Australian Competition and Consumer Commission v Flight Centre Ltd (No 2)
[2013] FCA 1313
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Flight Centre Limited (No 2) [2013] FCA 1313
Citation: Australian Competition and Consumer Commission v Flight Centre Limited (No 2) [2013] FCA 1313 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v FLIGHT CENTRE LIMITED ACN 003 377 188 File number: QUD 177 of 2012 Judge: LOGAN J Date of judgment: 6 December 2013 Catchwords: TRADE PRACTICES – anti-competitive arrangements – whether the respondent travel agent attempted to induce specified Airlines to make collusive arrangements lessening or likely to lessen competition in the market – application of s 45 and s 45A of the Trade Practices Act 1974 (Cth), now the Competition and Consumer Act 2010 (Cth) – six alleged contraventions – consideration of the relevant “market” in intermediary services provided by travel agents – whether respondent and airlines truly in competition – consideration of the relevant service being supplied – Castlemaine Tooheys Ltd v Williams and Hodgson Transport Pty Ltd (1986) 162 CLR 395 distinguished
Held: six charges proved – respondent and specified airlines competed for the retail or distributive margin attaching to the sale of an airline ticket – respondent sought to have access to the airfares offered by airlines, and, it sought to prevent the specified airlines from undercutting it with respect to such airfares, amounting to an attempt to induce anti-competitive arrangement or understanding
Legislation: Competition and Consumer Act 2010 (Cth)
Evidence Act 1995 (Cth) s 140
Trade Practices Act 1974 (Cth) ss 4, 4D, 4E, 45, 45A, 76, 155
Travel Agents Act 1988 (Qld)Cases cited: Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (1999) 92 FCR 375
Australian Competition and Consumer Commission v Dell Computer Pty Ltd (2002) 126 FCR 170 considered
Australian Competition & Consumer Commission v IMB Group Pty Ltd (ACN 050 411 946) (in liq) [2002] FCA 402 distinguished
Australian Competition & Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 distinguished
Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 considered
Australian Competition and Consumer Commission v SIP Australia Pty Limited [2002] ATPR 41-877 considered
Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd (2011) 196 FCR 212 considered
Australian Gas Light Company v Australian Competition and Consumer Commission (2003) 137 FCR 317 followed
Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 considered
Briginshaw v Briginshaw (1938) 60 CLR 336 applied
Castlemaine Tooheys Limited v Williams and Hodgson Transport Pty Ltd (1986) 162 CLR 395 distinguished
Commonwealth of Australia v Sterling Nicholas Duty Free Pty Ltd (1972) 126 CLR 297 considered
Re Fortescue Metals Group Ltd (2010) 242 FLR 136 considered
Re Tooth & Co Ltd (1979) 39 FLR 1 applied
Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 considered
Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 42 FLR 331 considered
Trade Practices Commission v Parkfield Operations Pty Ltd (1985) 3 FCR 140
Trade Practices Commission v Parkfield Operations Pty Ltd (1985) 7 FCR 534 considered
Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 1 consideredHeydon JD, Trade Practices Law (Lawbook Co., subscription service) at [4.810] (update 85)
Date of hearing: 8-12 October 2012
17 October 2012Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 198 Counsel for the Applicant: Mr K Wilson SC with Mr M Hodge Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr S Doyle SC with Mr P Franco and Mr D Clarry Solicitor for the Respondent: King & Wood Mallesons
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 177 of 2012
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: FLIGHT CENTRE LIMITED ACN 003 377 188
Respondent
JUDGE:
LOGAN J
DATE OF ORDER:
6 DECEMBER 2013
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.The parties are directed to bring in short minutes of orders to give effect to the conclusions reached in these reasons for judgement as to the basis upon which the applicant has proved the contraventions alleged.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 177 of 2012
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: FLIGHT CENTRE LIMITED ACN 003 377 188
Respondent
JUDGE:
LOGAN J
DATE:
6 DECEMBER 2013
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Flight Centre Limited (Flight Centre) is the parent company in a group of associated companies which are involved in the travel and leisure industries. That involvement includes the operation of a well known travel agency business in Australia and elsewhere in the world. This case concerns certain conduct in the Australian operations of that business. The public face of that business includes some 800 (T.347) retail, travel agency shop fronts located throughout Australia.
