The Full Court of the Federal Court of Australia has allowed an appeal by Flight Centre Travel Group Limited (Flight Centre) against a decision of the Federal Court in which Flight Centre was found to have attempted to induce anti-competitive arrangements with three international airlines to eliminate differences in international airfares offered to customers, and ordered to pay penalties totalling $11 million.
These proceedings concerned allegations by the Australian Competition and Consumer Commission (ACCC) that Flight Centre had attempted to induce a contravention of the price fixing provisions of the then Trade Practices Act 1974 (the Act), now called the Competition and Consumer Act 2010.
In December 2013, the Federal Court found that Flight Centre and certain airlines competed for the retail or distribution margin on the sale of airfares, and that on six occasions between 2005 and 2009, Flight Centre had sought to prevent certain airlines from undercutting it on international airfares. The Court held that this amounted to attempts to induce anti-competitive agreements. In March 2014 the Court ordered Flight Centre to pay penalties totalling $11 million.
The Full Court allowed Flight Centre’s appeal, finding that there was no separate market for booking and distribution services to consumers, and as a consequence that Flight Centre and the airlines did not compete with each other in such a market. Instead, the Full Court found that the supply of booking and distribution services was an ancillary part of the supply of international passenger air travel, in which Flight Centre acted as agent for the airlines.
As a consequence, the Full Court also dismissed the ACCC’s cross-appeal in relation to the size of the penalty ordered by the Federal Court.
Although the Full Court found that Flight Centre and the airlines were not in competition, the Full Court observed that the existence of an agency relationship between two parties does not always mean that those parties cannot be in competition with each other, as each case must be considered on its own facts.
ACCC Chairman Rod Sims said “the ACCC took this action because of its concern that Flight Centre’s conduct could harm competition and ultimately affect the prices available to consumers. If it had been successful in its conduct, Flight Centre’s actions were likely to have meant that consumers would not have seen the benefit of competition through lower ticket prices offered online by the airlines concerned”.
“Pursuing anti-competitive agreements and practices to protect consumers remains one of the ACCC’s enduring enforcement priorities.”
“The ACCC will carefully consider the judgment,” Mr Sims said.
Background
The ACCC instituted proceedings against Flight Centre in March 2012, alleging that six times between 2005 and 2009, Flight Centre attempted to enter into arrangements with Singapore Airlines, Malaysian Airlines and Emirates, in relation to international air fares.
Flight Centre has traditionally operated according to a ‘Price Beat Guarantee’, where Flight Centre would beat a cheaper airfare offered by its competitors by $1 plus a $20 voucher. As a result of the guarantee, Flight Centre was obliged to match the cheaper web fares of its competitors, which is some cases resulted in less revenue for Flight Centre.
The trial took place on 8-12 and 17 October 2012 and judgment was handed down on 6 December 2013.
The penalty judgment was handed down on in March 2014 in which orders were made that Flight Centre pay penalties totalling $11 million.
In April 2014, Flight Centre appealed the liability decision of December 2013, and the penalty imposed in March 2014. The ACCC lodged a cross-appeal in May 2014 arguing that four of the penalties imposed did not provide adequate deterrence given the findings about the nature of the conduct and the size and financial strength of Flight Centre. The appeal and cross-appeal was heard by the Full Federal Court on 20 November 2014.
Flight Centre Limited changed its name to Flight Centre Travel Group Limited in 2013.