Bischoff, Gregor

Grimme, Wolfgang

Maertens, Sven

English

Institute of Transport Research:Publications

Slide 1 > June, 29th 2009ATRS Conference 2009 > Bischoff, Maertens and GrimmeAirline Pricing Strategies vs. Consumer Rights – Isthere a need to maintain the „Full and Sequential Useof Flight Coupons“-Rule?Gregor Bischoff, Sven Maertens and Wolfgang GrimmeATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 2Structure of the presentation:I. IntroductionII. Price discrimination in the aviation sectorIII. Circumvention of strict fare rulesIV. Legal opinionsV. Impact of legal intervention and conclusionsATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 3I. IntroductionIdentical services for everyone sitting in the same service classBUT: enormous differences of individual fares paid by the passengers WHY? - Airlines employ price discriminations to absorb different degrees of willingness to payDEFINITION: Price discrimination means to sale identical services by the same provider to customers of different market segments at different prices according to the respective degrees of willingness to payATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 4II. Price discrimination in the aviation sectorAdvanced booking restrictionsDiscounts for return flights & minimum stay rulesRe-booking restrictions & mileage accuralGeographical price discrimination / pricing for transfer flightsBusiness travellers prefer short flight times & nonstop journeysDue to economical or social conditions, different willingnesses to pay in different marketsMajor airlines are strong in their home countries & have to attract passengers from foreign markets with discounts for transfer services via domestic hubDistinction between business and leisure travellersATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 5III. Circumvention of strict fare rulesDiscounted fares should not be purchased by travellers with a high willingness to payIATA Recommended Practice 1724, Article 3.3.1Coupon sequence and use:„The ticket you have purchased is valid only forthe transportation as shown on the ticket (…). TheTicket will not be honored and will lose its validityif all the Coupons are not used in the sequenceprovided in the Ticket.“ATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 6III. Circumvention of strict fare rulesNon-use of the in- or outbound legoneway fares more expensive than return faresoneway passengers purchase return tickets but only use either the out- or inbound legABA BATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 7III. Circumvention of strict fare rulesCross ticketing (or back to back ticketing)Combination of discounted round-trip bookings in opposite directions, of which only outbound legs are usedUsed by business travellers to circumvent minimum stay rulesCross-ticketingRegular booking BA B ATuesday WednesdayBA B ATuesday SundayBAB ASundayWednesdayATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 8III. Circumvention of strict fare rulesHidden city ticketing (or cross border / point beyond ticketing)Traveller does not intend to start at the ticketed origin or end at the ticketed destination but at an intermediate hubTicket from A via hub H to B is purchased, but only the portion A to hub H (or hub H to B) is actually usedHA Bdirect flightATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 9IV. Legal opinionsIATA‘s Recommended Practice 1724Non-binding character, only suggested frameworkWidely approved by governments & status of accepted legal practiceAdoption by airlines: plenty of different „Conditions of Carriage“By concluding a legally binding contract, these standard terms becomeapplicable between airlines and passengersBUT: Some standard terms have been deemed to be a breach of European Law (UK, Scandinavia)In the recent past, the Federation of German Consumer Organisations filed exemplary legal complaints against sequence-use-ruleStandard terms have to comply with national laws. Non-binding IATA rules as international standards are not prioritised in favour of national law, but, in contrary, have to comply with the national lawATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 10IV. Legal opinionsCompliance with national law: Standard terms must ensure the protection of the weaker contractual partyIn Europe, consumers not bound by standard terms if these are unfair (for example missing transparency, disproportionatedisatvantage, surprising term)BUT: Application of different consumer protection lawATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 11IV. Legal opinionsTensions between internationally recognised recommendations and application of different national laws:a variety of standard terms  non-uniform consumer protection lawNational authorities have to apply national law and this national supervision can lead to the result that a standard clause may beconsidered illegal in one country while being considered legal in anotherATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 12IV. Legal opinionsIf the rule of full and sequential use of flight coupons is declared invalid in a European Member State, any customer in the EU might buy tickets there and insist that the consumer rights of the country of purchase should be applied for this contract Further complication: a court in the European Union outside this Member State approve IATA´s rule, creating a direct contradictionNational court decisions seem to have not only a domestic dimension, but, due to the Common Market in the EU also a European dimensionTo ensure a level playing field in air transport, a regulation on this matter on European level could be appropriateATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 13V. Impact of legal intervention and conclusionsWhat will happen if the previously mentioned ways to circumvent ticket and tariff rules became legal ?Scenario: Legalisation to use any segment of a booking, also making “hidden city ticketing” possibleATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 14V. Impact of legal intervention and conclusionsPassengers would have the right to start and end their flight at any intermediate pointPassengers buy tickets starting in low-fare markets, but only board at the hub (e.g. Frankfurt, London)Reduction of hub-premium weakens the hubNo cross-subsidisation of transfer passengers by local hub passengersIncreased prices for connecting flightsDecline in demand for transfer services & discontinuation of services to smaller communities Endangers hub-and-spoke concept by network airlinesATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 15V. Impact of legal intervention and conclusionsAirline pricing is a complex issueMany price discrimination measures and possibilities to circumvent farerules exist in the marketDifferent application of law interrupts common marketsAllowance of „hidden city ticketing“ endangers hub-and-spoke-systemRegulations on this matter has to keep this fact in mindATRS Conference 2009 > Bischoff, Maertens and GrimmeSlide 16Many thanks for your attention!

Airline pricing strategies vs. consumer rights - Is there a need to maintain the "full and sequential use of flight coupons"-rule?

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