Flight Centre’s corporate headquarters is located in Brisbane. It holds the requisite licence under the Travel Agents Act 1988 (Qld) to carry on business as a travel agent in Queensland. It is likewise licensed under the equivalent legislation of the other States and Territories to carry on that same business in those places.
Between August 2005 and March 2009 (the material period) Flight Centre provided a range of travel agent services to its customers. In that period, one of the services Flight Centre offered to a customer was the booking of international air travel and the receipt of the related air fare. Flight Centre provided this service of booking international air travel and receiving payment for that travel via direct contact with customers at its shop fronts, by telephone dealings with them and via the internet. During the material period and so far as international air travel booking was concerned, its internet dealings with its customers concerned air travel to and from New Zealand; since then, its range of international air travel destinations available via the internet booking has broadened. Flight Centre earned income from the provision of this service via commissions from airlines and, sometimes, via a service fee paid by a customer.
During the material period, it was (and remains) also possible to book and pay for international air travel directly with airlines.
The Australian Competition and Consumer Commission (the Commission) alleges that, on six occasions during the material period and contrary to s 76 of the Trade Practices Act 1974 (Cth) (since amended and renamed the Competition and Consumer Act 2010 (Cth) – “the TPA”), Flight Centre engaged in conduct which constituted an attempt to induce a specified airline to contravene s 45 of that Act, as construed and applied in light of s 45A.
Axiomatically, this case must be decided by reference to the terms of these provisions of the TPA and the facts found in respect of the particular contraventions of those provisions alleged in the pleadings. The following introductory statement as to the general nature of the claim made by the Commission and the defence made by Flight Centre is subject to that necessary caveat.
The Commission claims that Flight Centre attempted to induce specified airlines to make collusive arrangements with it in relation to retail air fares for international air travel, arrangements that it alleges would have lessened or were likely to have lessened competition in the market for the distribution and booking and retail sale of international air travel from Australia (or a market having at least one of these features). Flight Centre denies that it engaged in any contravening conduct as alleged. Though it will be necessary to consider the nature of its defence in much greater detail later in these reasons, two propositions it advances should be highlighted. One is that there can be no lessening or likely lessening of competition in circumstances where the provider of the air travel remains the same whether that travel is sold to a retail consumer directly by the airline or for that same airline via a travel agent such as Flight Centre. Another is that, in attempting to have the airlines concerned allow it to access international air travel fares at the same price as the airlines concerned sold such travel by direct retail sale, it was attempting to induce them not to lessen but to increase competition. A corollary of Flight Centre’s defence is the proposition that there is but one market in the circumstances of this case, that for air travel from Australia.
It is for the Commission to prove the alleged contraventions. The relief sought by the Commission includes the imposition of pecuniary penalties. Further, both for Flight Centre itself and for the group of related companies of which it is part, it is only to be expected that any findings of contraventions will have an adverse impact on commercial reputation and perhaps also on customer sentiment and share value. In these circumstances and although the proceeding remains civil in character, s 140(2) of the Evidence Act 1995 (Cth) (Evidence Act) is applicable. Thus, although, by s 140(1) of that Act I need only be satisfied that the case has been proved by the Commission on the balance of probabilities, that satisfaction must be reached taking into account:
1.the nature of the cause of action or defence; and
2.the nature of the subject-matter of the proceeding; and
3.the gravity of the matters alleged.
In specifying these particular considerations, s 140(2) of the Evidence Act gives statutory voice to a long prevailing position at common law in respect of the standard of proof in civil cases where serious allegations are made or to which grave consequences may attach. That position was never better expressed than by Sir Owen Dixon in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362:
In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect references.
As it happens, the evidence in this case, as opposed to its consequences in law, is largely uncontroversial. Nonetheless, I have approached the question of whether the evidence led proves the factual allegations made by the Commission taking into account the considerations just mentioned.
