Decision No. 416-C-A-2013

October 30, 2013

IN THE MATTER OF Decision No. 239-C-A-2013 in response to complaints by Alexander Brewer, Xian Cong Jow, Nan Liu, Jeffrey Kwok, Gerald Jacobs, Khang Tran and Richard Wu against Swiss International Air Lines Ltd. also carrying on business as Swiss regarding the cancellation of tickets.

File No.: 
M4120-3/13-04195

INTRODUCTION

[1] In Decision No. 239-C-A-2013 (Show Cause Decision), the Canadian Transportation Agency (Agency), among other matters, made a preliminary finding with respect to the reasonableness of Rule 5(F) of the International Passenger Rules and Fares Tariff, NTA(A) No. 496 (Tariff) of Swiss International Air Lines Ltd. also carrying on business as Swiss (Swiss). The Agency directed Swiss to show cause why the Agency should not disallow Tariff Rule 5(F) on the grounds that it is unjust and unreasonable, contrary to subsection 111(1) of the Air Transportation Regulations, SOR/88-58, as amended (ATR), on the basis that the broad, undefined authority that Tariff Rule 5(F) affords Swiss is disadvantageous to consumers.

[2] The Agency provided Swiss with the opportunity to respond to the show cause direction by July 9, 2013, and provided the complainants identified in the Show Cause Decision with the opportunity to provide comments, if any, on Swiss’s response within seven days of that response. On July 5, 2013, the Agency informed the parties that Swiss had until July 18, 2013 to file its response to the show cause direction, and that the complainants had until July 25, 2013 to file any comments they may have.

PRELIMINARY MATTERS

Comments filed by Mr. Brewer and Mr. Wu after the deadline

[3] Mr. Brewer explains that he experienced technical difficulties submitting his comments. Mr. Wu did not explain why his comments were filed after the prescribed date.

[4] The Agency accepts Mr. Brewer’s reason for the delay in the filing of his submission, and notes that it was filed only one day after the deadline. Mr. Brewer’s comments will therefore form part of the record in this matter. The Agency rejects Mr. Wu’s comments, as they were filed 23 days after the deadline, without an explanation or a prior request to have the deadline extended for filing his comments. The Agency finds this time period exceeds what can be considered reasonable, and as such, Mr. Wu’s comments will not form part of the record in this matter.

U.S. DOT Regulation 14 CFR Part 399.88(a)

[5] In his July 26, 2013 submission, Mr. Brewer refers to the United States Department of Transportation’s (DOT) Regulation 14 CFR Part 399.88(a), which sets out DOT’s policy on post-purchase ticket price increases. While the evidence is useful as an example of international practice, the Agency lacks jurisdiction to interpret or rule on U.S. law. The Agency does take note of the U.S. DOT Regulation that repricing is a fraudulent practice.

ISSUE: HAS SWISS SHOWN CAUSE WHY THE AGENCY SHOULD NOT DISALLOW TARIFF RULE 5(F) ON THE GROUNDS THAT IT IS UNJUST AND UNREASONABLE, CONTRARY TO SUBSECTION 111(1) OF THE ATR?

Submissions in response to the show cause direction

Swiss

[6] Swiss submits that Tariff Rule 5(F):

  • informs the passenger of Swiss’s right to cancel reservations or tickets;
  • indicates that cancellation can occur when erroneously quoted fares are issued;
  • states that the application of Tariff Rule 5(F) is limited to cancellation of tickets that are purchased prior to when the erroneous fare is detected and corrected by Swiss; and,
  • provides the remedy available to the passenger in clear terms in that the Rule states that the passenger will receive a refund of the amount paid and/or the option to purchase a ticket at the fare that should have been available at the time of booking.

[7]  Swiss points out that Tariff Rule 5(F) was introduced by Swiss and accepted by the Agency on February 2, 2011, under NTA(A) Special Permission No. 59292. Swiss asserts that the Agency never objected to the language of the Tariff when it was filed, nor found that it lacked clarity.

