Kirk McDaniel
(CN) — The Fifth Circuit Court of Appeals heard arguments Monday in a case brought by airlines and air carrier trade groups against the Department of Transportation over a rule that requires ancillary fees to be identified early in the ticket purchasing process.
At the center of the dispute is how airlines inform customers of additional fees on top of the base airfare for carrying luggage, changing a reservation or canceling the ticket. Sales tactics sometimes referred to as drip-pricing can start with a seemingly affordable ticket ballooning into a costly investment once the additional fees have been added on through the sales process.
The the department’s rule requires both foreign and domestic airlines, as well as ticket agents, to “clearly disclose passenger-specific or itinerary-specific fees for these services.” However, SkaddenArps attorney Shay Dovretzky, representing the trade group Airlines for America, said the department lacks the authority to tell the airline industry what to do.
“The rule was a solution in search of a problem,” said Dovretzky. “The result is that the Department of Transportation did not and cannot explain it, and so it violates the Administrative Procedure Act twice over, both because the department failed to engage in reasoned decision-making and because it relied on data it never gave the public a chance to comment on.”
Dovretzky said the Airline Deregulation Act of 1978 limits the department’s power on this issue. Unlike other federal agencies, such as the Federal Trade Commission or the Consumer Financial Protection Bureau, the Department of Transportation cannot prescribe rules to regulate the airline industry. The agency’s power lies in its ability to prohibit practices, not prescribe them.
U.S. Circuit Judge Catharina Haynes, a George W. Bush appointee, questioned what it is the department was doing with its rule if not telling the industry to “stop lying”?
“What is it that the department can say if they’re trying to stop what they think is happening,” asked Haynes.
Dovretzky said the central issue is not whether airlines are disclosing ancillary fees in the first place, but rather that the department is looking to regulate how they are disclosed.
Following Airlines for America, Kirstein and Young attorney Donald Crowell argued on behalf of budget carriers Spirit and Frontier. Before laying out the airliner’s case against the rule, Crowell was interrupted by U.S. Circuit Judge Leslie Southwick, another Bush appointee, who asked how Monday’s news that Spirit Airlines has filed for bankruptcy affected the case before the panel.
Crowell pivoted the question to point out that the regulation in question would be costly to implement. He said Spirit may have to spend between $50-$100 million in technology costs, which could hit the company harder than a larger carrier like American Airlines.
Martin Totaro, an attorney with the Department of Transportation, told the panel that the Airline Deregulation Act has nothing to do with the case and the agency has the authority to promulgate such rules.
The panel considered how the U.S. Supreme Court’s ruling in Loper Bright Enterprises v. Raimondo this year affects the agency’s statutory authority. In that case, a 6-2 court overruled a decades-old ruling giving regulatory agencies deference in interpreting statutes.
While the plaintiffs have cited the case in their briefs, the department says that Loper Bright does not apply because the airlines failed to properly challenge the rule before taking the department to court. The plaintiffs filed their appeal after the department declined to pause the rule.
“If I can get one point across, this is not a case about implied authority,” said Totaro. “This is not a case about Loper Bright somehow vanquishing express statutory authority. This is a clear express statutory authority that Congress has given to the department.”
The department’s rule is currently stayed pending the panel’s decision. The plaintiffs want the court to set the rule aside and declare the rule arbitrary and capricious.
The panel, which also included Joe Biden-appointed U.S. Circuit Judge Dana Douglas, did not say when or how it will rule.