The six contraventions alleged against Flight Centre were put in alternative ways, in the Commission’s amended application. Notably, these included:
1.1in or about August 2005 attempting to induce Singapore Airlines Limited (Singapore Airlines), an international airline, to make a contract or arrangement or arrive at an understanding with Flight Centre Limited containing a provision that any particular fare that Singapore Airlines offered directly to customers:
1.1.1would also be made available to be purchased through Flight Centre Limited; and
1.1.2would be sold by Singapore Airlines at a total price, including any charge for its booking services, of no less than the total of:
1.1.2.1the net fare, being the amount Flight Centre must remit to the airline if Flight Centre Limited sold the fare; plus
1.1.2.2the commission that Flight Centre would be entitled to be paid for its services if Flight Centre had sold that fare to a customer,
which provision had a substantial purpose and the likely effect that the price Flight Centre received for its booking and distribution services, being the said commission, would be maintained and was therefore deemed, by the former section 45A of the Act, to have had the purpose, or to be likely to have had the effect of substantially lessening competition contrary to section 45(2)(a)(ii) of the Act.
1.2 in or about March 2006 attempting to induce Singapore Airlines to make a contract or arrangement or arrive at an understanding with Flight Centre containing a provision that any particular fare that Singapore Airlines offered directly to customers:
1.2.1would also be made available to be purchased through Flight Centre; and
1.2.2would be sold by Singapore Airlines at a total price, including any charge for its booking services, of no less than the total of:
1.2.2.1the nett fare, being the amount Flight Centre must remit to the airline if Flight Centre sold the fare; plus
1.2.2.2the commission that Flight Centre would be entitled to be paid for its services if Flight Centre had sold that fare to a customer,
which provision had a substantial purpose and the likely effect that the price Flight Centre received for its booking and distribution services, being the said commission, would be maintained and was therefore deemed, by the former section 45A of the Act, to have had the purpose, or to be likely to have had the effect of substantially lessening competition contrary to section 45(2)(a)(ii) of the Act.
1.3in or about May 2008 attempting to induce Emirates, an international airline, to make a contract or arrangement or arrive at an understanding with Flight Centre containing a provision that any particular fare that Emirates offered directly to customers:
1.3.1would also be made available to be purchased through Flight Centre; and
1.3.2would be sold by Emirates at a total price, including any charge for its booking services, of no less than the total of:
1.3.2.1the nett fare, being the amount Flight Centre must remit to the airline if Flight Centre sold the fare; plus
1.3.2.2the commission that Flight Centre would be entitled to be paid for its services if Flight Centre had sold that fare to a customer,
which provision had a substantial purpose and the likely effect that the price Flight Centre received for its booking and distribution services, being the said commission, would be maintained and was therefore deemed, by the former section 45A of the Act, to have had the purpose, or to be likely to have had the effect of substantially lessening competition contrary to section 45(2)(a)(ii) of the Act.
1.4in or about December 2008 attempting to induce Emirates to make a contract or arrangement or arrive at any understanding with Flight Centre containing a provision that any particular fare that Emirates offered directly to customers:
1.4.1would also be made available to be purchased through Flight Centre; and
1.4.2would be sold by Emirates at a total price, including any charge for its booking services, of no less than the total of:
1.4.2.1the nett fare, being the amount Flight Centre must remit to the airline if Flight Centre sold the fare; plus
1.4.2.2the commission that Flight Centre would be entitled to be paid for its services if Flight Centre had sold that fare to a customer,
which provision had a substantial purpose and the likely effect that the price Flight Centre received for its booking and distribution services, being the said commission, would be maintained and was therefore deemed, by the former section 45A of the Act, to have had the purpose, or to be likely to have had the effect of substantially lessening competition contrary to section 45(2)(a)(ii) of the Act.
1.5in or about March 2009 attempting to induce Malaysia Airline System Berhad (Malaysia Airlines), an international airline, to make a contract or arrangement or arrive at any understanding with Flight Centre containing a provision that any particular fare that Malaysia Airlines offered directly to customers:
1.5.1would also be made available to be purchased through Flight Centre; and
1.5.2would be sold by Malaysia Airlines at a total price, including any charge for its booking services, of no less than the total of:
1.5.2.1the nett fare, being the amount Flight Centre must remit to the airline if Flight Centre sold the fare; plus
1.5.2.2the commission that Flight Centre would be entitled to be paid for its services if Flight Centre had sold that fare
which provision had a substantial purpose and the likely effect that the price Flight Centre received for its booking and distribution services, being the said commission, would be maintained and was therefore deemed, by the former section 45A of the Act, to have had the purpose, or to be likely to have had the effect of substantially lessening competition contrary to section 45(2)(a)(ii) of the Act.