[8] Swiss submits that according to subsection 110(4) of the ATR, when a tariff is filed with the Agency, the tolls and terms and conditions of carriage in the tariff shall, unless they are rejected, disallowed or suspended by the Agency, be the applicable terms and conditions of carriage. Swiss states that given that the Agency never rejected, disallowed or suspended the Tariff, it follows that Tariff Rule 5(F) was an applicable condition of carriage. Swiss therefore argues that it is now not open to the Agency to make a judgment a posteriori as to the lack of clarity of Tariff Rule 5(F).

[9] Swiss submits that the term “technical error” signifies unintended error of process, procedure, technique or application (technical failures), as in the case currently before the Agency, and not errors in judgment or improper business decisions. Swiss asserts that Tariff Rule 5(F) is not intended to address situations in which errors in judgment resulted in erroneous pricing. Swiss maintains that Tariff Rule 5(F) is clear and unambiguous, although it is by design a “basket clause” meant to cover a variety of technical failures. Swiss submits that technical failure is not the opposite of and does not exclude human error.

[10] Swiss asserts that if the complainants’ tickets are not cancelled pursuant to Tariff Rule 5(F), the complainants will enjoy First Class travel with Swiss, notwithstanding that passengers travelling in the Economy Class on the same flight and same route paid nearly 25 times the price of the First Class ticket paid by the complainants. Swiss explains that by prohibiting the application of Tariff Rule 5(F), the Agency is forcing Swiss to honour tickets at an erroneous price, and at a rate that is directly contrary to the requirement set out in subsection 111(1) of the ATR that tolls be applied to all traffic.

[11] Swiss maintains that it should be entitled to rely on Tariff Rule 5(F) on the basis that the Rule is of a benefit to Swiss and its various stakeholders (i.e., creditors, shareholders, customers and the general public).

[12] Swiss states that if a carrier is not permitted to address situations in which errors are made by third parties whose services are widely used within the industry, the use of such services and the associated risks to the carriers may cause the utilization of those third party organizations, such as the Airline Tariff Publishing Company (ATPCo) and the International Air Transport Association (IATA) to fall out of favour. Swiss contends that if this were to occur, the likely result would be that the cost of inter-carrier travel would increase to the detriment of the air carriers and their passengers.

[13] Swiss argues that the Agency recognized, in Decision No. 181-C-A-2005 (K. Simcock v. Air Canada) and Decision No. 180-C-A-2005 (B.J. Simcock v. Air Canada), the reasonableness and validity of adopting practices that may incidentally cause some inconvenience to passengers but are deemed to be for the general advantage of passengers.

Complainants

Mr. Jacobs

[14] Mr. Jacobs states that the remedy appearing in Tariff Rule 5(F) of providing the “option to purchase a ticket at the published fare that should have been available at the time of booking” is unreasonable as it is fully arbitrary. He points out that air carrier fares are very different from, for example, bus or train fares, where the fare is fixed and easy to determine, even in hindsight. Mr. Jacobs states that the air carrier can therefore retroactively claim any arbitrary fare.

[15] Mr. Jacobs states that if an air carrier is not able to detect an error in a timely manner, it is allowed to cancel a fare at any time until departure time, and even after departure time (concerning a return flight), without any financial consequences for the air carrier, but to the detriment of its customers. According to Mr. Jacobs, such an indefinite right to cancel fares erodes customer rights.

[16] Mr. Jacobs argues that Tariff Rule 5(F) is ambiguous and unreasonable in that the definition of “erroneously quoted fare” is unreasonably broad. Mr. Jacobs submits that this erodes customer rights as it would give the air carrier the right to cancel a ticket at any time and for virtually any reason due to the unreasonably broad definition used. Mr. Jacobs adds that an unintended consequence of that Rule is that it would effectively reward the air carrier, and its subcontractors, for not having any, or having insufficient, error detection systems or procedures. He further asserts that Swiss has not provided a realistic estimate regarding the cost of honouring the cancelled tickets.

