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Flight Centre cops huge $12.5 million price-fixing fine

April 5, 2018 Headline News No Comments Email Email

Following a long-running legal battle with the Australian Competition and Consumer Commission (ACCC), Australia’s largest travel retailer has gone down hard, with the Full Federal Court of Australia yesterday ordering Flight Centre to pay AUD 12.5 million for trying to induce three international airlines to enter into price fixing arrangements between 2005 and 2009.

To protect its “price beat guarantee”, Flight Centre sought to have each airline agree not to offer airfares on its own website that were less than those offered by Flight Centre.

The matter was remitted to the Full Federal Court for determination of penalty, following the ACCC’s successful appeal to the High Court of Australia in December 2016.

The AUD 12.5 million in penalties imposed yesterday is a 13.6% increase from the original AUD 11 million imposed on Flight Centre by the trial judge in March 2014. Both the ACCC and Flight Centre appealed those penalty orders.

“The ACCC appealed from the initial AUD 11 million penalty orders because it considered that this level of penalty was inadequate to achieve a strong deterrence message for Flight Centre and other businesses,” ACCC chairman Rod Sims said.

The case arose over approaches Flight Centre made to Malaysia Airlines, Singapore Airlines and Emirates asking the airlines to commit to “allowing us a margin to operate”.

One email from Flight Centre said: “As you know, our consultants are paid 50% based on commission on profit. The less margin, the less likely a consultant will want to sell it, it stands to reason.”

In yesterday’s judgement, Justices James Allsop, Jennifer Davies and Michael Wigney said: “The three airlines in question, on websites run by them, sold tickets directly to the public at a price lower than the fare published to travel agents, including Flight Centre.

“This required Flight Centre, if it were to beat that price, to sell the ticket, on behalf of the airline, at a price which either reduced or eliminated its commission or margin, depending upon the extent of the difference. Thus, by this pricing, the principal airline could erode the agreed commission and margin of its agent, at least in so far as the agent gave the public its guarantee to beat the price of anyone else.

“Further, the publication of this price on the airline website might well encourage a customer to deal directly with the airline and, perhaps, not even approach, or thereafter return to, a travel agent such as Flight Centre.

“Flight Centre took exception to this conduct, and on six occasions sought to persuade the three airlines to cease the practice, or at least, as other airlines apparently did, give it the benefit of the same effective price so that its business margins were not degraded.”

The court ordered that:

Flight Centre be ordered to pay to the Commonwealth of Australia by way of pecuniary penalty the following amounts in the total sum of AUD 12.5 million in respect of contraventions of the (Commonwealth) Trade Practices Act 1974 (now the Competition and Consumer Act 2010) respectively specified below:

(i)    Second contravention        AUD 2.5 million

(ii)    Third contravention           AUD 2.5 million

(iii)    Fourth contravention        AUD 2.5 million

(iv)    Fifth contravention           AUD 2 million

(v)    Sixth contravention           AUD 3 million

The matter of costs has still to be decided.

Commenting after the case, ACCC chairman Sims noted that Flight Centre was Australia’s largest travel agency, with AUD 2.6 billion in annual revenue.

“We will continue to argue for stronger penalties which we consider better reflect the size of the company, as well as the economic impact and seriousness of the conduct,” Sims said.

“Significant, large penalties act also as a general deterrent to other businesses that may be considering such conduct themselves.

“The ACCC wants to ensure that penalties for breaches of competition laws are not seen as an acceptable cost of doing business. To achieve deterrence, we need penalties that are large enough to be noticed by senior management, company boards, and also shareholders.”

The Full Court’s penalty decision comes just a week after the OECD released a report which found penalties for breaches of competition law are significantly lower in Australia than other comparable OECD jurisdictions. The ACCC said the report provided valuable insight for discussion about the future of penalties in the context of competition law in Australia.

The full Federal Court of Australia Judgement may be read here. 

Federal Court proceedings

March 2012

The ACCC instituted proceedings against Flight Centre in 2012, alleging that on six occasions Flight Centre attempted to enter into arrangements with Singapore Airlines, Malaysia Airlines, and Emirates in relation to the price of international air fares offered online that were cheaper than Flight Centre.

March 2014

Flight Centre was ordered to pay penalties totalling AUD 11 million. The Court found that Flight Centre had attempted to induce anti-competitive arrangements or understandings with the airlines to prevent them from offering international air fares on their websites which undercut the fares for those flights which were being offered by Flight Centre.

Full Court of the Federal Court

May 2014

Flight Centre appealed to the Full Court of the Federal Court from Justice Logan’s liability and penalty decisions, and the ACCC lodged a cross-appeal in relation to the penalties imposed.

The Full Court allowed Flight Centre’s appeal and dismissed the ACCC’s cross-appeal.

The Full Court found that Flight Centre and the airlines did not compete with each other in a market for distribution and booking services.

High Court of Australia

March 2016

The ACCC filed an application seeking special leave to appeal to the High Court.

December 2016

The High Court heard the case in July 2016 and delivered judgment on 14 December 2016. The High Court found the relevant market in which the conduct occurred was the market for the sale of international airline tickets. The High Court found that Flight Centre and the airlines did compete in that market, and that Flight Centre had attempted to induce anti-competitive arrangements with the airlines.

The High Court remitted the matter to the Full Federal Court for determination of the penalty appeal and cross-appeal brought by the parties.

Full Court of the Federal Court

May 2017 

The Full Federal Court heard the penalty appeal and cross-appeal.

April 2018 

Flight Centre was ordered to pay penalties totalling AUD 12.5 million.

Written by Peter Needham

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