1.6in or about May 2009 attempting to induce Singapore Airlines to make a contract or arrangement or arrive at an understanding with Flight Centre containing a provision that any particular fare that Singapore Airlines offered directly to customers:
1.6.1would also be made available to be purchased through Flight Centre; and
1.6.2would be sold by Singapore Airlines at a total price, including any charge for its booking services, of no less than the total of:
1.6.2.1the nett fare, being the amount Flight Centre must remit to the airline if Flight Centre sold the fare; plus
1.6.2.2the commission that Flight Centre would be entitled to be paid for its services if Flight Centre had sold that fare to a customer,
which provision had a substantial purpose and the likely effect that the price Flight Centre received for its booking and distribution services, being the said commission, would be maintained and was therefore deemed, by the former section 45A of the Act, to have had the purpose, or to be likely to have had the effect of substantially lessening competition contrary to section 45(2)(a)(ii) of the Act.
The general nature of the alternative cases put will be apparent from what follows.
Adding the officer of Flight Centre by whom the Commission alleges it attempted to induce the airline to make the arrangement concerned, the six alleged contraventions may be summarised in tabular form in this way:
Date Conduct Officer of Flight Centre concerned in conduct August 2005 1st Singapore Airlines Conduct Mr Darren Burgess March 2006 2nd Singapore Airlines Conduct Mr Darren Burgess May 2008 1st Emirates Conduct Mr Darren Burgess December 2008 2nd Emirates Conduct Mr Darren Burgess March 2009 Malaysia Airlines Conduct Mr Darren Burgess May 2009 3rd Singapore Airlines Conduct Mr Graham Turner
Mr Graham Turner is the chief executive officer and managing director of Flight Centre. He is an astute businessman with lengthy experience in the travel industry. That astuteness and experience was on open display in the course of his testimony.
Mr Darren Burgess is an employee of Flight Centre holding what is on the evidence a mid-level position in its corporate hierarchy known as Supply Relationship and Contracting Manager. Save for a period of five months when he worked for Air Australia, Mr Burgess has held various positions within Flight Centre over the last ten years. During the material period, his responsibilities included the negotiation of what are termed preferred airline agreements, of which more later, with a portfolio of airlines which included Singapore Airlines and Malaysia Airlines. There is no doubt that he was, at all material times, acting within the scope of his authority within Flight Centre.
Another Flight Centre employee who gave evidence was Mr Gregory Parker, presently its Executive General Manager for Global Air. He had worked in a number of senior managerial roles within the group controlled by Flight Centre since 2003. He was well experienced with its operations and with the travel industry.
Over the period of the alleged contraventions and materially, s 45 and s 45A of the TPA respectively provided:
45Contracts, arrangements or understandings that restrict dealings or affect competition
[…]
(2)A corporation shall not:
(a)make a contract or arrangement, or arrive at an understanding, if:
(i)the proposed contract, arrangement or understanding contains an exclusionary provision; or
(ii)a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or
(b)give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:
(i)is an exclusionary provision; or
(ii)has the purpose, or has or is likely to have the effect, of substantially lessening competition.
(3)For the purposes of this section and section 45A, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.
45AContracts, arrangements or understandings in relation to prices
(1)Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other.
[emphasis in original]
Over that same period, s 76 of the TPA materially provided:
76Pecuniary penalties
(1) If the Court is satisfied that a person:
(a) has contravened any of the following provisions:
(i) a provision of Part IV;
[…]
(b) has attempted to contravene such a provision; or
[…]
(d)has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision; or
[…]
the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies…
As I have already recorded, the pertinent background facts are largely uncontroversial. Because of that, I do not propose to set out the evidence of each witness in detail but rather to make such reference as I consider necessary to the evidence which supports those findings. It is though necessary, in light of objection taken to some of the documents in the Commission’s trial bundle (Exhibit 1), ruling upon which was by agreement deferred until judgement to rule upon those objections:
(a)Documents A12 and A13 relating to June 2004 conduct by Emirates - objected to on the basis of relevance in that the pleaded Emirates conduct is in May and December 2008. I make noting more of these than that Flight Centre’s dealings with Emirates on the occasions pleaded did not occur in a vacuum and were not the first occasion upon which these two parties had dealt in relation to the provision of travel agent services. Save as to this, I accept that these documents are not relevant. The same objection was taken to documents A16 to A19 (conduct by Emirates in 2005) and the same ruling applies to them.
