$11 million Penalties Imposed on Flight Centre
Thursday 3 April 2014 @ 9.22 a.m. | Trade & Commerce
On 28 March 2014, the Federal Court made declarations and ordered that Flight Centre pay penalties totalling $11 million for repeatedly attempting to enter into anti-competitive arrangements with three international airlines[1] to eliminate differences in the international air fares offered to customers, in proceedings brought by the Australian Competition and Consumer Commission (ACCC).
The Judgment
In a judgment handed down on 6 December 2013, the Court found that Flight Centre competed with international airlines for the retail or distribution margin on the sale of international air fares and that, between 2005 and 2009, Flight Centre had sought on six occasions to prevent certain airlines from undercutting it on these air fares (ACCC v Flight Centre Limited (No 2) [2013] FCA 1313 (6 December 2013).
As a consequence, the Court held that Flight Centre had attempted to induce an anti-competitive arrangement to eliminate differences in air fares so as to maintain Flight Centre’s margins on each of those six occasions.
The Conduct of Flight Centre
The Court found that Flight Centre’s conduct, which extended over a period of four years, formed part of:
“…a concerted pattern of reactive corporate conduct by Flight Centre, reactive to a threat it perceived to be presented by the direct retail offering by airlines of air travel at fares it could not offer to retail customers, as opposed to a series of unrelated, isolated, idiosyncratic aberrations … and carried with it “the aggravating, adverse consequence of denying a would-be passenger a lower fare for air travel which the airline supplies”.”
Justice Logan stated that he considered the emails sent in 2009 by Flight Centre Chief Executive and Managing Director Graham Turner evidenced “the most blatant of all the charged attempts to induce.”
ACCC Chairman Rod Sims welcomed the Federal Court’s findings of contraventions by Flight Centre and said:
“The ACCC took this action because it was concerned about the potential effect of Flight Centre’s conduct on competition and its ultimate impact upon the prices available to consumers. The Court’s finding that Flight Centre’s conduct attempted to eliminate differences in the international air fares offered to consumers demonstrates the ACCC’s concern was well-founded.”
In his December judgment, Justice Logan observed, as a crucial fact, Flight Centre’s promotion of its corporate pricing policy which operated throughout the period, known as its “Price Beat Guarantee”. The ACCC submitted that despite the representations being made to the public, Flight Centre had engaged in concerted attempts to remove other cheaper airfares from being made available to consumers in the first place. The involvement of senior management in the contraventions was also a significant factor. Logan J observed that Mr Graham Turner, Chief Executive Officer and Managing Director of Flight Centre, had direct and personal involvement in the sixth contravention.
Logan J stated that:
“there is no doubt in the present case that commercial profit was the ‘driver’ in Flight Centre’s contravening conduct. Further, it is the nature of such conduct that it is not engaged in in public. Its detection is almost invariably difficult and its investigation and related litigation involves the allocation of considerable public resources”.
Penalties totalling $11 million were imposed on Flight Centre in relation to five of the established breaches [2] .
The ACCC Chairman said:
“Although pleased with the findings on liability, it is disappointing that, on the basis of a pleading issue, Logan J rejected the ACCC’s submissions that the applicable maximum for each of the 3rd to 6th contraventions was 10% of Flight Centre’s relevant annual turnover, rather than $10 million.
In 2007, the penalty provision was amended to increase applicable maximum penalties beyond $10M in certain circumstances.[3] Logan J found that the new maximums were not available by reason of a pleading issue. As the higher maximum penalty was found not to be applicable in this matter, the ACCC still does not have a precedent from a contested matter applying penalty on that basis.
The ACCC believes that significant penalties for contraventions of Australia’s competition laws serve an important deterrence function.”
Flight Centre to appeal Federal Court Decision
In recent a development, it has been reported that Flight Centre will appeal the judgment and may appeal the penalties. The managing director of Flight Centre, Graham Turner, said in a statement the outcome was “disappointing” and the travel agency chain had already made changes to its business which the judgment required.
Footnotes
[1] Singapore Airlines, Emirates and Malaysia Airlines. No allegations were made by the ACCC against these airlines.
[2] No pecuniary penalty was imposed for the first contravention, as it occurred more than six years before the commencement of the proceeding.
[3] Section 76(1A)(b) of the CCA provides that the maximum penalty for each contravention is the greatest of $10million, or 3 times of the value of benefit or, where that cannot be determined, 10% of annual turnover, for conduct from 1 January 2007.
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Sources:
ACCC v Flight Centre Limited (No 2) [2013] FCA 1313 (6 December 2013)
ACCC Media Release 066/14
Article from smartcompany.com.au
