Q: In mid-July, the federal Court of Appeals in Washington upheld the Transportation Department's (DOT) full-price rule, throwing out the appeals filed by Spirit, Southwest and Allegiant. Early next year, the DOT is going to decide whether to require agencies to disclose their airline commissions to clients. Obviously, such a rule would be a confusing nightmare for agencies. In light of what the Court of Appeals said about the full-fare rule, what do you think the court would do with the commission rule, if the DOT adopted it and an agency or agency group such as ASTA appealed?
A: There is an excellent chance that a commission-disclosure rule would be struck down, unlike the full-fare rule. Given the likelihood of such an outcome, the DOT would be better off avoiding an adverse court decision by not adopting such a rule in the first place.
Specifically, the DOT is going to consider "whether the department should require ticket agents to disclose the carriers whose tickets they sell or do not sell and information regarding any incentive payments they receive in connection with the sale of air transportation."
The words "incentive payments in connection with the sale of air transportation" could refer to base commissions, overrides, cooperative payments and even GDS segment incentives. It could refer to payments not only from airlines and GDS vendors but also tour operators and cruise lines that offer packages with air.
Since the DOT's role is to protect the traveling public, it will be looking to see whether any consumers or consumer groups file comments in support of such a rule. The commenters would have to claim that they were misled by agencies that did not disclose their revenue sources and that they therefore paid more or decided to travel on carriers they would not otherwise have picked.
The Court of Appeals decision reminds us that, without "substantial evidence" in the record, an administrative agency such as the DOT cannot adopt a trade regulation. The quoted term means "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion."
In the full-fare case, the court found that the DOT relied on "substantial evidence" consisting of: "(1) comments from [a] 1984 rulemaking; (2) roughly 500 comments from the 2006 hearing explaining how consumers were being confused by advertisements that itemized price components rather than display a single, total price; and (3) feedback from its 'Regulation Room,' an online forum DOT employs to solicit comments."
I do not believe that the DOT will receive comments favoring an incentive-disclosure proposal. I have never heard of a member of the traveling public advocating such a rule, and I know of no trade or consumer association in favor of it, either. ASTA has repeatedly made these points to the DOT.
Lacking "substantial evidence," the DOT will probably decide that such a rule would not be in the public interest. If it decides to adopt one anyway, the Court of Appeals might well throw it out.
Since I might be wrong, agencies and agency groups will need to mobilize late this year and file persuasive comments. They will need to explain not only why it would hurt the agency business but, much more importantly, why it would not benefit the traveling public.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].