Spirit Airlines, Inc. v. U.S. Dep't of Transp.

• Decision Date: 24 July 2012
• Docket Number: 11–1222.,Nos. 11–1219,s. 11–1219
• Citation: 687 F.3d 403
• Parties: SPIRIT AIRLINES, INC., et al., Petitioner Southwest Airlines Co., Intervenor v. UNITED STATES DEPARTMENT OF TRANSPORTATION, Respondent American Society of Travel Agents, Inc., Intervenor.
• Court: U.S. Court of Appeals — District of Columbia Circuit

687 F.3d 403

SPIRIT AIRLINES, INC., et al., Petitioner

Southwest Airlines Co., Intervenor

v.UNITED STATES DEPARTMENT OF TRANSPORTATION, Respondent

American Society of Travel Agents, Inc., Intervenor.

Nos. 11–1219, 11–1222.

United States Court of Appeals,District of Columbia Circuit.

Argued May 7, 2012.

Decided July 24, 2012.

On Petitions for Review of Final Rules of the U.S. Department of Transportation.

David M. Kirstein argued the cause for petitioners. With him on the brief was Joanne W. Young.

M. Roy Goldberg and Robert W. Kneisley were on the briefs for intervenor Southwest Airlines Co. in support of petitioners.

Bert W. Rein and Roger H. Miksad were on the brief for amicus curiae International Air Transport Association in support of petitioners and intervenor.

Andrew B. Steinberg and Jeffrey S. DeVore were on the brief for amicus curiae Air Transport Association of America, Inc. in support of petitioners. Robert P. Silverberg entered an appearance.

Daniel Tenny, Attorney, U.S. Department of Justice, argued the cause for respondent. With him on the brief were Tony West, Assistant Attorney General, Michael S. Raab, Attorney, Paul M. Geier, Assistant General Counsel for Litigation, U.S. Department of Transportation, Timothy H. Goodman, Senior Trial Attorney, and Blane Workie, Deputy Assistant General Counsel for Aviation Enforcement and Proceedings.

Dale C. Andrews was on the brief for amicus curiae Interactive Travel Services Association in support of respondent.

Before: HENDERSON and TATEL, Circuit Judges, and RANDOLPH, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge TATEL.

Opinion concurring in part and dissenting in part filed by Senior Circuit Judge RANDOLPH.

TATEL, Circuit Judge:

Pursuant to its authority to regulate “unfair and deceptive” practices in the airline industry, the Department of Transportation issued a final rule entitled “Enhancing Airline Passenger Protections.” 76 Fed. Reg. 23,110 (Apr. 25, 2011). Spirit Airlines and others challenge three of the rule's provisions—the requirement that the most prominent figure displayed on print advertisements and websites be the total price, inclusive of taxes (as arbitrary and capricious and a violation of the First Amendment); the requirement that airlines allow consumers who purchase their tickets more than a week in advance the option of canceling their reservations without penalty for twenty-four hours following purchase (as arbitrary and capricious); and the prohibition against increasing the price of air transportation and baggage fees after consumers purchase their tickets (as procedurally defective and otherwise arbitrary and capricious). For the reasons set forth in this opinion, we deny the petitions for review.

I.

Prior to 1978, the federal government regulated the fares airlines could charge and the routes they could fly, and had authority to take administrative action against certain deceptive trade practices. Federal Aviation Act of 1958, Pub. L. No. 85–726, §§ 403–404, 411, 1002, 72 Stat. 731, 758–60, 769, 788–91. That changed in 1978 when Congress passed the Airline Deregulation Act, Pub. L. No. 95–504, 92 Stat. 1705, which, among other things, eliminated the government's ability to set airfares on the theory that “maximum reliance on competitive market forces would best further efficiency, innovation, and low prices as well as variety and quality of air transportation services,” Morales v. Trans World Airlines, Inc., 504 U.S. 374, 378, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992) (alteration, omission, and internal quotation marks omitted). Notwithstanding these changes, the government, through the Department of Transportation (DOT), retained authority to prohibit “unfair or deceptive practice[s] ... in air transportation or the sale of air transportation.” 49 U.S.C. § 41712(a).

Pursuant to that authority, DOT issued a final rule entitled “Enhancing Airline Passenger Protections.” See 76 Fed. Reg. 23,110. Three of its provisions are at issue in this case.

