David Zalubowski/AP Photo
Travelers wait in line for service at the Southwest Airlines check-in counter at Denver International Airport, December 27, 2022, in Denver.
The Federal Trade Commission’s historic proposed rule banning noncompete agreements, which the Commission issued last week, restores a crucial tool of the agency: the use of its Section 5 authority to prohibit unfair methods of competition. By writing rules under Section 5, the FTC can engage in blanket bans of such conduct, rather than case-by-case enforcement actions that take too much time and provide only after-the-fact relief rather than an up-front, certain deterrent. Anti-monopoly reformers have deeply wanted the FTC to engage in Section 5 rulemaking, not just in noncompetes but a host of areas. There will be a legal fight, but as FTC director of policy planning Elizabeth Wilkins said to PBS, “Congress gave us this authority, and I think actually we feel fairly obligated to make sure that if we have this authority to prevent unfair methods of competition like this … that we should do so.”
It just so happens that the Department of Transportation (DOT) has the exact same authority. But critics have charged that the DOT has not sufficiently used this authority under Transportation Secretary Pete Buttigieg, even as the airline industry has engaged in what could easily be characterized as a massive unfair and deceptive practice in the scheduling and cancellation of flights.
The authorities accorded to the DOT include Section 41712(a), which covers “unfair and deceptive practices” and “unfair methods of competition.” As the DOT explained in a guidance posted at the Federal Register in August, “Section 41712 was modeled on Section 5 of the Federal Trade Commission (FTC) Act.” That is where DOT derives the definitions of “unfair,” “deceptive,” and “practice.”
The guidance states, “Congress granted the Department the exclusive authority to prohibit unfair or deceptive practices of air carriers and foreign air carriers.” In other words, with respect to airlines, DOT authority supersedes that of the FTC, while being modeled on the same definitions and permitted activities.
As the guidance also repeatedly notes, the DOT has used this authority in the past. For example, the tarmac delay rule, which states that passengers cannot be stranded on tarmacs for more than three hours, was written under this Section 5–like authority. There’s no dispute that DOT can write aviation consumer protection rules, and investigate and punish airlines for specific unfair or deceptive practices, including unfair methods of competition. It’s explicitly in this statute.
So if the FTC is restarting its rulemaking authority and specifically prohibiting unfair practices, then DOT has precisely the same authority to do so. And if that’s the case, it has the opportunity to prevent the flood of unfairness and deception from the major airlines.
The meltdown of mass cancellations at Southwest Airlines over the holidays is the foremost example in the public mind, but similar instances occurred all last year, which has been characterized as the worst ever for customer service in U.S. aviation history. There were over 121,000 flights canceled in the first six months of the year, and that obviously doesn’t count other cancellations throughout the summer, or the 15,000 Southwest flights postponed in December.
Democratic officials as well as Republican attorneys general have repeatedly asked Buttigieg to take action to reduce cancellations.
Here’s the argument for why those cancellations represent a deceptive practice and deserve agency enforcement: As my colleague Bob Kuttner has explained, the airlines received a $54 billion bailout at the beginning of the pandemic, specifically to maintain crew levels. Instead, they ended up giving pilots incentives to take early retirements, getting their pay off the books and violating the spirit of the bailout. When travel resumed in 2022, the major carriers were left without enough pilots to handle the flights they were scheduling. As a result, passengers would get notices on the way to the airport that their flights were canceled.
This falls clearly on the side of unfair and deceptive. DOT’s definition of “unfair” is that an action “causes or is likely to cause substantial injury, which is not reasonably avoidable, and the harm is not outweighed by benefits to consumers or competition.” Clearly, a canceled flight is an injury that can’t be avoided—the passenger can’t find someone else to fly the plane, and will miss whatever inspired them to fly in the first place—and there’s no benefit to consumers or competition in doing it. The definition of “deceptive” is “likely to mislead a consumer, acting reasonably under the circumstances.” If the airline scheduled a flight, took money for the flight, and knew it would have to cancel it (or, if you prefer, knew it would have to cancel some flights, all of which it took money for), that seems plainly deceptive.
Proof of intent is not necessary for an action to be unfair and deceptive, under both the FTC and the DOT’s rules. An airline CEO didn’t have to knowingly cancel the flight out from under a passenger maliciously. (Although it’s extremely likely that’s what happened when Secretary Buttigieg’s flight from New York to D.C. was abruptly canceled last Father’s Day.) As long as the action is unfair and deceptive, intent is irrelevant, and DOT can enforce.
DOT used this authority when fining six airlines for not producing timely refunds to passengers for canceled flights. Five of those six airlines were foreign carriers, and the other, Frontier, controls about 2 percent of U.S. routes. Though the large U.S. carriers had more complaints about refunds logged at the DOT’s own complaint database, they were not fined. In a notice released last Friday, DOT stated that it planned to increase fines for consumer protection violations, so they “would not be viewed as a cost of doing business.”
But fining after the fact is not the only option. Using the identical authority as the FTC, DOT could say that the cancellation itself is an unfair and deceptive practice and issue a fine for each canceled flight. Or it could promulgate a rule saying that cancellations due to insufficient crews, or due to dysfunctional computer scheduling systems, are unfair and deceptive, with stiff fines for each violation. Consumer advocates have said that this would more quickly change airline behavior.
Under Buttigieg, DOT has created an airline customer service dashboard to let consumers understand their rights after a canceled or delayed flight. DOT has said this has led to airlines guaranteeing meals and hotels for passengers whose flights are canceled. And DOT has also proposed a rule restating that refunds are required, not travel credits or vouchers, for canceled flights. (This is already DOT’s interpretation, so the refund rule could actually delay action while it is finalized.) A DOT spokesperson noted that the agency’s fines for lack of timely refunds constitute the “highest amount of fines for consumer protection in department history.”
However, as MSNBC’s Mehdi Hasan indicated last week, the goal should probably be to prevent these cancellations in the first place, rather than ensuring that the airlines make good after the fact. Passengers want to actually get where they want to go, having already paid for that service.
Democratic officials as well as Republican attorneys general have repeatedly asked Buttigieg to take action to reduce cancellations. Just last Thursday, 26 House Democrats wrote a letter to the secretary, urging him to “help prevent these types of mass cancellations from occurring in the future.” Their recommendations included “mak[ing] sure that airlines are able to maintain a reasonable level of operational capabilities in the event of extreme weather or other type of potential disruption,” through “issuing rules and standards” that would “ultimately benefit consumers much more than any reimbursement policy ever could.”
We know that DOT has the authority to do this, because it’s the exact same authority that the FTC has just used to ban noncompete agreements.
