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Flight Centre was accused by the ACCC of price fixing when it demanded that three international airlines agree not to offer discounted fares unless those same discounted fares were also made available to Flight Centre for sale to its customers. These demands were said to have the effect of fixing or controlling the price for the booking and distribution of international air travel. At first instance, the Federal Court found in favour of the ACCC, and imposed penalties on Flight Centre of $11 million.
On appeal, the Full Federal Court overturned this judgment, finding that it was not commercially realistic to separate booking and distribution from the sale of air travel more generally. The Full Court also found that the agency relationship between the airlines and Flight Centre meant that they were not in competition with each other in selling international air travel.
The majority in the High Court agreed that it was artificial to find that there was a separate 'booking and distribution' service. This was described by Justices Kiefel and Gageler as a case of 'economic theory doing violence to commercial reality'.
However, the majority rejected the finding of the Full Federal Court that the agency relationship between the airlines and Flight Centre meant they were not in competition with each other. The majority found that the terms of their agency relationship gave Flight Centre the ability to compete with airlines to sell airline tickets, including on price. While the parties may have been in an agency relationship, in reality they were in competition with each other, and were therefore capable of engaging in price fixing.
Firms will need to review existing arrangements wherever they use agents as one of their distribution channels, especially if they supply direct to customers in parallel with those agents. Agency arrangements will not necessarily be illegal in this situation, but if, in practice, the agent has the freedom to compete with the principal in offering the principal's products to customers, the Competition and Consumer Act will treat them as competitors. In this situation, both principals and agents will need to take care to ensure they do not collude in areas where they are in competition with each other.
Minter Ellison acted for the International Air Transport Association, which intervened in the appeal before the Full Federal Court and High Court.
I solve complex regulatory problems, specialising in competition and third-party access, market regulation, customs and international trade.
As the leader of the firm's Australasian Competition Group, I advise on risk from the access and restrictive trade practices provisions of Australia's Competition & Consumer Act, including misuse of market power and price fixing. I have achieved competition clearance for many major mergers, and manage risk for clients from regulatory investigations as well as defending enforcement action under competition and securities laws.
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