The first relates to the advertising of airfares. Since 1984, DOT has required that any advertised price for air transportation disclose the “entire price to be paid by the customer to the air carrier.” 49 Fed. Reg. 49,440, 49,440 (Dec. 20, 1984) (codified as amended at 14 C.F.R. § 399.84(a)). Prior to the rulemaking at issue here, DOT allowed airlines to advertise the pre-tax price of tickets provided that the advertisement clearly disclosed the amount of the tax. See75 Fed. Reg. 32,318, 32,327 (June 8, 2010) (explaining DOT enforcement policy regarding the 1984 rule). For example, airlines could advertise a “$167 base fare + $39 taxes and fees” even though consumers would have to add these two numbers to arrive at the total, final price they would have to pay—$206. DOT reaffirmed this policy in 2006. See71 Fed. Reg. 55,398, 55,401 (Sept. 22, 2006) (withdrawing Notice of Proposed Rulemaking and retaining status quo). But in the challenged rule, DOT, citing consumer confusion, revised its policy to require airlines to state the total, final price—$206. See76 Fed. Reg. at 23,166 (amending 14 C.F.R. § 399.84(a)). Under this so-called “Airfare Advertising Rule,” airlines remain free to provide an itemized breakdown (displaying to the customer the amount of the base fare, taxes, and other charges), but they may not display such price components “prominently” or “in the same or larger size as the total price.” Id. In subsequent guidance, DOT explained that airlines may not list price components “in a more prominent place on a webpage or in a print advertisement than the advertised total fare.” Office of Aviation Enforcement & Proceedings, Dep't of Transp., Answers to Frequently Asked Questions 22 (Oct. 19, 2011), available at http:// airconsumer. ost. dot. gov/ rules/ EAPP_ 2_ FAQ_ 10- 19- 2011. pdf. In other words, to ensure that consumers will clearly understand what final price they will have to pay, the total cost must be the most prominent figure. DOT describes this as a change in “enforcement policy.” See75 Fed. Reg. at 32,327 (discussing the proposed change).

DOT issued the second challenged provision, the “Refund Rule,” in the context of a broader effort to curb deception and unfairness in the airline industry. Relying on customer feedback and Office of Inspector General reports, 72 Fed. Reg. 65,233, 65,236 (Nov. 20, 2007), DOT found that many airlines failed either to provide consumers with clear customer service plans or to adhere to whatever plans they did provide. Accordingly, DOT ordered U.S. carriers to adopt customer service plans that address a list of topics, including whether the airline “[a]llow[s] reservations to be held without payment or cancelled without penalty for a defined amount of time.” 74 Fed. Reg. 68,983, 69,003 (Dec. 30, 2009) (amending 14 C.F.R. § 259.5(b)(4)). But in a later rulemaking, the one at issue here, DOT found this insufficient and that further steps were necessary to “ensure that ... plans are specific and enforceable.” 75 Fed. Reg. at 32,323. It found that some airlines had adopted “vague[ ]” policies that made it “difficult for a consumer to know” what exactly to expect. Id. For example, Allegiant Air's plan told customers that they could “cancel their reservations up to 24 hours before the scheduled time of departure, but fail[ed] to mention that there are significant fees associated with cancellation.” Letter from Susan Kurland, Assistant Sec'y for Aviation & Int'l Affairs, Dep't of Transp., to Joanne W. Young & David M. Kirstein, Counsel for Petitioners 6 (July 20, 2011) (denying stay of the rule and explaining DOT's findings). Responding to such shortcomings, DOT proposed “establishing minimum standards for the plans,” which would “result in consumers being better informed and protected,” 75 Fed. Reg. at 32,323—the idea being that anything less than the guarantees contained in the rule constitutes an unfair practice or has an unacceptably high risk of deceiving customers. One such requirement, the Refund Rule, directs airlines to allow passengers to cancel reservations without penalty for twenty-four hours “if the reservation is made one week or more prior to a flight's departure.” 76 Fed. Reg. at 23,165 (amending 14 C.F.R. § 259.5(b)(4)).

Finally, the “Post–Purchase Price Rule” prohibits airlines from “increas [ing] ... the price of the seat,” the “price for the carriage of passenger baggage,” or the “applicable fuel surcharge, after the air transportation has been purchased by the consumer, except in the case of an increase in a government-imposed tax or fee.” Id. at 23,167 (amending 14 C.F.R. § 399.88(a)). DOT has now advised us that “it will undertake another rulemaking process to assess the appropriateness of applying the rule to ancillary charges other than baggagecharges that traditionally have been included in the price of air transportation” and that “[u]ntil the conclusion of that rulemaking, the agency will only enforce the rule as applied to charges the consumer has already paid, to any charges for carry-on baggage and first and second checked bags, and to mandatory charges like fuel surcharges.” DOT Br. 9.

Spirit Airlines and Allegiant Air (collectively Spirit) claim that all three rules are arbitrary and capricious and that the Airfare Advertising Rule violates the First Amendment rights of airlines to engage in commercial and political speech. Intervening on behalf of petitioners, Southwest Airlines challenges only the Airfare Advertising Rule.

II.

Beginning with their challenge to the Airfare Advertising Rule, the airlines argue that there is nothing inherently deceptive about listing taxes separately and that DOT lacked substantial evidence for concluding that doing so is deceptive in practice. By the airlines' count, only six commenters suggested that existing airline displays were confusing or misleading, and just two of those pointed to the exclusion of taxes from base fares as the source of...