Australian High Court in Landmark Ruling on Attempted Price Fixing Between Travel Agent and Airlines

The Australian High Court recently upheld an appeal by the Australian competition regulator (“the ACCC”) that a travel agent Flight Centre (“Flight Centre”) engaged in attempted price fixing in contravention of the Trade Practices Act 1974 (“TPA”) now the Competition and Consumer Act 2010 (“CCA”) when it attempted to prevent several airlines from undercutting it on airfare prices. The High Court decision was a majority decision of 4:1.

The judgment is interesting from several perspectives not least in that it departs from the traditional view that a principal and agent will not be in competition with each other for the purposes of competition law. It also broadened the concept of the relevant market for international passenger airline services.

The court held that Flight Centre was “in competition” with certain airlines (Singapore Airlines, Malaysian Airlines and Emirates) thereby breaching the prohibition against price fixing under the TPA when it attempted to induce those airlines not to sell tickets directly to customers on the websites at prices which were cheaper than those offered by Flight Centre. The High Court concluded that Flight Centre and the airlines were in competition with each other in the market “for supply of contractual rights to international air carriage via the sale of airline tickets”. The High Court found that Flight Centre competed with those airlines in that particular market, notwithstanding it was appointed as agent with authority to sell tickets on behalf of the airlines.  The ACCC had succeeded at first instance in the Federal Court but Flight Centre had been successful on appeal to the Full Federal Court (“FFC”) with the FFC finding that Flight Centre was not in competition with its airline principals.

The leading judgment held that an agent’s relationship is not inherently inconsistent with an agent and principal being in competition with each other and that whether they were in competition with each other will depend on the scope of the agent’s authority and the extent to which it is constrained by a duty of loyalty to the principal.  This will involve a detailed consideration of the commercial nature of the relationship between the principal agent including the terms and conditions of the agency agreement.

It was particularly relevant in this case that under the agency agreement Flight Centre had the power to set prices for tickets at any price and was not obliged to act in the interests of the airlines when exercising this power.

The case has been remitted to the Full Federal Court for determination of penalty.

The High Court judgment has significant ramifications for the travel industry and other industries that use agency structures as part of their dual distribution arrangements.

The ACCC has indicated that it will consider taking further action in relation to other principal and agency relationships where companies use online agents and also sell directly. While not all agents will necessarily be in competition with their principals, the more freedom an agent has in terms of prices to act in its own interest, the more likely will be the agent to be a competitor of its principal for the purposes of Australian Competition Law.

Interestingly the judgment is an indication of the ACCC’s recent robust strategy of enforcing the pro-competition principles in the CCA in the international transport sector, which has included prosecutions against airlines and shipping conferences for operating cartels in breach of Australian competition law. Proposed amendments to the CCA should make it easier for the ACCC to enforce competition law.

Post by Derek Luxford

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