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Another instalment in our series of interviews in which specialist tourism lawyer Anthony Cordato discusses issues of vital importance to travellers and travel agents.

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The price formula <from $XXX*> is widely used in the travel industry for advertising travel.

What impact will there be on the price formula <from $XXX* > from the Federal Government’s new Clarity in Pricing Bill?

“It’s time for the travel industry to check compliance with the single pricing regime that the government is introducing so as to not be caught up in the government’s crackdown on price advertising when the bill becomes law,” according to travel lawyer Anthony Cordato, whose legal firm, Cordato Partners, offers specialist legal advice to travel agents, tour operators and carriers.

In this article, the price formula <from $XXX*> will be taken apart and re-assembled to show how to comply with the new Clarity in Pricing regime.

Why price is the most important part of travel advertising

Consumers shop first on price. Consumer price watches are popular at the moment – they provide price comparisons on products such as groceries, fuel and bank loans.

Knowing that travel consumers will shop around on price, if a supplier is offering more or less the same travel product, then it’s a safe bet that consumers will choose the travel product which is advertised for the lowest price.

So it makes good business sense to split the price into two components. The first component is the basic price; the second component is the compulsory extras, being taxes, fees and charges.

This is where the price asterisk is so useful - advertise the basic price* prominently, (note the price asterisk), and then down below in the fine print repeat the asterisk – *plus taxes, fees and charges. The splitting of the price between the basic price and the compulsory extras components is known as component pricing.

Introducing a single price to replace component pricing

According to the Government’s press release (25 September 2008), for some time the Australian Competition & Consumer Commission (known as the ACCC) has been frustrated by businesses using component pricing which is where they advertise a basic price, and then use an asterisk for the compulsory extras, because it gives consumers the impression that something is cheaper than it really is, … and leaves consumers to wonder what fees and charges are going to be added when they actually agree to buy something. 

In some industries, a virtue is made of the fact that the price has no hidden extras, but not in the travel industry, where the price is split between the basic price and the extras, being taxes fees and charges, using a price asterisk.

Frustrated by the poor drafting of the Trade Practices Act (1974), which the Courts found did not even require prices to include GST, in September 2008 the Government introduced an amendment to the Act – the Clarity in Pricing Bill. When the Bill passes into law, it will require businesses to advertise a single price, being a total price which includes all taxes and charges quantifiable when the price is quoted.

What is required in a single price regime? The total price must be displayed prominently. The total price is what the consumer will actually have to pay to acquire the goods or services. According to the Government’s press release “It is not appropriate for a business to represent that a product costs a certain price and then use fine print disclaimers to reveal additional mandatory taxes, fees or other charges”.

How to comply with the Clarity in Pricing regime

To comply with a single price regime, the total price must be prominently specified.

Dealing first with the total price, there are two ways of displaying it, according to the examples in the Explanatory Memorandum to the Bill:

First way: $114 (inclusive of taxes fees and charges)

Second way: $79 + $35 taxes fees and charges for a total price of $114

In the first way, the total price is displayed; in the second way, the components then the total price are displayed followed by the total price.

Applying the first way to travel advertising, the $XXX* formula may still be used, so long as the $XXX* is the price inclusive of taxes fees and charges and is not simply the basic price. The asterisk can be still be used to move the words in brackets (inclusive of taxes fees and charges) to the fine print. The difference is that the fine print states that the price is inclusive, rather than plus, the taxes fees and charges. The fine print can continue to contain details of the fare, as well as other price related restrictions (see below).

Conclusion: to comply with the first way, advertising the total price as $XXX*, and inserting in the fine print *Price includes taxes fees and charges, will comply with the Clarity in Pricing regime.

If the second way is used, then the components and the total price will need to be prominently specified with equal prominence. According to the Explanatory Memorandum, prominently specified means that ‘The single figure must be specified at least as prominently as the most prominent of the other components of the price.’

What must be included in the single price?

The definition of ‘single price’ covers the price and also includes all amounts imposed on the seller and which are passed on to the purchaser in the price which the purchaser must pay. 

GST is an obvious example of a tax which is imposed on the seller that is passed on to the purchaser to pay.

The Explanatory Memorandum gives the example of the Departure tax – “the Passenger Movement Charge should be included in the single price because while it is payable by all liable passengers departing Australia by sea or air, under arrangements between the Australian Government and airlines, an airline pays an amount equivalent to the Passenger Movement Charge to the Commonwealth, then includes an equivalent amount in the price of the airline ticket that it sells.”

But it is not only taxes, but also items such as surcharges for fuel levies, seasonal surcharges or supplements, ‘stopover fees’, and so forth, that are added to fares and passed on to purchasers, and therefore must be included in the ‘single price’.

