When is an agent an agent? Anti Competition in Flight Centre Limited v Australian Competition and Consumer Commission
March 2016
Summary
It is not uncommon, but aggravating for travel agents to find that an airline, shipping or rail company whose products the agent markets directly sells the same product at a discounted rate to your clients such that the agent is undercut and cannot compete. Most agents do not have the negotiating strengths of Flight Centre, but it is interesting to see that company’s response.
Flight Centre’s solution was to introduce a price fixing clause into their agent agreements with the airlines. Flight Centre was challenged by the Australian Competition and Consumer Commission (ACCC), and the issue determined by the full Federal Court in Flight Centre Limited v Australian Competition and Consumer Commission [2015] FCAFC 104.
The Court held that it is not a breach of anti competition laws for a travel agent and an airline to enter an agreement to the effect that the airline will not sell directly to passengers at a price which is lower than the published Global Distribution System (GDS) fare.
The facts
Like many travel agents, Flight Centre sells airline tickets to passengers on behalf of a number of airlines. In return for marketing each airline, Flight Centre receives a commission for the sale of each ticket. This commission is the difference between the GDS fare published by the airline for the sale of the ticket plus relevant taxes and the price Flight Centre sell the ticket for to the passenger. Naturally, where the margin between the GDS fare and the amount charged to the passenger by Flight Centre is reduced, so too is the commission Flight Centre receives for the sale.
It is the case that, in addition to distributing tickets through travel agents, airlines also sell tickets direct to the public via their own websites, call centres and airport check in counter.
In the mid 2000s, Flight Centre began to find that the airlines were selling tickets to passengers at the GDS fare or less. At the time, Flight Centre offered a price beat challenge to their customers and consequently found that, to beat the price offered by the airlines directly, they would either be selling the ticket to the passenger at the GDS fare or less – resulting in a loss to Flight Centre.
To address this problem, between August 2005 and May 2009, Flight Centre sent emails to Singapore Airlines, Malaysia Airlines and Emirates essentially requesting that the airlines agree not to offer fares direct to the public that were less than the GDS fare plus a certain percentage to account for taxes and commission.
The ACCC alleged this conduct was in breach of anti competition law and commenced proceedings in the Federal Court. At first instance, the primary judge agreed, finding that as the airlines and Flight Centre both conducted business in the market for “distribution and booking services in respect of available international air travel” they were in direct competition with one another. Flight Centre appealed this decision to the Full Court.
The Decision
As stated above, the Full Court overturned the decision of the primary judge and found the agreement Flight Centre sought to enter with the airlines to prevent them from offer reduced fares direct to the public was not in breach of anti competition law. The Court reached this decision on the basis that their Honours considered that, although on its face there appeared to be competition between the airlines and Flight Centre for the net profit made on the sale of each fare, in reality the airlines and Flight Centre did not compete in the same market. Put simply, the airlines were supplying flights, while Flight Centre was supplying agency services to the airlines; therefore, being the airlines’ agent rather than a competitor, any agreement between Flight Centre and the airlines to fix pricing would not reduce either Flight Centre or the airlines’ competition in the market place.
How does this affect me?
It may be worth considering whether, under your current agreements with transport, accommodation and other service providers, there is a risk your commission margins may be negatively affected by the activities of the provider selling direct to the public in addition to using you as an agent
Although it will depend on your individual circumstances, where there is a risk your commission may be adversely affected by the activities of a provider and the issue is not already dealt with by your contract with that provider you should seek appropriate legal advice about the possibility of varying your contract to address this potential issue. Likewise, if you are not sure whether you are acting as an agent in selling a particular product or in another capacity (for example, as a reseller), or if you have any other questions, you should seek legal advice. As mentioned below, we can assist.
Where can I find more information?
You can read the judgment in its entirety on the Federal Court’s website or through AustLII.
It is not uncommon, but aggravating for travel agents to find that an airline, shipping or rail company whose products the agent markets directly sells the same product at a discounted rate to your clients such that the agent is undercut and cannot compete. Most agents do not have the negotiating strengths of Flight Centre, but it is interesting to see that company’s response.
Flight Centre’s solution was to introduce a price fixing clause into their agent agreements with the airlines. Flight Centre was challenged by the Australian Competition and Consumer Commission (ACCC), and the issue determined by the full Federal Court in Flight Centre Limited v Australian Competition and Consumer Commission [2015] FCAFC 104.
The Court held that it is not a breach of anti competition laws for a travel agent and an airline to enter an agreement to the effect that the airline will not sell directly to passengers at a price which is lower than the published Global Distribution System (GDS) fare.
The facts
Like many travel agents, Flight Centre sells airline tickets to passengers on behalf of a number of airlines. In return for marketing each airline, Flight Centre receives a commission for the sale of each ticket. This commission is the difference between the GDS fare published by the airline for the sale of the ticket plus relevant taxes and the price Flight Centre sell the ticket for to the passenger. Naturally, where the margin between the GDS fare and the amount charged to the passenger by Flight Centre is reduced, so too is the commission Flight Centre receives for the sale.
It is the case that, in addition to distributing tickets through travel agents, airlines also sell tickets direct to the public via their own websites, call centres and airport check in counter.
In the mid 2000s, Flight Centre began to find that the airlines were selling tickets to passengers at the GDS fare or less. At the time, Flight Centre offered a price beat challenge to their customers and consequently found that, to beat the price offered by the airlines directly, they would either be selling the ticket to the passenger at the GDS fare or less – resulting in a loss to Flight Centre.
To address this problem, between August 2005 and May 2009, Flight Centre sent emails to Singapore Airlines, Malaysia Airlines and Emirates essentially requesting that the airlines agree not to offer fares direct to the public that were less than the GDS fare plus a certain percentage to account for taxes and commission.
The ACCC alleged this conduct was in breach of anti competition law and commenced proceedings in the Federal Court. At first instance, the primary judge agreed, finding that as the airlines and Flight Centre both conducted business in the market for “distribution and booking services in respect of available international air travel” they were in direct competition with one another. Flight Centre appealed this decision to the Full Court.
The Decision
As stated above, the Full Court overturned the decision of the primary judge and found the agreement Flight Centre sought to enter with the airlines to prevent them from offer reduced fares direct to the public was not in breach of anti competition law. The Court reached this decision on the basis that their Honours considered that, although on its face there appeared to be competition between the airlines and Flight Centre for the net profit made on the sale of each fare, in reality the airlines and Flight Centre did not compete in the same market. Put simply, the airlines were supplying flights, while Flight Centre was supplying agency services to the airlines; therefore, being the airlines’ agent rather than a competitor, any agreement between Flight Centre and the airlines to fix pricing would not reduce either Flight Centre or the airlines’ competition in the market place.
How does this affect me?
It may be worth considering whether, under your current agreements with transport, accommodation and other service providers, there is a risk your commission margins may be negatively affected by the activities of the provider selling direct to the public in addition to using you as an agent
Although it will depend on your individual circumstances, where there is a risk your commission may be adversely affected by the activities of a provider and the issue is not already dealt with by your contract with that provider you should seek appropriate legal advice about the possibility of varying your contract to address this potential issue. Likewise, if you are not sure whether you are acting as an agent in selling a particular product or in another capacity (for example, as a reseller), or if you have any other questions, you should seek legal advice. As mentioned below, we can assist.
Where can I find more information?
You can read the judgment in its entirety on the Federal Court’s website or through AustLII.
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Sarah Toomey Westcott
Senior Associate Bradfield & Scott Lawyers Telephone: 9233 7299 Email: swestcott@bradscott.com.au |