(b)Document A113 - This document relates to July 2009 Emirates conduct. I uphold this objection s to relevance. This conduct occurred not only after the last charged Emirates conduct but after the last of any charged conduct. For like reasons, I uphold the objection to documents A111, A112, B7 and B8 which concern conduct by Malaysia Airlines after the period charged on the same basis.
(c)Documents A23 and A24 - These documents relate to conduct in 2005 by Malaysia Airlines. The objection is, once again, on this basis of relevance, given that the charged conduct occurred in February and March 2009. They have no greater relevance than that set out in respect of prior conduct by Emirates. The same applies to document B1, which relates to conduct in 2007 by Malaysia Airlines.
(d)Document A114 - The objection is that this document relates to an airline (Ethiad) other than those to which the charged conduct relates. I up hold this objection.
(e)Documents A89, A106 and A126, each of which relate to the implementation of the “stop sell” Singapore Airlines by Flight Centre, are objected to on the basis of relevance. The implementation of a threat could form part of an attempt to induce contravening conduct but that is not how the Commission pleaded its case. I uphold the objection.
(f)Documents A7 and A129, which relates to Flight Centre’s market share, are objected to on the basis that its market share is not relevant to any pleaded liability issue. That Flight Centre had a large distribution network of shop fronts is not controversial. That it possessed this was a feature of the persuasion and threats, identified below, in the emails in question. Its actual market share is not shown to have been known to any of the airlines in question. I accept that it is not relevant to liability (though it may be relevant to penalty).
It is common ground that there is a demand in Australia for international air travel (para 3, Amended Statement of Claim - ASOC; para 3, Amended Defence - Defence). The Commission would term the provision of that travel an international air transportation service whereas Flight Centre suggests that the provision of that travel is better defined as an international passenger air travel service. Flight Centre’s suggestion has the merit of greater precision as to the nature of the service in question. This case is, after all, not concerned with international air freight and the arranging of and collecting of payment for such freight, which also would be embraced by the Commission’s term but rather with the booking of and collecting of payment for international air travel by passengers.
On closer analysis of contractual reservations as to the rescheduling or cancellation for various reasons of a particular flight, which an international air carrier customarily makes in its conditions of carriage, it may not be strictly correct to state that the case more particularly concerns the supply of the service of making known the availability (distributing) of, booking and collecting payment for a particular seat on a particular international flight, as opposed to the opportunity to travel in that seat on that flight or some substitute in accordance with an air carrier’s conditions of carriage. In this case at least, nothing turns on such subtle distinctions. For convenience, if not, for the reason just given, wholly accurately, I shall refer to what an international passenger air carrier offers as air travel.
Singapore Airlines, Malaysia Airlines and Emirates each operate aircraft to meet the demand for air travel to and from Australia. Notoriously, they are not the only such operators. Flight Centre does not operate aircraft to meet that demand. It is not an international passenger air carrier in its own right.
During the material period, international passenger air carriers such as Singapore Airlines, Malaysia Airlines and Emirates each predominantly, but by no means exclusively, relied on travel agents to promote (or co-promote) or otherwise make known to the public available air travel with them, to deal with members of the public in relation to the booking of air travel and to receive and to remit payments for that air travel by those would-be passengers. The Commission alleges (para 5, ASOC) that these services might collectively be described as a “distribution service”. So they are, but, as will be seen, there are means other than by a travel agent such as Flight Centre by which the availability of air travel to particular destinations at particular times for particular prices are organised to which, in aviation industry terminology, the term “distribution service” may also be applied. Be that as it may, care needs to be taken with respect to the Commission’s preference for that term lest its uncritical use obscure a material relationship between each of the three airlines concerned and Flight Centre. In each instance, so far as the sale of air travel is concerned, the relationship between the respective airlines and Flight Centre was that of principal and agent. I detail the respective agreements giving rise to that relationship below. Characterisation of exactly what Flight Centre and the airlines “supply” and to whom and in what market are key issues in this case.
