Drip pricing

Drip pricing of unavoidable additional charges on air fares is outlawed in the European Economic Area. Article 23 of Regulation (EC) No 1008/2008 requires that "The final price to be paid shall at all times be indicated and shall include the applicable air fare or air rate as well as all applicable taxes, and charges, surcharges and fees which are unavoidable and foreseeable at the time of publication". In the early 2010s, many budget airlines sought to circumvent this requirement by adding surcharges for the most common means of payment. For example, Ryanair surcharged £6 per passenger per flight segment to process a single debit card payment whose cost was only a few pence. Article 19 of Directive 2011/83/EU on Consumer Rights has limited such payment surcharges to "the cost borne by the trader" since 13 June 2014, but because of the prevalence of these surcharges, the United Kingdom enacted the legislation earlier than required with effect from 6 April 2013 under the Consumer Rights (Payment Surcharges) Regulations 2012.[5][6] Later legislation under Article 62(4) of Directive (EU) 2015/2366 (Payment Services Directive) prohibits card surcharges throughout the EEA with effect from 13 January 2018, which the United Kingdom enacted under Regulation 6A(1) of the Consumer Rights (Payment Surcharges) Regulations 2012.

In mid-2014, the Australian Competition and Consumer Commission took legal action against Virgin Australia and Jetstar Airways in respect of drip pricing.[7][8]

After being faced with increasing regulation of the types of surcharges that may be drip-priced, airlines have created new types of drip-priced surcharges. For example Spirit Airlines from August 2010 [9] and Wizz Air from October 2012 [10] started surcharging passengers who travel with conventionally-sized hand luggage. Following Ryanair's introduction of allocated seating in February 2014, it and other UK-based airlines have been accused of seating young children far away from their parents unless a surcharge is paid. This is despite the UK's Civil Aviation Authority guidelines stating that airlines' seat allocation procedures should aim to seat children close to their parents.[11][12]

An example of airlines' drip pricing is shown in Robbert and Roth’s (2014) research which states “You click on “Book Now” and enter your personal information. Just as you are about to finish the transaction, you see that the payment with your preferred credit card costs an additional US$20”. [13]

The primary and secondary ticketing industry has faced considerable scrutiny in the United Kingdom. Many event organisers and secondary ticketing agencies, in addition to any published markup contained within the headline price, add unavoidable delivery fees for tickets later in the purchase process, even when customers print their own tickets or collect them from a box office.[14]

Cities in many southern European countries, such as Greece, Italy and Spain, impose a city tax on guests staying in hotels. Booking agents often exclude the city tax from the quoted headline price, leaving the hotel guest to pay the tax locally upon check-out.[15][16] Article 6(1)(e) of Directive 2011/83/EU on Consumer Rights requires businesses to quote to consumers "the total price of the goods or services inclusive of taxes". In Italy, where city taxes are often omitted from published prices, this is enacted into national law under Article 49(1)(e) of Decreto Legislativo 21 febbraio 2014, n.21.

In May 2012, the United States Federal Trade Commission hosted "A Conference on the Economics of Drip Pricing," which focused on the practice of charging "hotel" or "resort" fees to consumers after they arrive to check-in at their hotel or resort.[17] Following the conference, the FTC issued letters against 22 hotel operators warning that their online reservation sites may "violate the law by providing a deceptively low estimate of what consumers can expect to pay for their hotel rooms".[18] According to the FTC letters, “One common complaint consumers raised involved mandatory fees hotels charge for amenities such as newspapers, use of onsite exercise or pool facilities, or internet access, sometimes referred to as ‘resort fees.’ These mandatory fees can be as high as $30 per night, a sum that could certainly affect consumer purchasing decisions”. The warning letters also stated that consumers often did not know they would be required to pay resort fees in addition to the quoted hotel rate.[18]

In 2017, the FTC published an extensive report titled "Economic Analysis of Hotel Resort Fees," which further detailed the practice of unfair and deceptive drip pricing practices in the hotel and resort industries.[19] The report found that "separating mandatory resort fees from posted room rates without first disclosing the total price is likely to harm consumers by artificially increasing the search costs and the cognitive costs of finding and booking hotel accommodations."[20]

When Airbnb customers search for accommodation, Airbnb displays per-night prices that exclude its own per-night service charges, and the total price is not revealed until the customer selects an individual property. Furthermore, if the customer searches for properties within a price range, the search returns properties where only part of the price falls within the desired price range rather than where the total price falls within the price range. In late 2015, the Australian Competition and Consumer Commission took action against Airbnb for this form of drip pricing. Consequently users of Airbnb's Australian web site now see the total price of a stay including all unavoidable charges at every stage of the booking process.[21][22] In July 2018, the European Commission threatened action against Airbnb in view of its website breaching EU law by headline prices failing to include fees and charges later passed on to the consumer, including cleaning costs. [23]