Mr. Brewer

[17] Mr. Brewer contends that without a proper definition of “technical failure,” consumers have no understanding of their rights and obligations under the Tariff. Mr. Brewer argues that Swiss itself seems unable to define what a technical failure is, as it has provided two distinct definitions.

Analysis and findings

[18] Subsection 111(1) of the ATR states:

All tolls and terms and conditions of carriage, including free and reduced rate transportation, that are established by an air carrier shall be just and reasonable and shall, under substantially similar circumstances and conditions and with respect to all traffic of the same description, be applied equally to all that traffic.

[19] If the Agency finds that the holder of an international licence has applied terms or conditions of carriage applicable to the international service it offers that are unreasonable or unjustly discriminatory, the Agency may, pursuant to paragraph 113(a) of the ATR, suspend or disallow those terms or conditions and substitute other terms or conditions in their place.

[20] In the Show Cause Decision, the Agency stated that to assess whether a term or condition of carriage is “unreasonable,” the Agency has traditionally applied a balancing test, which requires that a balance be struck between the rights of passengers to be subject to reasonable terms and conditions of carriage and the particular air carrier’s statutory, commercial and operational obligations. This test was first established in Decision No. 666-C-A-2001 (Anderson v. Air Canada) and was recently applied in Decision No. 150-C-A-2013 (Forsythe v. Air Canada).

[21] The Agency further stated in the Show Cause Decision that an air carrier sets its terms and conditions of carriage on the basis of its own interests, without any input from passengers. These terms and conditions may have their basis in purely commercial requirements and, as such, there is no presumption that a tariff is reasonable.

[22] When balancing the passengers’ rights against the carrier’s obligations, the Agency must consider the whole of the evidence and the submissions presented by both parties and make a determination on the reasonableness or unreasonableness of the term or condition of carriage based on which party has presented the more compelling and persuasive case.

[23] Regarding Swiss’s argument that the Agency accepted Tariff Rule 5(F) on February 2, 2011, the Agency rejects that submission as subsection 110(2) of the ATR is clear that acceptance of a tariff by the Agency does not constitute approval:

Acceptance by the Agency of a tariff or an amendment to a tariff does not constitute approval of any of its provisions, unless the tariff has been filed pursuant to an order of the Agency.

[24] With respect to Swiss’s arguments related to Decision Nos. 181-C-A-2005 and 180-C-A-2005, while those Decisions state that denied boarding is acceptable, they also establish that denied boarding compensation must be provided either in cash or by way of a credit voucher.

[25] Swiss states that by prohibiting the application of Tariff Rule 5(F), the Agency is forcing Swiss to honour tickets at an erroneous price, and at a rate that is directly contrary to subsection 111(1) of the ATR, which requires that tolls be applied to all traffic. The Agency finds this claim to be without merit as it is a generally accepted practice that different air carriers apply various ticket pricing models, dependent on, among other things, the time and place of a passenger’s purchase.

[26] Swiss submits that if a carrier is not permitted to address situations in which errors are made by third parties whose services are widely used within the industry, the use of such services and the associated risks to the carriers may cause the utilization of those third party organizations, such as ATPCo and IATA, to fall out of favour. Swiss contends that if this were to occur, the likely result would be that the cost of inter-carrier travel would increase to the detriment of the air carriers and their passengers. Swiss maintains that Tariff Rule 5(F) is clear and unambiguous, although it is by design a “basket clause” meant to cover a variety of technical failures.

[27] Mr. Jacobs, on the other hand, asserts that Tariff Rule 5(F) is ambiguous and unreasonable as the definition of “erroneously quoted fare” is unreasonably broad. He adds that the Rule erodes customer rights in that it gives the air carrier the right to cancel a ticket at any time and for virtually any reason due to the unreasonably broad definition used.

[28] Swiss provides no specific submissions concerning the effect that honouring the erroneously posted fares would have on Swiss’s commercial obligations, especially with respect to its argument that the cost of inter-carrier travel would increase to its detriment, if it were to no longer utilize the services of ATPCo and IATA. The Agency finds this claim to be without foundation, speculative and essentially meaningless. IATA is a carrier organization and ATPCo is a creature of the air carriers.