In providing that booking and payment service and in promoting and otherwise making known available air travel with them to customers, Flight Centre also fulfilled a demand for such services by airlines. So far as customers are concerned, there is a demand for travel advice and facilitation services, related to a demand for air travel. The latter services extend to advice about particular destinations abroad, accommodation, tours, travel insurance and ground transport options at those destinations, the available flights to reach given overseas destinations, the booking on behalf of the customer of air travel to those destinations as well as accommodation and the like there and the receipt of payment from the customer for that air travel, accommodation, travel insurance etc. Flight Centre provided such services to its customers.
As can be seen, Flight Centre performed the role of an international air travel intermediary. The air travel it offered to its customers was provided by others, materially, Singapore Airlines, Malaysia Airlines and Emirates. In offering a particular flight, Flight Centre did so on behalf of the airline concerned. In booking that air travel, Flight Centre did so on behalf of the customer concerned. It is in this sense that I characterise Flight Centre was an intermediary. All of these services fall under the general rubric of travel agent services. As will be seen, the notion of a travel agent as an intermediary and the ramifications of that have importance in relation to the contraventions alleged.
The means by which international air travel may be booked by a person has evolved over time. That evolution was well explained by Mr David Clarke, presently chairman of directors of the Melbourne headquartered Webjet Limited (Webjet).
Webjet operates a sophisticated internet site via which international air travel may be booked, hotel accommodation reserved, cars hired and travel insurance arranged. It also operates a related telephone call centre based in The Philippines. As can be seen, the range of services offered by Webjet overlaps with those offered by Flight Centre. It at least therefore offers an example of a competitor of Flight Centre but, again, are also the airlines competitors and, if so, again, in what market?
Prior to establishing the business now conducted by Webjet, Mr Clarke was the group chief executive for another well known travel agency, Jetset Travel with responsibility for the operations of that company in both Australia and some 20 other countries. In all, Mr Clarke has some 35 years of experience in the travel agency business. That lengthy experience and related intimate knowledge of the travel industry was very evident in the course of his oral evidence. I was impressed not only by the breadth and depth of his knowledge and experience but by his candour.
From Mr Clarke’s evidence, which was corroborated rather than contradicted by the evidence of others with experience in the travel industry, it emerges that, during the material period, there were two avenues by which a would-be international air travel passenger (customer) might book a flight. The customer could deal with an international airline directly or the customer could book a flight via a travel agent.
As to the former and across international passenger air carriers as a group, some international airlines operated both sales centres akin to travel agency shop fronts, some did not but nonetheless sold tickets across the counter at particular locations; some such as Jetstar did neither. Airlines also sold international air flights via the internet and over the telephone.
I understood from Mr Clarke’s evidence but also that of other witnesses and I find that, during the material period and beyond there was and is a discernable trend towards the ever greater use of the internet as a means for the notifying the availability of, booking of and payment for international air travel by customers. Webjet’s very existence is an example of that trend. The decision by Qantas Limited to close its own shop front travel centres is, at least inferentially, another. The already mentioned expansion beyond New Zealand, since the material period, by Flight Centre of the international destinations for which it makes booking and payment collection services available via the internet is yet another.
Apart from directly from an air carrier, from a large travel agency business with multiple shop fronts such as Flight Centre or via an internet and call centre based travel agency such as Webjet, international air travel may also be booked via a smaller, shop front based travel agency business, for example “Travel by Tracey” a travel agency shop front business in Shailer Park, Logan City in Queensland. That business is owned and operated by Ms Tracey Schwass. Ms Schwass gave well-informed and reliable evidence in the proceeding. Her business offers a good example of this type of agency. “Travel by Tracey” also offers a range of travel advisory and booking services which extend beyond air travel. That business, too, is at least a competitor of Flight Centre.
