The DOT Temporarily Stops Penalizing Airlines for Mistake Fares, But Does It in a Vague and Confusing Way

Government Regulation

Since the dawn of time (or airline reservation systems), there has been no joy as great as that a traveler experiences when he finds and books an absurdly cheap mistake fare. The Department of Transportation (DOT) knows it, but has decided the time has come to put an end to this gravy train… at least for now. Airlines will now no longer have to honor those fares (though they still can if they want), at least until a final rule-making is published. Unfortunately, this temporary measure doesn’t appear to be have been thought through very well. Leave it to the feds to make a sensible policy into something vague and incomplete.

DOT Mistake Fare

As a former airline pricing analyst, I know the agony of the mistake fare. I filed two in my day. The first was a web-only fare (when those still were offered) from Baltimore to Phoenix for under $100 which we caught quickly. But the second was from Indianapolis to Santa Barbara for $62 roundtrip. Some travel agent found it and sold a few dozen before we could pull it. We honored the fare and moved on, but it was the cause of endless ribbing for weeks. It used to be more common than it is now since automation has improved and checks prevent these from happening. But they most certainly haven’t been eliminated.

For the last few years, it’s been good to be a traveler in the US. After the DOT instituted a rule stating that fares can never be increased post-purchase, the department took a strict interpretation that this also applied to mistake fares. Did you file a $162 roundtrip fare from LA to Maui in First Class, Delta? Too bad. You have to honor it. (And, by the way, my family thanks you.)

In reality, it seems rather silly to force airlines to honor simple and clear mistakes. Mistakes happen, and travelers are happy to pounce on them. But if airlines file a $1 fare in a market, is it fair to force them to stick with that?

I can already hear the rebuttals. “Airlines take advantage of us whenever they can, so it’s only fair that we get a break every so often.” But I just don’t buy it. If something is a clear mistake, then airlines should be allowed to back out of the deal. They should just have to do it quickly to avoid keeping people hanging. (For the worst example of that, see Korean Air and the Palau incident.)

DOT, seeing that its post-purchase rule was having some real unintended consequences, has now issued some guidance. (Thanks, David, for the heads up.) In short, it’s not going to force airlines to honor mistake fares while it works on a permanent solution. That’s fair, but it just isn’t put together well.

There are two rules that must be obeyed for the DOT to agree not to make airlines honor mistake fares.

  1. The airline has to “demonstrate that the fare was a mistaken fare”
  2. The airline has to “reimburse all consumers who purchased a mistaken fare ticket for any reasonable, actual, and verifiable out-of-pocket expenses that were made in reliance upon the ticket purchase”

So, uh, how do you demonstrate that something was mistake? Do you just have to look really sorry? Is there a numerical threshold to prove it? No, not at all. Ah, but this statement is footnoted, so this has to clarify for us, right?

The burden rests with the airline or seller of air transportation to prove to the Enforcement Office that an advertised fare and the resulting ticket sales constitutes a mistaken fare situation. If a sale does not qualify as a mistaken fare situation, the carrier or other seller of air transportation is bound by § 399.88.

What the heck kind of clarification is that? This should be straightforward. Something like “if the fare is less than x percent of the current lowest selling fare,” or something along those lines, would do the trick. But no, it’s just very vague and there isn’t a timeline given on how long airlines have to decide whether to honor the fare or not.

The second piece is much more clear. If the airline won’t honor the mistake fare, then it has to pay for anything the purchaser bought expecting the fare to be honored. This is meant to specifically deal with situations like the Korean Air/Palau problem where the airline took forever to decide not to honor it. By that point, people had spent a lot of money preparing for their trips, and Korean Air screwed them. That can’t happen again. But don’t get any ideas. The airline can ask for proof of purchase and cancellation so you won’t be able to game the system.

If this all sounds half-assed, it is. The reason? This is just a temporary solution. There will eventually be a permanent rule-making on this, and DOT could reverse itself and decide that airlines should have to honor mistake fares. But for now, it looks like the party is over… unless airlines decide to honor mistake fares on their own. There’s certainly precedent for that, but it’ll be on a case-by-case basis.

I just hope we see the permanent rule-making soon.

[Original traffic stop photo via Shutterstock]

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23 comments on “The DOT Temporarily Stops Penalizing Airlines for Mistake Fares, But Does It in a Vague and Confusing Way

  1. In my opinion, I don’t think the DOT can tackle the “what is or is not a mistake” question until they tackle the fuel surcharge and ‘carrier imposed fees’ debacle.

