The clearance for up to 9 million members of American Airlines' frequent flyer programme to sue the carrier over retroactive changes to its loyalty programme could open the flood gates to legal action against US carriers.
At the very least, the ruling means a comparable number of United and Delta FFP mem bers could also opt for legal action and with $375 million worth of unused credits in AAdvantage alone, damage claims for reduced value could run into hundreds of millions.
The US Supreme Court ruling has resolved one issue and opened a Pandora's box of others. This was the second time in three years that the highest US court has reviewed the Airline Deregulation Act's ban on state actions that might interfere with federal aviation policy.
The question before the court was whether the act pre-empts suits by frequent flyers against an airline under state consumer laws or for breach of contract. American Airlines argued the claims came under the 'rates, routes, or services' exemption in the act, and that allowing them could subject airlines to massive aggregate liabilities. The Supreme Court agreed, ruling that claims under state consumer laws were barred - such state laws often allow punitive damages.
But it ruled that contract claims cannot be pursued as an enforcement of any state law. Thus, in a key distinction, the court refused to interpret the pre-emption clause 'to shelter airlines from suits alleging no violation of state-imposed obligations, but seeking recovery solely for the airline's breach of its own, self-imposed undertakings.'
'Terms and conditions airlines offer and passengers accept are privately ordered obligations,' the court explained, and a contract claim 'simply holds parties to their agreements.'
Without stating whether American in fact breached the terms of its frequent flyer programme, the court noted: 'Marketing efficiency requires effective means to enforce private agreements.'
Instead of turning such disputes over to the DOT, as American urged, the justices referred the case to a lower court to decide whether American had breached its frequent flyer programme by making retroactive changes. By barring suits based on state laws but allowing private contract claims, a majority of the court adopted the position urged by the US DOT.
Nothing in the court's ruling limits it to frequent flyer complaints. It appears to allow any contract claim against an airline. This has raised concerns about the clarity with which the court can distinguish between state imposed obligations, which are pre-empted, and privately imposed obligations, which are not.
The Air Transport Association predicts passengers will now try to characterise a variety of claims as contract disputes, and the coming debate will be over whether they are really that or consumer protection claims in disguise.
The Air Transport Association predicts passengers will now try to characterise a variety of claims as contract disputes, and the coming debate will be over whether they are really that or consumer protection claims in disguise.
Source: Airline Business
