economics

May 11, 2010

When Airline Fares Are Too Good to Be True

Filed under: Uncategorized — ktetaichinh @ 2:47 pm
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It is a sport among many hard-core travelers: trying to spot ridiculously low fares that airlines post by mistake—a $5,000 ticket offered for, say, $500.

Airlines, once they realize their mistake, often try to wriggle out of honoring the deal—even though they typically charge heavy fees to customers who want to make changes after a ticket is purchased. Now, armed with a government opinion in their favor, carriers have gotten even stingier.

British Airways PLC canceled 1,200 reservations for 2,200 passengers from the U.S. to India last fall when it mistakenly offered tickets for $40 on Oct. 2. The airline had been trying to raise prices by $40, but that increase mistakenly became the full coach fare when sent to reservation systems by a British Airways office in India, according to a company spokesman.

Taxes and fuel surcharges pushed the total ticket tab to more than $500, but British Airways decided travelers should have realized the price was too low, and it canceled all the reservations.

The airline apologized to customers and offered a $300 voucher for U.S.-India travel that had to be booked by Dec. 3. The company negotiated an agreement with the U.S. Department of Transportation to reimburse any related flight, hotel and car rental cancellation expenses for customers who lost money when BA canceled reservations and refunded the fares.

In a letter to customers who complained, the DOT said it believed airlines should accept “some responsibility” for erroneous fares and should make customers “whole” when tickets are rescinded.

Siddharth Dutta wanted more than just a refund from British Airways and sued the airline in small claims court in Santa Clara County, Calif. Last month, a judge ordered British Airways to cover the higher cost of a replacement ticket because the airline entered into a contract when it charged Mr. Dutta’s credit card and gave him a confirmation number, then “breached the contract by unilaterally canceling the booking.”

After British Airways canceled his $554 ticket, he bought a $2,153 replacement one on Emirates for a Christmastime trip to Mumbai. The judge ruled British Airways should pay the $1,599 difference, plus $70 in court costs.

“If it was a problem, it was their problem,” says Mr. Dutta, a quality manager in the semiconductor industry. “Why do customers have to pay for it?”

Seth Miller tried the same thing in small-claims court in New York with a different result. There, British Airways prevailed, though Mr. Miller negotiated more flexibility on his $300 voucher, which British Airways agreed to make good for one year and applicable for any destination as part of a settlement.

Mr. Miller hadn’t purchased a replacement fare, so he didn’t have any direct costs from the canceled fare.
Worthless Tickets

“Airlines ought to play by the same rules they hold travelers to,” says Mr. Miller, a frequent traveler who has been left holding worthless tickets because of change fees and penalties. “Holding consumers responsible for a mistake the company made is beyond reprehensible in my mind.”
$18,900

The difference between a mistaken fare and what the airline meant to charge.

* In January, American offered first-class tickets from the U.S. to Australia for the coach price of $1,100 round-trip.
* First-class round-trip tickets actually cost as much as $20,000.
* American refused to honor the tickets and offered passengers $200 vouchers as compensation.

Fare mistakes are rare, and airlines have software to help them spot prices that are out of line. But mistakes still happen in the complicated world of airline coding, as one type of fare gets mislabeled, an increase becomes the full fare or a zero or two get dropped from prices.

Delta Air Lines Inc. states in its contract of carriage, the legal rules printed on tickets, that for erroneous fares it “reserves the right to cancel the ticket purchase and refund all amounts paid by the purchaser or, at the purchaser’s option, to reissue the ticket for the correct fare.” But some airlines say they will honor any price they sell, mistake or not.

UAL Corp.’s United Airlines, Continental Airlines Inc., Southwest Airlines Co., JetBlue Airways Corp. and Singapore Airlines all say their policy is to not cancel tickets even when a mistake is discovered, no matter how large the error.

“That is the right thing to do,” says United spokeswoman Robin Urbanski. In 2007, United honored a business-class fare from Los Angeles or San Francisco to destinations in New Zealand that was missing one zero: it was sold as $1,062 plus taxes and fees instead of $10,620 plus taxes and fees.

The Federal Trade Commission says there is no federal statute that requires merchants to honor mistaken pricing, unless it’s misleading or deceptive. “Honest mistakes do happen, and a transaction can be undone,” says FTC spokesman Mitch Katz. Most state laws accommodate mistakes in a merchant’s favor. In New York, for example, if the purchaser “either knew or should have known such a mistake was being made,” the seller can cancel a contract.

But with airfares, it’s hard to know these days what consumers should consider a mistake. Some ultracheap carriers boast of selling seats at zero fares—passengers pay only the taxes and fees. Some international tickets in slow seasons are priced with fares cheaper than taxes and fees. Both Mr. Dutta and Mr. Miller figured the $540 they were paying for the British Airways flights were not all that far off typical international sales.

“It was pretty competitive with other flights at the time,” says Mr. Dutta.
‘Totally Out of Whack’

British Airways says it should have been obvious. “Anybody who knew anything about travel knew that was totally out of whack,” says BA spokesman John Lampl, adding that the airline’s current lowest price to destinations in India from the U.S. is $955 plus taxes and fuel surcharges. The airline won’t say what it paid in compensation to customers, but it was far less than the revenue that would have been lost by honoring the $40 fares, Mr. Lampl says.

Some consumers have ready-made battle plans when mistakes do pop up. FlyerTalk, a frequent-flier Web forum where Messrs. Dutta and Miller are members, often posts mistaken fares. Typically, FlyerTalk regulars pass around alerts on ultracheap fares among themselves by email or phone before they post it publicly on the Web site. Since airlines monitor the site, once a mistake fare is posted, it gets pulled quickly.

Web sites AirfareWatchdog.com and FareCompare.com also keep an eye out for “mistake fares” and send alerts to consumers anxious to chase the cheapest prices.

In January, AMR Corp.’s American Airlines sold tickets from the U.S. to Australia with service on partner Qantas Airways for $1,100 round-trip—a fairly normal sale price for coach seats—except those fares were mistakenly for first-class seats, which normally cost as much as $20,000 round-trip. American decided the price was obviously too good to be true, and it canceled the reservations, refunded the fare paid and offered customers a $200 voucher for their inconvenience.

American says it took its guidance from the DOT’s agreement in the British Airways case. A spokesman says the airline will honor some mistaken fares and doesn’t have a blanket policy, but considered the Australia mistake too large to honor. “Such errors are extremely rare, but they do happen,” says spokesman Tim Smith.

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