Chapter § 2.03 MARKETING OF AIR TRANSPORTATION

• Jurisdiction: United States
• Publication year: 2021

§ 2.03 Marketing of Air Transportation

[1] In General

Air transportation is marketed to the general public through four basic distribution systems. First, air carriers may sell their services directly to the general public at airports, transportation centers or over the Internet.³⁸⁹ Second, air carriers may appoint agents, such as retail travel agents,³⁹⁰ general sales agents,³⁹¹ or exclusive distributors³⁹² who sell transportation services on behalf of the air carrier. Third, air carriers may enter into contracts with consolidators,³⁹³ tour operators or wholesalers wherein the latter entities purchase large blocks of seats on a "back-to-back" basis and re-sell these seats within the context of charter tours or package tours to the general public.³⁹⁴ Fourth, air carriers may market their services through other air carriers often known as connecting commuters.³⁹⁵

[2] Non-Refundable Airline Tickets

Prior to January 1987, airline passengers could enter into airline reservation contracts with domestic air carriers and, should the need arise, cancel those reservations without penalty or loss of the contract price. Although this arrangement was beneficial to consumers, it created uncertainty as to whether a given airline flight would fly full or half empty, depending on the number of "no shows." The uncertainties faced by the airlines created economic inefficiency and has been the primary rationale for the marketing policy of airline overbooking.³⁹⁶

Starting in early 1987, domestic air carriers instituted a fundamental change in the manner in which air transportation was sold to the general public by selling low fare tickets which require full payment of the contract price before the flight departs. Should the consumer, regardless of the reason, decide to cancel the reservation,³⁹⁷ he would forfeit part or all of the contract price, and may or may not³⁹⁸ receive frequent flyer mileage credit,³⁹⁹ depending on the airline's policy.⁴⁰⁰ In addition, nonrefundable tickets may be challenged as being a penalty or unreasonable liquidated damages⁴⁰¹ constituting unjust enrichment⁴⁰² or as implementing unreasonable cancellation policies.⁴⁰³ Passengers may also be bound to time limitations in commencing a lawsuit.⁴⁰⁴ Notwithstanding these limitations, nonrefundable fares are gaining popularity⁴⁰⁵ since they are generally associated with low fares.

[3] Frequent Flyer Programs and Discount Coupons

Airlines may use coupons to sell discounted air fares to selected groups such as senior citizens. These coupons,⁴⁰⁶ typically, contain language restricting their use and prohibiting resale. The most well known of airline discount coupon programs is the frequent flyer bonus program introduced in 1981 by American Airlines. Since then, most domestic airlines and credit card companies⁴⁰⁷ have adopted similar marketing programs that seek to reward brand loyalty and sell additional airline seats. Under the frequent flyer bonus programs⁴⁰⁸ a participating consumer is awarded credit for each mile traveled on a given airline, whether the miles awarded are for direct routes or connecting itineraries.⁴⁰⁹ In addition, other non-airline service providers may reward loyalty with frequent flyer miles.⁴¹⁰ On occasion, airlines may cancel transactions that expose them to too many frequent flyer miles.⁴¹¹ After a certain number of credits are accumulated the consumer may redeem the credits for certain awards such as free, discounted or upgraded travel. The mechanics of a given frequent flyer bonus program will vary depending upon the air carrier,⁴¹² and are subject to change,⁴¹³ but the purpose is the same. This type of marketing concept has been successful and varies among airlines in terms of usability. Occasionally there are disputes between airlines and loyalty program vendors.⁴¹⁴ In addition, airlines may issue "free drink" coupons for loyal customers.⁴¹⁵

Notwithstanding the consumer acceptance of this marketing program, there have been some problems, particularly with not accepting frequent flier milage,⁴¹⁶ unilaterally imposed restrictions which may or may not be enforceable for a lack of mutual- ity,⁴¹⁷ charging frequent flier members who have more available miles additional miles for same reward,⁴¹⁸ and on the transferability of frequent flyer credits which may make it more difficult to redeem miles⁴¹⁹ Consumers, therefore, often attempted to redeem miles for non-air transportation goods and services,⁴²⁰ which led airlines to penalize their own passengers.⁴²¹ The enforceability of transfer restrictions has arisen in cases brought by airlines challenging the legality of coupon brokers.⁴²²

[a] Coupon Brokers

Since the introduction of the frequent flyer programs, a secondary market developed which purchased unused frequent flyer credits and resold them to the general public. In addition, a market had also developed for the purchase and resale of all discount airfare coupons.⁴²³ This secondary market was operated by coupon brokers⁴²⁴ and during the period 1983 until 1988 they were tolerated by domestic air carriers. However, starting in 1988, several domestic air carriers sued many of the coupon brokers in an effort to put the brokers out of business and stop the operation of this competing secondary market.⁴²⁵ The basis of these lawsuits has been a violation of tariffs restricting transferability, fraud and interference with business relationships between the airlines, travel agents and their passenger-customers, resulting in loss of business and other damages.

