Mark Pestronk
Q: Our agency is planning an Internet-based marketing campaign featuring low rates and fares, and we need some advice before we make a big slash and possibly get into legal trouble. If we carefully follow all of the Department of Transportation's (DOT) full-price advertising rules covering airfares and packages that include air as a mandatory component, do we have to worry about any other industry laws or rules? For example, may we advertise and offer lower airfares by rebating a portion of our commissions? Can we sell airfares below cost if we still make money on the nonair sales?
A: Your campaign will not incur the wrath of any state or federal enforcement authorities, but one or more major suppliers may eventually cut you off if you advertise rates and fares at less than they do.
The pre-deregulation law prohibiting rebates in international air transportation is still in effect, but the DOT long ago issued a policy statement to the effect that the law would not be enforced unless the advertising were deceptive or discriminatory.
So you can lawfully advertise a $100 airfare for $95 as long as the latter amount contains all taxes and fees. You can also advertise a 5% rebate on every airfare.
However, once your ads are called to the attention of a major airline, you may receive a letter telling you to cease and desist. Worse, the very first letter that you get could prohibit all Internet offerings or even lift your agency's plate.
For example, after one online agency advertised lower airfares than one major carrier in particular city pairs, the agency received a letter with the following restriction:
"Effective at 11:59 p.m. on Aug. 31, 2014, [agency] shall not be authorized to engage in any manner or capacity the selling, marketing or redistribution of [carrier] air transportation products or services ... through any direct or indirect method utilizing the Internet or World Wide Web.
"As a result of this restricted agency authority, the appointment of [agency] as an ARC-accredited agent of [carrier] is limited strictly to the selling of [carrier's] air transportation services and products through traditional 'brick and mortar' retail locations and telephonically."
The carrier gave no explanation for its decision, and the letter had no one's name or department on it, so it was impossible to contact the letter writer. Needless to say, there is no appeal procedure, and there was no legal recourse for that agency.
Under the law, a principal has the right to restrict whether and how its sales agents sell its services, and it has the right to prohibit discounting, rebating or even any advertising mentioning its name. These powers are inherent in the agency relationship, and the courts have upheld the carriers' exercise of their rights.
Several cruise lines have asserted similar rights by prohibiting the advertising of cruises at rates below what the line publishes or publicly offering rebates of agency commissions. The only difference between airlines and cruise lines is that the latter publish their policy and give fair warning before cutting an agency off, whereas the airlines often do neither.
If you asked any carrier for permission to advertise the way you propose, the answer would be no. So if you proceed with your campaign, you need to be aware of the risks.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].