    For example, that AA fare from WAS to PEK in business was filed as a $0 fare but had hundreds of dollars in fees tacked on. AA said it was a mistake. Then a week later they file an intentional LAX-CPH fare for $10 or $20 base plus hundreds more in fees. But that wasn’t a mistake, so where is the line drawn?

    Airlines need to stop playing pricing games themselves if they want to be taken seriously or get DOT protection for their ‘mistakes.’

    1. I booked some flights from the US to Asia on Singapore Airlines last week. Admittedly they do show the total fare, but also feel necessary to break it down into a tiny “fare” and almost 4 times as much as a carrier surcharge which includes fuel and insurance. I am surprised they don’t have separate line items for their janitors, marketing, executive pay and other gunk.

  2. A business class fare for 0 base is quite different from a highly restricted coach fare with fairly limited inventory for 10 base.

    AA would have no trouble proving to the DOT that their WAS-PEK fare was a mistake by showing the history of fares with the same fare basis or same bucket were significantly higher.

  3. I work in a professional services field. As a project manager I have to sit down and basically use my best judgement as to what staffing, hours, resources it will take to complete our contractual services and compute that into our total fee. With a new client or project it’s always tricky. Sometimes I hit right on and we make a standard, sometimes good profit, other times I miss and we burn a lot of cash. In the latter example unless I have solid grounds for an additional service we eat that cost. No client (at least smart client) would ever pay us more out of the goodness of their hearts because we sucked at estimating our costs, mistake or not.

    The fact that airlines sell a service that most of the time isn’t redeemed immediately shouldn’t get them off the hook for mistakes. In the retail world where you walk out with your product it’s unheard of to back charge someone for a mistake. Why are airlines different? Mistakes are mistakes and you should pay for them and hopefully learn from them. The only gov’t intervention I want to see is forcing the carriers to own it when they do make mistakes.

    1. This isn’t a matter of back charging. Presumably if somebody manages to actually fly on the fare, then the transaction is over. Rather, it’s a matter of canceling the transaction before the flight.

      A retail analogy would be online stores like Amazon. When they post a mistake price, they are not obligated to honor it. Sometimes they do, sometimes they don’t.

    2. Another example would be a mis-print in a grocery store flyer. Sometimes the store honors it, other times, they post a sign saying it was a mistake and that deal is not available.

      1. True.. At least you don’t have to wait to show up at the airport and be told that your ticket isn’t going to be honored. ;-)

  4. Since there are airlines around the world now pricing fares at a low price (see fares in Europe) who’s to say what is real or what is a mistake. The Feds should have put in a time limit for item #1, like if it was a mistake and pulled within 24hrs of loading the fare the airlines don’t have to honor it, but anything over that they would have to.

    1. I had the same instinct as David SF Eastbay about a time limit. How about just saying that carriers can cancel a mistake fare within X hours, but have to honor it after?

      Anyway, the DOT rule now is that passengers can cancel a booking within 24 hours, so it seems fair to let airlines back out too.

      Or maybe it could be even shorter. Brett, how long did it take until you noticed your mistake that time? Maybe it should just be something like 2 hours after the person books the fare? (And that way if one person buys it and the airline doesn’t notice, but then they notice later when 20 people do, maybe they have to honor the first one but not all the others that were newer.)

      1. I was going to say the same thing.

        Although my thought is to expand it. Whatever cancellation policy an airline gives on a ticket for the same flight(s), sold on the same date, and in the same fare class should be what they give their customers.

        I can see in the future airlines having promotions: Not sure about your next vacation, but worried about air fares? Book on Delta for flights this summer. If you change your mind this month, just give us a call to cancel, we’ll get your money right back to you for your vacation.

        1. Question – what about the truth in advertising clause? I mean if a service provider not just airlines misprints a given price & a consumer catches on, where is the litteral & legal line to honor or not.

          1. CF could comment a bit more. but I have the suspicion that airlines are exempt from that and their advertising is regulated by the DOT.

          2. SEAN – I’d be curious to know if the DOT would make an airline honor a fare if the wrong price had been printed in an advertisement. My guess is they might, but this is fairly vague so we just don’t know. But DOT does have jurisdiction of this, from what I know.

