UPDATE 2-Ads for plane tickets must show real cost-U.S. court
* U.S. appeals court upholds transparency rules for airlines
* Consumer groups, airlines split on what is deceptive
By David Ingram
WASHINGTON, July 24 (Reuters) - Airlines can no longer understate the cost of a plane ticket by leaving taxes and government fees out of their advertised rates, under new rules that won U.S. court approval on Tuesday.
The rules are designed to make travel advertising more transparent by telling customers the total cost of a ticket, including all mandatory taxes and fees.
A U.S. appeals court turned aside a challenge to the rules brought by Allegiant Travel Co, Southwest Airlines Co and Spirit Airlines Inc, and supported by the industry's trade association.
The rules, which the U.S. Transportation Department finalized in 2011, say that any price shown in an advertisement must be "the entire price to be paid by the customer."
Consumer groups supported the idea and wanted to go even further, taking into account optional but common costs such as baggage fees.
Under the rules, airlines can give a separate breakdown of taxes and other costs, but it must be in a smaller size than the total cost and not "displayed prominently."
The companies told the court their preferred practice of advertising base fares is not deceptive, and that they have the freedom under U.S. speech rights to tell consumers as prominently as they wish what the taxes are.
A 2-1 court majority sided with the government.
Evidence in the dispute "sufficiently support the intuitive conclusion that customers are likely to be deceived by price quotes significantly lower than the actual cost of travel," Judge David Tatel of the U.S. Court of Appeals for the District of Columbia Circuit wrote for the majority.
In a dissenting opinion, Judge Raymond Randolph wrote that the rules effectively require airlines to bury tax information in the fine print, with no clear benefit for consumers.
As long as taxes and total cost are labeled, he wrote, "only a fool would confuse or misunderstand the two."
Taxes and government fees make up about 20 percent of a ticket's total price, Randolph wrote.
Southwest spokesman Chris Mainz said the company's advertising has complied with the rules since January, "so while we're disappointed in the court's decision, it has no further impact on us."
Spirit spokeswoman Misty Pinson said the airline industry is "already over-regulated and over-taxed" and that Americans will pay more for air travel as a result. Spirit has been complying with the rules, she said.
The airlines had no immediate comment on a possible appeal.
Kate Hanni, director of flyers' rights for FlyersRights.org, said the new disclosures should have been mandatory all along. "It's just completely deceptive not to tell people what the full cost of their ticket is," she said.
The court unanimously upheld two other rule changes that Allegiant and Spirit, but not Southwest, challenged: a requirement that customers be able to cancel tickets without penalty within 24 hours of purchase, if they bought more than a week in advance; and a prohibition against raising costs like baggage fees after a customer has bought tickets.
Allegiant and the U.S. Transportation Department did not immediately respond to requests for a comment on the ruling.
In afternoon trading, Allegiant shares were down about 2.7 percent; Southwest, down some 2.2 percent; and Spirit's shares fell about 1.7 percent. U.S. markets were lower overall.
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