Regulators hit back at Air New Zealand’s opt-out add-ons


Remember in the early days of aviation where everything was included in the price of the ticket? There was no paying extra for a meal or for checked luggage. Rather, airlines looked at the totality of the service and charged a fare. Fast forward to today and we see a very different model. The rise of the low-cost carriers, and the copy-cat approach by the Tier 1 carriers, has changed the game. We’re now quite accustomed to unbundled service, and a range of a la carte options offered for sale.

Airlines couch this in terms of giving customers choice and allowing them to determine, within constraints, the cost and experience they receive on a flight. Of course for airlines it’s an attractive model, they get to make ancillary revenue at every step of the way. We’ve all read horror stories of bargain basement fares from ultra low-cost airlines that doubled or tripled once the additional charges were added in.

But additional charged services are one thing, making these additional charges opt-out, and in doing so essentially deceiving customers into paying more than they expect, is another. And it is this deceptive practice that gets airlines into hot water.

The latest example is Air New Zealand, which has just had a slap over the wrists, not to mention a tersely worded directive, from the Commerce Commission in New Zealand. The Commerce Commission is the body that investigates anti-competitive and deceptive behavior that impacts upon customers, it had been pushed to investigate Air New Zealand by a number of customers.

Under the scheme, Air New Zealand added flight insurance by default to every ticket being booked. Your fare for a domestic flight might have been $100, but Air New Zealand automatically added a $10 insurance fee hidden deep in the ticketing window that customers had to manually opt out of. Of course most customers overlooked this fact and hence paid the insurance fee – thereby paying an extra $10 for their ticket. This despite the fact that travel insurance for domestic flights is generally unnecessary. The airline followed the same approach with international fares, despite a significant number of its customers having pre-existing travel insurance (some, ironically, through Air New Zealand’s travel insurance arm).

Under pressure from the Commerce Commission, and seeing another public relations disaster looming, the airline agreed to change the default to being opt-in rather than opt-out. Commission chairman Mark Berry said it plainly:

“Consumers are perfectly capable of deciding for themselves whether they want to pay for additional products or services. If a company is concerned that its customers need insurance then a suitable approach is to require them to tick ‘yes’ or ‘no’ in a mandatory field and leave it in their hands.”

This, of course, is only one example of an opt-out approach and, luckily for Air New Zealand customers, the local watchdog is strong and active. But we should be on the lookout to see if an underlying trend will emerge. Forced by the double impacts of tough trading conditions and increasing competition, will some airlines look to deceptive solutions like this to eek out some more revenue from customers?

While it shouldn’t be the case, the onus would appear to be very much on the customer to read the fine print and take those extra few minutes when buying air travel – caveat emptor.