Consumers: Low-Cost Flight Information

Lord Young of Norwood Green Excerpts

Monday 27th February 2012 Lords Chamber

[Lord Young of Norwood Green]

My Lords, I thank my noble friend Lord Mitchell for giving us the opportunity to debate this interesting issue. I must admit to feeling a bit inhibited about contributing to the debate as I do not have a property near Perugia—which is a matter of deep regret, as it is somewhere I have visited—but I will, nevertheless, do my best. It is an important issue and so we are grateful not only to my noble friend Lord Mitchell but to Which? for bringing the super-complaint to the Office of Fair Trading.

The complaint isolates some of the key issues and I will quote from it. It states:

“Which? considers that the following features individually, or in combination, significantly harm the interests of consumers: The practice of advertising incomplete or partial prices, by, at least, omitting surcharges for payment method from advertised prices, which, due to behavioural biases, means consumers are unable to effectively and efficiently shop around and make like-for-like comparisons”.

Bearing in mind that we are talking about trying to book online, that is a very valid point. The complaint refers to:

“The lack of reasonably or practicably available alternatives to avoid or mitigate surcharges for payment method”.

Again, all speakers in this debate have demonstrated that that is the situation. The complaint also mentions:

“The conduct or practice of retailers that impose a surcharge for payment method, hidden or not, that exceeds a reasonable estimate of the costs for processing consumers’ payments”.

That has been amply demonstrated. The complaint states:

“These features lead to widespread detriment, including: Price comparisons being much harder so weaken the competitive process between retailers … Consumers making poor choices between competing passenger travel services and between other alternative goods and services from which they may choose … Consumers spending more time and money searching the market than should be the case … Consumers often being misled over actual prices and being frustrated at being asked to ‘pay for paying’ … Paying for goods or services is not, in Which?’s view, an additional or optional feature of a product but a necessary pre-requisite intrinsic to the conclusion of a contract. Even when the retailer offers a number of alternative payment methods, that retailer retains a monopoly on the setting of the prices that the customer will pay for different payment methods”.

That has also been demonstrated during this debate. It does not matter which way you turn, you will be surcharged whether you use a debit or credit card. We know that if you use a debit card, the transfer is almost instant. Which? in its super-complaint demonstrated beyond any doubt that such practices were detrimental to the interests of consumers and that there certainly was not a reasonable marketplace.

Which? went on to state:

“If any additional charges are to be introduced during the transaction, for payment method or other mandatory services, these should reflect only the reasonable additional costs incurred by the retailer as a result of the specific choice of payment method”.

Again, we have heard that the charges do not reflect the additional costs but seem to be an opportunity to bump up the total cost of the booking. If consumers were fully aware, they would be able to,

“switch away from retailers that did not follow this practice,”

of revealing the true costs. Which? continued:

“However, under real world market dynamics in a number of markets (including travel markets) this does not occur, and long term consumer detriment results”.

I refer to the comments of noble Lords. My noble friend Lord Mitchell talked about the iniquities of budget airlines although I have to say that it is not necessarily only budget airlines that use such practices. We have had further reports that airlines such as Lufthansa and Swissair have decided to charge for using credit and debit cards. It is not just the budget airlines, although I know that we have focused on airlines that are, in theory, low cost. The noble Lord, Lord Black of Brentwood, brought that to our attention.

The noble Lord, Lord Alderdice, gave an analysis of how the low costs were achieved. He might also have mentioned low pay and conditions of staff, although I did not hear him say that. It is another intrinsic factor in achieving these prices. Like the noble Lord, I was hopeful when the Government, in a letter to the chief executive of the Office of Fair Trading, seemed to be optimistic. They referred to the consumer rights directive that is supposed to be a pan-European solution and stated:

“It requires that traders limit payment surcharges to the costs incurred by the trader in respect of a given means of payment. The Government will therefore consult, early in 2012, on draft legislation to bring forward the provision of the Consumer Rights Directive relating to above-cost surcharges in advance of the transposition deadline of June 2014”.

We seem to have slipped a bit from that seemingly admirable move on the part of the Government. I would therefore welcome the Minister’s response on why it does not look like consumers will see much benefit or progress before 2014.

I have dealt with what I consider to be the key issues, given that noble Lords have already set out the detail of the major problems in relation to online booking for low-cost airlines. I await the Minister’s response.

--- Later in debate ---

[Earl Attlee]

My Lords, I think it is probably better if I concentrate on answering as much as I can and, if necessary, write to my noble friend.

Aviation is fundamentally an international business. The Government do not intend to introduce tighter restrictions on airline pricing policies in isolation. The European Commission has undertaken a fitness check on the fare transparency requirements, during which it has taken evidence from airlines, the travel industry, enforcement bodies and consumer groups. Its findings have yet to emerge but we understand that the evidence suggests that the rules are not enforced consistently across Europe.

In conclusion, we take this matter seriously. I am grateful to the noble Lord, Lord Mitchell, for posing his Question this evening.

[Lord Young of Norwood Green]

I do think that the noble Earl should clarify the situation because now I am confused. I thought that he had given us a more helpful answer when he said that the consultation on the payment surcharges provision would take place during 2012 and that the new rules would be introduced in 2012. However, the last comment that he made in response to the noble Lord, Lord Alderdice, left us somewhat confused. Will the Minister clarify whether the rules are likely to be introduced in advance of the European directive in 2014? What timetable are the Government working to?

[Earl Attlee]

The intention is that the Government will see the effect of these new regulations as early as possible. My speech was carefully crafted but if I have missed anything out I shall of course write to noble Lords to clarify any details as necessary.