There are various means by which a travel agent can obtain and then notify a fare for a customer and would-be passenger on a particular flight. Within the air travel industry, a “fare” carries the meaning of the price and series of conditions attaching to a particular seat on a particular flight (see e.g. Ms Schwass, T.126, LL27-30). Travel agents typically access fares from airlines through an electronic reservation system known as a Global Distribution System (GDS). In the material period, there were three GDS available for use by travel agents. That principally used by Flight Centre was (and is) known in Australia as “Galileo”. The other available GDS systems, each used but to a lesser extent than Galileo by Flight Centre, were (and are) known as “Amadeus” and “Sabre” respectively.
Fares (i.e. fares for available seats on particular flights to given destinations for a given fare) are loaded onto a GDS by international airlines, although it should be pointed out that some international airlines do not make all of their international flights available for sale by a travel agent through a GDS.
During the material period, there were two main categories of fares loaded onto a GDS by airlines, “published fares” and “private fares”:
(a)Published fares - These were determined by the airline. They included an amount of commission for a travel agent (referred to most commonly as the “at-source commission”) but excluded any taxes and surcharges. The at-source commission was calculated by airlines as a percentage of the published fare but might be as low as zero. When a travel agent sold a published fare, the “nett amount” (the price of the published fare minus the at-source commission) had to be remitted to the airline, in addition to the applicable taxes and surcharges (evidence of Mr Parker, T.242—T.253). Thus, the GDS provider did not determine the at-source commission paid to the agent by the airline; it was the particular airline that nominated that amount.
(b)Private fares - These did not include an at-source commission. When a travel agent sold air travel at a private fare, the nett amount had to be remitted to the airline, in addition to the applicable taxes and surcharges.
When selling air travel, it was the travel agent’s prerogative not to sell that travel at the relevant public or private fare but rather to sell that travel for whatever price the agent chose, provided that—in both cases—the travel agent remitted the nett amount to the airline if the agent made the sale (Mr Clarke, T.91, LL46-7). During the material period, most fares made available by the airlines in question were published fares (T.240, LL1-2).
Flight Centre itself used the term “distribution” in communications with airlines (e.g. email of 19 August 2005 to Singapore Airlines, reproduced below) to describe its role in bringing to the attention of and selling to retail customers air travel with particular airlines. Once the existence of a GDS is appreciated, it can be seen that a travel agent accessing and using a GDS forms part of a distribution chain which commences with airlines making seats on particular flights to particular destinations at particular fares available to a GDS, continues through the accessing of such a flight at such a fare by a travel agent for a retail customer of that travel agent and concludes with the booking by the travel agent of that flight, the payment of that fare by the customer and the remission of a nett amount by or on behalf of the travel agent to the airline. Thus, it is not inaccurate to describe one service which a travel agent provides as a “distribution service” but this is neither the only service offered by a travel agent nor is a travel agent the only link as between airline and would-be passenger in a distribution chain. Further, and as I have already highlighted, care needs to be taken in the use of the description “distribution service” lest it divert attention from a relationship of principal and agent which exists between the airline and the travel agent in relation to the sale of air travel with that airline to a customer. Yet further, a reference to a travel agent “selling” air travel must be understood as selling that travel on behalf of an airline.
Flight Centre’s entitlement to at-source commission during the material period was referable to an agreement known as the Passenger Sales Agency Agreement (PSAA). This was a standard form agreement entered into between individual travel agents and the International Airline Transport Association (IATA). Singapore Airlines, Malaysia Airlines and Emirates were members of the IATA (para 5(c), Amended Defence; para 5.2, Reply). Under the PSAA, when Flight Centre received payment from a customer for international air travel, the amount owed to the airline was automatically taken from Flight Centre’s bank account through what was known as the Billing and Settlement Plan (also called the Bank Settlement Plan) operated by IATA. That amount was the sum equal to the published fare (inclusive of taxes and surcharges) less the allowable at-source commission.
As mentioned, the evidence demonstrates that airlines also offered fares (i.e. particular air travel for particular fares) for purchase directly through websites which they maintained. Often such fares included fares for air travel that the airlines did not make available to travel agents for the sale to customers even though that air travel would be on the same flight as sold directly by the airline. This absence to travel agents of comprehensive availability during the material period is a crucial fact in the present case. The majority of fares—in the vicinity of 80% to 85%—sold by Singapore Airlines, Malaysia Airlines and Emirates were sold through travel agents rather than directly during the material period (Mr Turner, T.336, LL31; Dr Fitzgerald, T.162, LL42-45).
