Supreme Court Rules on Airline Ad Regulation

Article excerpt

As the summer airfare wars heat up, the U.S. Supreme Court has handed down a decision that takes the issue of airline advertising regulation out of the hands of the individual states.

In its 5-3 decision in Morales, Attorney General of Texas v. Trans World Airlines Inc., the Court found that certain provisions of the Airline Deregulation Act (ADA) of 1978 do not allow the states to regulate allegedly deceptive airlines ads through general consumer protection statutes.

Writing for the court, Justice Antonin Scalia explained that the key phrase in the ADA is "relating to," as the ADA pre-empts states from "enact[ing] or enforc[ing] any law, rule, regulation, standard, or other provision having the force and effect of law relating to rates, routes, or services of any air carrier ...."

In 1987, the National Association of Attorneys General developed guidelines for airline advertising that regulated, among other things, the specific, detailed fare and travel requirements that must be included in all ads.

Attorneys general in Texas, California, New York, Massachusetts, and Washington notified TWA, Continental, and British Airways in 1988 that some of their advertising violated the guidelines.

TWA and British Air sued in 1989 to block enforcement of the law in Texas, where the attorney general had threatened prosecution under the state deceptive trade practices act.

The state argued that it had the authority to regulate the advertising under its consumer protection laws, but the company maintained that, since the advertising related to rates, it fell under the jurisdiction of federal authorities.

The airlines prevailed in the lower courts and in the Supreme Court.

"Although the state insists that it is not compelling or restricting advertising but is, instead, merely preventing the market distortion caused by |false' advertising, in fact the dynamics of the air transportation industry cause the guidelines to curtail the airlines' ability to communicate fares to their customers ..." Justice Scalia wrote.

"In order to this marketing process to work, and for it ultimately to redound to the benefit of price-conscious travelers, the airlines must be able to place substantial restrictions on the availability of the lower price seats (so as to sell as many seats as possible at the higher rate), and must be able to advertise the lower fares ..." Justice Scalia explained.

"All in all, the obligations imposed by the guidelines would have a significant impact upon the airlines' ability to market their product and hence a significant impact upon the fares they charge," he continued. …