOT. The catch is that U.S. carriers and most foreign air carriers are not required to file tariffs anymore, so they have no "tariff prices" within the meaning of the law.

U.S. carriers have not had to file tariffs since the mid-1980s, and most foreign carriers have been exempted from the tariff-filing requirement since 1999. In the latter year, the DOT divided countries into three categories based on principles of international law: Carriers from countries in Category A don't need to file any tariffs; those from countries in Category B must file "normal one-way economy-class fares only"; and airlines from Category C countries have to file all their tariff prices with the DOT.

There are about 140 countries in Category A and about 60 in Category B. Category C comprises only seven smaller islands in the Caribbean and elsewhere.

So, as a practical matter, international airfares to the vast majority of countries are now tariff-free, which means that carriers and agents are free to discount, rebate, or even mark up. Further, as far as I know, neither the DOT nor any other government agency actively polices tariff compliance by carriers from Category B or C countries. So, I would characterize international airfare rebating as almost completely legal.

However, every carrier has the right to require agencies to refrain from rebating or discounting. Further, every carrier can allow rebating but prohibit you from advertising or publicizing the practice.

Carriers have such rights not because of any statute but rather because of the law of agency. Under general principles of agency law, the principal has the right to control all the selling conditions of its agents.

Therefore, if a carrier wished to do so, it could allow an agency to rebate or discount to its clients but prohibit the advertisement of such rebates. It could even allow ads for a while and then prohibit them.

However, the current trend among airlines is to do nothing to stop rebating and discounting. For example, American's own addendum to the ARC agreement, which every agency must obey in order to sell American tickets, is 5,000 words long and contains many prohibitions, but there is no prohibition on rebating agency commissions or discounting from published fares.
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