[b] Consumer Actions

Frequent flyer programs are important in the marketing of air transportation. Most airlines now actively promote the terms and conditions of their programs. It is not surprising that consumers rely upon these frequent flyer programs in deciding which of several competing airlines to select.

As the popularity of frequent flyer programs has increased, some airlines have unilaterally changed the terms and conditions of their programs or terminated a passenger's membership.⁴²⁶ Some passengers have responded by challenging the legality of such changes. The courts⁴²⁷ have examined various issues, such as passenger property rights,⁴²⁸ the airline's failure to follow its practice or policy,⁴²⁹ cancellation restrictions,⁴³⁰ failure to honor tickets issued through frequent flyer programs,⁴³¹ imposition of fuel surcharges,⁴³² and the expectations of the parties.⁴³³

[c] Barter Systems

Another way for airline passengers to maximize their frequent flyer points, if the passenger does not wish to use them to purchase goods or making charitable donations, is by trading or bartering them through online exchanges. Rather than the airlines determining the value of the frequent flier miles, they are now exchanged in a free market economy based on supply and demand. That's the general idea behind some new online services that have quietly begun testing ways for travelers to leverage unused miles. One of the sites, www.Points.com, has introduced a service called Global Points Exchange that allows travelers to barter miles with one another and set their own exchange ratios (I'll give you 8,000 American miles for 10,000 of your Delta miles). Another site that is letting travelers set their own trading terms is www.LoyaltyMatch.com, which lets travelers convert those unused points and miles into merchandise that they can then sell online for cash or swap for other items, services and activities.⁴³⁴

[4] Airport Airline Clubs

Several domestic airlines maintain clubs at major airports for their frequent flyer customers. These clubs provide beverages and limited food service, comfortable waiting rooms, telephone and fax services and meeting rooms for business travelers.⁴³⁵ The airlines may sell lifetime memberships to these clubs promising to provide specific services for the duration of the membership.

Eliminating or modifying services delivered to lifetime members has generated consumer lawsuits very similar to those arising from the airlines' unilateral changes of the terms and conditions of the awards earned by frequent flyers.⁴³⁶ In Maslan v. American Airlines, Inc.,⁴³⁷ the plaintiff had purchased a lifetime membership in American Airlines' Admirals Club in 1977 for a cost of $300. Admirals Club members were at that time entitled to use the conference room facilities free of charge. When American started charging for conference room use, Maslan filed a breach of contract class action.⁴³⁸ Revenues from the use of conference rooms generate substantial revenues for the airlines.⁴³⁹ While the Maslan complaint was dismissed as time barred by the statute of limitations, the issue is an interesting one.

[5] Cross Bordering, Back-to-Back, Hidden-City and Point Beyond Ticketing

Creative travel agents have developed a variety of marketing practices to sell airline tickets, many of which are frowned on if not outright prohibited by the airlines.⁴⁴⁰ One of these strategies is known as cross bordering, in which the agency sells a ticket indicating a state or country of origin other than the passenger's actual point of departure.⁴⁴¹

Back- to- back ticketing "is a gambit that avoids the high cost of tickets that don't require a Saturday-night stay. Instead of buying one expensive, unrestricted roundtrip ticket, some travelers buy two cheap round-trip tickets, each of which includes a minimum stay. They use the 'going' portion of each ticket for the trip they actually take and discard both 'return' tickets."

Hidden- city ticketing is another tactic travelers use to save money. With this method, consumers buy connecting tickets at cheaper prices and use all, part, or none of them.⁴⁴²

Point beyond ticketing is another tactic to pay less by purchasing a "throwaway" ticket.⁴⁴³

[6] Aviation and the Internet

[a] Internet Travel Sellers

Consumer use of the Internet to make travel arrangements had risen dramatically,⁴⁴⁴ but of late has decreased.⁴⁴⁵ Nevertheless, consumer reliance on travel agents continues...