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Spirit Airlines Loses Challenge to All-In Fare Ad Rule

Spirit Airlines Inc. (SAVE) and Southwest Airlines Co. lost a challenge to federal rules that require carriers to prominently display the total cost of a ticket, including taxes, when advertising airfares.

In a 2-1 decision today, the U.S. Court of Appeals in Washington rejected the airlines’ contention that the rules violate their rights to engage in commercial and political speech and are an effort by the government to hide taxes in airfares. Las Vegas-based Allegiant Travel Co. (ALGT) also filed a lawsuit that was consolidated with Spirit’s.

“Contrary to the airlines’ repeated suggestions, nothing in the Airfare Advertising Rule requires airlines to hide taxes -- or, as Spirit’s website puts it, the ‘Government’s Cut,’” U.S. Circuit Judge David Tatel wrote in the opinion, which was joined by U.S. Circuit Judge Karen LeCraft Henderson.

The U.S. Transportation Department had been considering the policy change on fare advertising since at least 2006, and said in the final rule issued in April 2011 that the change was to address a “bait and switch tactic by travel sellers.”

Since January, airlines and travel agencies have been required to show an all-in number that combines the base fare with all mandatory taxes and fees. The total, tax-included price must be the most prominent figure displayed in print or online advertisements. Charges for optional services such as checked bags or in-flight Wi-Fi aren’t covered by the rule.

Reservation Rule

The judges also rejected Spirit’s challenge to rules allowing customers to cancel their reservations within 24 hours after purchasing a ticket and prohibiting airlines from changing the price of a ticket after purchase by increasing fees for passenger baggage or fuel surcharges.

Southwest Airlines (LUV), based in Dallas, intervened in the case challenging only the advertising rule.

In a dissent, U.S. Circuit Judge A. Raymond Randolph said the rule violates the First Amendment because it dictates how airlines “may convey information criticizing the taxes and fees” paid by customers.

“The government is thus attempting to restrict speech critical of the government,” Randolph wrote.

Misty Pinson, a spokeswoman for Miramar, Florida-based Spirit, said the airline disagrees with the decision.

‘Pay More’

“American consumers are going to pay more for air travel, and have less choice, as the USDOT continues to pile costly new rules onto an already over-regulated and over-taxed industry,” she said in an e-mail. “That said, we have been and will continue to comply with the new rules.”

Chris Mainz, a spokesman for Southwest, said the airline has already revised its fare advertisements to comply with the rule.

“While we’re disappointed in the court’s decision, it really has no impact on us,” Mainz said in a telephone interview. He didn’t know whether Southwest would seek additional court review of the rule.

The case is Spirit Airlines Inc. v. U.S. Department of Transportation, 11-01219, U.S. Court of Appeals for the District of Columbia (Washington).

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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