ACCC raises concerns at agreement of international interline fares between airlines

The Australian Competition and Consumer Commission today issued a discussion paper examining the agreement of international passenger fares between IATA (International Air Transport Association) member airlines.
 
The paper is one in a series of papers being issued as part of an ACCC review of immunity provided 20 years ago for a range of IATA activities.*

Most international airlines in the world are members of IATA, and IATA members account for more than 95 per cent of international scheduled air traffic.

Under the IATA passenger tariff system, the world's international airlines agree IATA passenger fares and associated conditions, including for example seasonality and children's fares, for interline travel on international aviation routes.  Interlining occurs where passengers need to travel on more than one airline to reach their destinations.

"The discussion paper identifies areas of competition concern in relation to IATA's tariff coordination activities", ACCC Chairman, Mr Graeme Samuel, said. "In particular there are concerns at the opportunity for competing airlines to share market knowledge at IATA Tariff Coordination Conferences, the impact of IATA fares agreed by competing airlines on certain categories of airline market fares, the flow-on effect of IATA seasonality periods, and the agreement between competing airlines of fare conditions including children's fares.

"The ACCC also questions the extent to which it should have regard to international air services agreements (ASAs) when assessing IATA tariff coordination activities. The ACCC notes that while IATA submitted that Tariff Coordination is required to meet many ASAs to which Australia is a party, that requirement has in practice substantially diminished over the past 20 years with the increasing liberalisation of the bilateral airways system.  Of the small number of ASAs still referring to IATA tariffs, few have practical regard for them".

IATA submitted to the ACCC that the primary benefit of IATA tariff coordination is that it enables multilateral interlining.  However, Mr Samuel said that the ACCC questions the extent of this benefit in today's aviation environment.

"The ability of passengers to travel between Australia and points overseas, and vice versa, without the need to purchase tickets at fares agreed by IATA members appears to have increased dramatically since IATA Tariff Coordination received authorisation in 1985.

"Greater destination access has occurred as a result of the combination of the liberalisation of air services agreements, expanded individual airline networks, the impact on airline networks of a proliferation of airline alliances at various levels including code shares, marketing alliances such as Star and oneworld, structured alliances such as the Joint Services Agreement between Qantas and British Airways, and special prorate agreements, such as those between Qantas and most international airlines visiting Australia, which enable their customers to access domestic destinations beyond hubs such as Sydney and Melbourne.

"More recently the arrival of low cost carriers has provided travellers with further options for reaching destinations beyond hubs readily accessed using market fares.

"Regardless of the destination access factor, information provided to the ACCC by industry participants suggests that IATA interline fares are rarely purchased by leisure passengers, and only with low frequency by business travellers.  These comments are consistent with the
observed high levels of IATA interline fares which are unlikely to be attractive to price sensitive leisure travellers and therefore unlikely to generate any tourism benefits".

Overall, in light of the developments in aviation and the limited use of IATA fares, the discussion paper questions the extent of public benefits claimed by IATA, including access to through-fares, access to connecting services and baggage connectivity.

Mr Samuel said that IATA Tariff Coordination discussion paper represents an important element in the ACCC's review of the authorisation currently granted to IATA and the ACCC was looking forward to a wide range of responses from parties operating within the aviation industry or affected by it.

The ACCC is asking for submissions from interested parties on the issues identified in the discussion paper to be lodged by 30 August 2005.  The ACCC will then consider these submissions when preparing a draft determination.

The discussion paper is available on the ACCC website.

*The Trade Practices Act 1974 prohibits certain forms of anti-competitive agreements, including agreements between competitors that limit their ability to deal with whom they choose or on the terms they chose (including price). Authorisation provides immunity from court action under the Act arising from such agreements but can only be granted where the ACCC is satisfied that the public benefit flowing from the conduct outweighs any public detriment.

The ACCC can also grant an application revoking an existing authorisation and granting a substitute authorisation when the public benefit from the conduct under the substitute authorisation outweighs the anti-competitive detriment.

Background

Authorisation A90435 was granted by the then Trade Practices Commission, on 24 December 1985.  Authorisation was granted to IATA in respect of certain rules, regulations, agreements and resolutions made by it as part of its role in the co-ordination of procedures and arrangement for the international movement of people and goods by air.

In November 2002 IATA lodged application A90855 seeking revocation of authorisation A90435 and its substitution by a new authorisation in respect of the contracts, arrangements, understandings and conduct which constitute:

• the IATA Cargo Agency System
• the IATA Scheduling System
• the IATA Prorate System
• the IATA Services System (passenger and cargo)
• the IATA Clearing House System, and
• the IATA Tariff System (passenger and cargo).

IATA has provided submissions to the ACCC in relation to each of these areas of conduct. Due to the complexity and range of conduct covered by the application, the ACCC has decided to release a series of discussion papers, each dealing with a specific component of the conduct for which authorisation is sought and examining substantive issues raised in that conduct. 

The ACCC will consider submissions made by interested parties in response to the discussion papers when preparing one or more draft determinations which consolidate the ACCC's views on the full range of conduct covered by the Application.