      2. 24 hours would be the best way. It protects airlines and levels the playing field (each side can cancel within 24 hours). If it is a true mistake, surely 1 day is enough time for the airline to know about it. It also gives customers a signal when the ticket will be honored to go ahead and make non-refundable hotel, car, or other arrangements. The DOT would not have to look at grey areas of “reasonable expenses” or try to nail the airlines further on what qualifies a mistake.

        The fact that they didn’t do this shows just how messed up the DOT is these days

  5. What are the unintended consequences of the current rule, other than the airlines don’t get to back out of their mistakes and make less money than they otherwise would have?

    The intended consequences of the current rule is to make airlines very careful about publishing fares and to make sure that consumers get what they bought. While there are occasional mistakes they are usually caught very quickly and corrected before too many tickets are sold. I don’t know of any that had a significant effect on the airlines bottom line. The examples from your experience clearly didn’t really cost the airline that much. Press reports indicate Korean Air sold 300 or so tickets to Palau. I don’t know what a ticket would have cost then. Currently a ticket form LAX to Palau costs around $1,400 so I’d estimate the mistake would have cost them around $300,000 but Korean Air is a $11.5 billion company, it’s hard to see this mistake causing too big a financial issue.

    1. rsteinmetz70112 – The rule is not meant to penalize airlines for making mistakes. It’s meant to tell airlines that they can’t increase a fare after it’s already been purchased. Mistake fares technically fall under that, but that was never DOT’s intent.

  6. So if you find a mistake fare, the best thing to do is to quickly book expensive, nonrefundable hotels, cars and activities. That way, it’s cheaper for the airline to honor the fare than to reimburse you. =P

  7. I’m going to do the obvious rebuttal, even though you already address that in the article. If I mess up dates for my flight for example, (and there are sites that show you cheaper fares on alternative dates with tiny warnings that say that the dates are different), does the airline allow a cancellation? In past experience, I’ve had to pay the fare difference – they would not even let me cancel. So, if the airlines hold us accountable for our mistakes (after all, we’re human), should we not be able to hold them accountable for theirs?

  8. Here’s the best example I can think of that illustrates this problem: I booked the HA operated by KE business class mistake fare for ICN-HNL a couple years ago. The fare was bookable on it’s own website for over 24 hours, and HA took over 3 days to ‘respond’ by stating it was mistake and all bookings would be moved to coach (the fare was around $400 if I remember correctly). I fought tooth and nail on that one and it got to the point of sending a demand letter and filing a small claims appearance in court against them.

    In the end, their legal counsel settled with me for a fair compromise. But the point is, and I was planning on bringing this up in court, if I needed to change my ticket 3 days after purchase HA would have charged me a change fee plus the fare difference. Why wouldn’t they be held to the same standard? I think a reasonable standard would be if a mistake fare is issued, corrected, and those affect are notified within 24 hours then the airlines can get out of it. If it’s more than 24 hours then they should be SOL.

  9. Seriously mixed feelings on this subject and I certainly Do Not know the proper response. One side of the brain says no, of course carriers should not be forced to honor genuine human or machine errors. The other side says that this is a tiny corner of Seriously Big Business and obviously ripe for major abuse by those carriers, *if they wish to participate.* (That none would ever knowingly do so is a stretch – if there was no penalty is, well, a huge stretch.) Caught in the mid-brain is the poor, naive sucker who truly thought that he’s found an excellent deal – and them proceeded to engage other ancillary services – hotel, car rental – whatever, that obviously and clearly included a no cancel/no refund policy. Someplace, the errant carrier has some responsibility. To believe that all of them are perfectly honest in every fare filing is a stretch. Conversely, to believe they wish to injure the public is also a stretch. While the landing must generally favor the consumer to some degree, not even the most naive consumer would (should?) believe that a JFK-HNL round trip is legitimate when proced at $49.95. I don’t know the correct answer. What I do know is that DOT is expected to make a rule that is both truly fair to both ends of the ticket – knowing that some consumers ARE genuine idiots, and without bankrupting an otherwise viable carrier. (OK, honoring some some scred-up fares won’t bankrupt any of them, but the point must be considered.)
    Oh, I know… Let’s create another New Government Agency! This one’s sole purpose is to investigate error fares on a case-by-case basis! It will employ >10K people, only 1% of whom know anything about travel or air carrier’s pricing theories, may accept ‘free’ trips from the carriers as an educational tool and – from whose rulings there is no appeal. Again, I don’t know the right answer other than carriers need some protections and the truly stupid consumer does as well. Good luck!

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