[29] If there is a technical failure that is the fault of ATPCo (and that argument has been rejected by the Agency for want of evidence earlier in this case), it is incumbent on Swiss to remedy the situation with ATPCo, not to visit Swiss’s own pricing failures on the customer. It is not clear to the Agency, given the broad interpretation Swiss gives to “technical failure,” that there is any circumstance specifically ruled out, including data entry or other human error, miscommunication of instructions, misinterpretation of directives, or judgement by an employee that is later criticized by a superior. Critically, it allows for “seller remorse” in the case of inventory already sold to customers, which may then be arbitrarily repriced by the carrier.

[30] Essentially, Swiss claims that it requires a provision much broader than that required by other air carriers. Many of its competitors, according to the uncontroverted claims of the applicants, honour the tickets sold on their behalf, even when there has been a “technical failure.”

[31] The Agency agrees with Mr. Jacobs that the broad right to cancel tickets that Rule 5(F) affords Swiss contains no consumer protection elements. That Tariff provision allows Swiss to unilaterally revoke ticketed fares that it claims have been erroneously quoted by reason of technical failure. Furthermore, Tariff Rule 5(F) provides no time period within which Swiss may cancel a ticket that has been erroneously quoted due to a technical error, nor does the Rule specify examples of situations that may lead to such an error. Swiss itself notes that Tariff Rule 5(F) is a “basket clause” meant to cover a variety of technical failures, by nature unpredictable and limitless. In such instances, passengers cannot reasonably be assured that the tickets they purchase will be available at their time of travel.

[32] Tariff Rule 5(F) allows Swiss to cancel a ticket at any time before or during a passenger’s itinerary, which can potentially lead to tremendous inconvenience and expense for passengers, for which the Rule does not provide compensation. The Agency finds that such a broad interpretation of a tariff provision provides no consumer protection, but affords Swiss a pretext for cancelling a passenger’s ticket. Furthermore, as stated by Mr. Jacobs, such a broad interpretation of “technical failure” imposes no duty on Swiss to ensure that it takes reasonable steps to prevent the issuance of erroneous fares.

[33] For the above reasons, the Agency finds that Tariff Rule 5(F) does not strike a reasonable balance between a consumer’s right to be subject to reasonable terms and conditions of carriage and Swiss’s statutory, commercial and operational obligations. Tariff Rule 5(F) is patently unreasonable and contrary to subsection 111(1) of the ATR.

CONCLUSION

[34] Based on the above findings, the Agency disallows Tariff Rule 5(F) and, pursuant to section 26 of the Canada Transportation Act, S.C., 1996, c. 10, as amended, directs Swiss to remove Tariff Rule 5(F) in its entirety by November 6, 2013 and advise the Agency by that same date if it intends to file a revised Tariff Rule 5(F). If Swiss opts to file a revised Tariff Rule, it must do so by November 20, 2013, and the revised Tariff Rule must reflect, at a minimum, the following:

  1. the term “technical failure” is clearly and narrowly defined and specific examples are provided;
  2. the time period for ticket cancellation due to an erroneous fare must not exceed 24 hours after Swiss becomes aware of the erroneous fare;
  3. Swiss will exercise all reasonable efforts to ensure that fares it publishes are accurate and available for sale; and,
  4. Swiss will provide a refund for the cost of a cancelled ticket or provide alternate transportation to the passenger at the lowest available discounted fare in that class, and provide reasonable compensation to passengers whose tickets have been cancelled due to an erroneous fare, including compensation for expenses incurred due to ticket cancellation.

[35] As noted in the previous Decision, the impugned tariff provision was not displayed on Swiss’s Web site. The Agency reminds Swiss that it must display all tariff rules and revised tariff rules on its Web site as required by section 116.1 of the ATR.

Member(s)

Raymon J. Kaduck
Sam Barone
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