The amount of a charge must be known for it to be passed on to a purchaser of travel. It could be the case that the exact amount of the charge is not known, but that a minimum amount is known. If so, the seller must disclose the minimum amount of the charge in the total price. 

Currently, many sellers of tours and cruises split their prices in their advertising. This is a sampling of the asterisked extras currently found in newspaper advertisements, which will need to be revised before the Clarity in Pricing Bill becomes law – *Air taxes and fuel surcharges are additional; *Additional fuel levies applicable; *Seasonal airfare supplements & hotel surcharges apply; *Airline fuel surcharge and compulsory tipping are additional; *Price not including flights and taxes; *Add port charges; *Additional levies, Government charges & other applicable fees may apply.

Conclusion: The travel industry will need to review the price displayed in their advertising where they are prominently displaying the basic price, use the price asterisk, and then in the fine print, repeat the asterisk and set out the taxes fees and charges as compulsory extras. To comply with the new law, the total price will need to be prominently specified, and the fine print will state that the price ‘includes …’ rather than ‘plus ...’.

What items need not be included in the single price?

There are three broad exclusions to the Clarity in Pricing Bill, namely:

• The first exclusion is contained in the Bill, which is that delivery charges such as postage or courier and handling charges are not required to be included in the single price. Presumably this is because they may not apply to every consumer, or if they do, the amounts will vary greatly.
• The second exclusion is where the cost is not compulsory. Instead, it is payable at the option of the consumer. The Explanatory Memorandum contains these examples:
• where a consumer can only purchase a service by using a credit card, and a compulsory surcharge is imposed for the use of a credit card, that charge should be included in the single price; but
• where a consumer can purchase a service through means other than a credit card, and those other means do not attract a compulsory surcharge, the credit card surcharge does not need to be included in the single price.

 
A good illustration of a travel service where it is compulsory to use a credit card for payment is booking an airfare online. A good illustration of a travel service where a credit card is optional for payment is where a tour or cruise fare may be paid by cheque, or where a travel agent will accept a cheque or internet banking funds transfer, as an alternative to a credit card.

Conclusion: If the use of a credit card is compulsory, then the credit card surcharge of a fixed fee or percentage of the fare must be included in the price. If the use of a credit card is not compulsory, then the credit card surcharge need not be included in the price.

• The third exclusion is where the price displayed is the cheapest available, and is for the basic tour/cruise/flight. It is not necessary to list the extra amounts payable for the better options. For example, displaying a price per person, twin-share, land-only, is acceptable as it clarifies what is provided for the basic price. Of course, the basic price is to be inclusive of taxes, fees and charges. The only ‘extras’ caught by the Clarity in Pricing Bill are compulsory taxes fees and charges; they do not extend to extra amounts payable for better options for accommodation and so forth on the tour/cruise/flight.

Conclusion: it is not necessary to separately display the price for couples, for single supplement, for upgraded rooms or cabins and airfares for premium economy or business class to comply with the Clarity in Pricing Bill.

The corollary to this is that if a booking is made for a couple, if the price per couple is less than the price for two individuals, then it is acceptable to advertise SAVE UP TO $XXX* per couple. Again, this is acceptable so long as the ‘saving’ is genuine and the amount saved is inclusive of all additional taxes, fees and charges which are saved.

Is there anything to look out for when using the word ‘from’?

According to the ACCC price advertising guide, it is acceptable to put the word ‘from’ in front of the price “If a price varies according to outside factors (such as departure location or seasonal variations) … The conditions on which a ‘from’ price is contingent should be disclosed with the representation. For example, advertisements should make it clear if a price is only valid when departing from a certain airport.”

Look out – the ACCC will soon be after you!

The ACCC has the responsibility to enforce compliance with the Clarity in Pricing Act. It is expected to do so in three phases:

• An advertising campaign which will be conducted when the Bill passes into law, which is expected in the New Year. The campaign will warn businesses of the need to comply with the law or face prosecution.
• Reviewing travel advertising in newspapers and magazines for compliance, and writing to advertisers and the publishers of the need to comply. The ACCC will also conduct an internet sweep to pick up all price advertising on websites relevant to Australia, and warn them of the need to comply.
• On an ongoing basis, the ACCC will act upon consumer complaints, review newspaper advertisements and sweep the internet.

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Anthony Cordato is the author of Australian Travel & Tourism Law (4th Ed) and an expert in travel law. To order his book, visit www.tourismlegal.com.au. His legal firm, Cordato Partners, Business, Property & Tourism Lawyers, offers specialist legal advice to the travel industry and he provides a 15-minute free advisory service which is available by telephone (02) 8297 5600 or by email - ajc@tourismlegal.com.au.
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NEXT WEEK: A warning for travel agents – if considering booking clients on value or foreign airlines, travel agents are well-advised to warn clients clearly that “you fly at your own financial risk”; and as for budget or foreign tour operators, “you tour at your own personal risk”.
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