Flight Centre Loses ACCC Case
Tuesday 10 December 2013 @ 10.18 a.m. | Trade & Commerce
The Federal Court has held that on six occasions Flight Centre attempted to enter into arrangements with airlines which sought to eliminate differences in air fares so as to fix, control or maintain Flight Centre’s retail or distribution margin. The Commission alleged such arrangements would have lessened competition in the market for the distribution and booking and retail sale of international air fares from Australia.
Logan J found that on each of the occasions, Flight Centre attempted to induce a contravention of s 45 of Trade Practices Act 1974 (now the Competition and Consumer Act 2010 (Cth)).
The Case
The Australian Consumer and Credit Commission (ACCC) instituted proceedings against Flight Centre in 2012, alleging that six times between 2005 and 2009, Flight Centre attempted to enter into arrangements with international airlines, Singapore Airlines, Malaysian Airlines and Emirates, in relation to international air fares. It should be noted that no allegations were made against the airlines.
As part of its case, the ACCC argued that as Flight Centre's prices include both its commission and the cost of the flight, and that by discouraging airlines from selling below this price it had the effect of preventing competition between Flight Centre and the airline's internal sales divisions.
Flight Centre Chief, Graham Turner said that when the case was first brought against the travel company last year, he was adamant he wouldn't seek a settlement.
"We‘ll fight this to the end. There’s no way we’d contemplate a settlement. We need to look after our customers and ensure they have the best fares. We make no apology for that."
Turner was overseas when the judgment was delivered and was unable to comment, but in a written statement, he signalled his intention to continue fighting the case.
“Having access to all offers is a logical and natural business request for an agent to make to ensure the customers it serves are not disadvantaged. [The] ruling is likely to have implications for the travel industry and for many retailers and agents in other sectors.”
In a statement to the Australian Securities Exchange, Flight Centre indicated it would appeal the Federal Court ruling.
“Based on a preliminary analysis of the judge’s findings, the company believes there are errors of law that will form the basis of its appeal. The company does not expect the test case ruling to affect its operations or its business model, as the focus was on a narrow area of activity between 2005 and 2009.”
The case was largely decided on internal and external Flight Centre emails, many of them written by Turner, which Logan J said showed Flight Centre and the airlines were in clear competition with each other, and thus an attempt to reach an agreement on pricing was price-fixing.
One email, sent to Singapore airlines, made reference to instances where the airline had “undercut” Flight Centre's prices.
“These reduced margins this year have made it difficult at times for us... [and] recognition of this issue will help us to achieve our collective goals.”
Flight Centre's lawyers argued it was not in direct competition with the airlines. But based on the emails, Justice Logan disagreed. Michael Terceiro, a legal consultant and former ACCC lawyer who worked on the ACCC's case against Flight Centre, says Turner appears to have “shot himself in the foot” with the emails.
“Justice Logan made quite a big deal of internal Flight Centre documents, which he said showed a competitive mindset.”
By basing his judgment on such documents, Logan J has made it difficult for Flight Centre to appeal, Terceiro added. In an appeal, Flight Centre wouldn't be able to have the evidence re-evaluated, but would instead have to base its argument on a point of law. If the ruling, however, was largely based on evidence, it narrows the scope of an appeal.
Proposed Penalties
Penalties for price-fixing behaviour can be hefty. At a penalty hearing, Logan J will decide between a penalty of $10 million, 10 per cent of Flight Centre's yearly revenue, or three times the financial gain from the price-fixing.
Flight Centre was not successful in its price-fixing attempts, which leaves the first two potential penalties. "It is quite likely the ACCC will push for Flight Centre to be fined 10 per cent of its revenue", Terceiro says.
TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.
