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Court clobbers Flight Centre with $11 million fine

March 31, 2014 Corporate, Headline News 1 Comment Email Email

egtmedia59The Federal Court has fined Flight Centre heavily for trying to fix prices for international flights with three airlines.

Flight Centre, reported as saying it might challenge the ruling, has been ordered to pay AUD 11 million for trying to prevent Singapore Airlines, Emirates and Malaysia Airlines from offering cheaper flights than its own airfares between 2005 and 2009. No allegations were made by the Australian Competition and Consumer Commission (ACCC)  against those three airlines.

The ACCC had sought 10% of Flight Centre’s relevant annual turnover as a penalty, rather than AUD 10 million.

Flight Centre says it complies with the law and changed its business practices after the Australian Competition and Consumer Commission (ACCC) launched an investigation into the price fixing attempts in 2009.

The ACCC said the Federal Court imposed the AUD 11 million fine against Flight Centre “for repeatedly attempting to enter into anti-competitive arrangements with three international airlines to eliminate differences in the international air fares offered to customers, in proceedings brought by the Australian Competition and Consumer Commission”.

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.

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 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.

“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.  Justice Logan observed that Turner had direct and personal involvement in the sixth contravention.

Justice Logan 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 AUD 11 million were imposed on Flight Centre in relation to five of the established breaches.

“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”, Sims said.

“In 2007, the penalty provision was amended to increase applicable maximum penalties beyond AUD 10 million in certain circumstances. 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,” Sims said.

Section 76(1A)(b) of the CCA provides that the maximum penalty for each contravention is the greatest of AUD 10 million, or 3 times of the value of benefit or, where that cannot be determined,  10% of annual turnover, for conduct from 1 January 2007.

Written by Peter Needham

Currently there is "1 comment" on this Article:

  1. AgentGerko says:

    Airlines expect agents to do all the work for them but then offer cheaper fares through their websites than they will allow agents access to. All FC was asking was access to the same ares that the public already had access to. Imagine Toyota having a website that sold their cars cheaper than you could buy from their dealers. There are some very scabby airlines out there who want it both ways; they want support from travel agents but aren’t prepared to give support back.

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