A means by which travel agents might derive commission income additional to their at-source commission on fare sales was via what was known in the air travel industry as a “Preferred Airline Agreement”. A Preferred Airline Agreement was an agreement negotiated between a travel agent and a particular airline, which included provision for “back-end commission” to be paid in addition to at-source commission (Mr Parker, T.230, LL6-9; LL11-12). Preferred Airline Agreements were usually of one year’s duration, their terms being re-negotiated annually (Mr Burgess, T.315, LL30-31). They were often premised upon a given revenue target(s) being met by the travel agent concerned (Mr Parker, T.241-T.243). During the material period, Flight Centre had such agreements with about 30 airlines.
It is common ground that, during the material period, Flight Centre annually sought to make a “Preferred Airline Agreement” with each of Emirates, Malaysia Airlines and Singapore Airlines. In so doing, Flight Centre sought to maximise its total contract margin (at-source commission plus back end commission) and, if possible, to have it increased or at least maintained from the previous year. Through such negotiations, Flight Centre further sought to have as much as possible of the back-end commission made inelastic, i.e. guaranteed by the airline party irrespective of Flight Centre meeting revenue targets (Mr Burgess, T.333). The only occasion on which Flight Centre did not reach agreement with one of the relevant airlines in the material period was with Singapore Airlines for the 12 months commencing 1 April 2009 (Mr Parker, T.244).
Though the agreements struck by Flight Centre with the airlines in question during the material period were each in substance preferred airline agreements, their precise titles varied from airline to airline. Singapore Airlines described such agreements as “Incentive Agreements”; those with Emirates were entitled a “Productivity Linked Incentive Scheme”, while those with Malaysia Airlines are described as an “Agency Agreement”. A copy of each of the agreements is in evidence (Ex 1).
Flight Centre entered into the following relevant Preferred Airline Agreements with Singapore Airlines:
(a)2005-2006 year, agreement dated 3 May 2005 (Ex 1, Vol 1, Tab 16A - SQ Agreement 2005-2006);
(b)2006-2007 year, agreement dated 28 April 2006 (Ex 1, Vol 1, Tab 27A - SQ Agreement 2006-2007); and
(c)2007-2008 year, agreement dated 28 August 2007 (Ex 1, Vol 1, Tab 29A - SQ Agreement 2007-2008).
Flight Centre entered into the following relevant Preferred Airline Agreements with Emirates Airlines:
(a)2007-2008 year, agreement dated 13 December 2007 (Ex 1, Vol 1, Tab 30A); and
(b)2008-2009 year, agreement dated 6 October 2008 (Ex 1, Vol 1, Tab 51).
Flight Centre entered into the following relevant Preferred Airline Agreement with Malaysia Airlines:
(a)2009-2010 year agreement dated 15 January 2009 (Ex 1, Vol 1, Tab 60).
The salient features of these agreements are as follows.
SQ 2005-2006 AGREEMENT
The SQ 2005-2006 agreement records a “business commitment between the parties” as having been reached (clause 9.1). The agreement provides for a growth incentive to be payable on the amount of total flown revenue produced by Flight Centre (clause 2), calculated by reference to flight sales of the previous year.
A First and Business Class Growth Incentive is also provided for, again calculated by reference to growth from the previous year’s revenue (clause 3).
A number of general conditions attaching to the agreement are then set out (clause 4). Of note, one of those conditions (clause 4.8), which appears in equivalent terms in the other two agreements with Singapore Airlines, provides as follows:
Under the terms of this agreement, Singapore Airlines must be actively marketed as a preferred product at all locations.
Clause 5 sets out that Flight Centre will be compliant with trade practices requirements in terms of the standards set out in the Australian Standard Compliance Programs.
Clauses 6-8 relate specifically to Flight Centre’s retail branch only. A “super-override commission” is payable on total flown revenue at the end of each month (clause 6), while a retail joint marketing plan is also set out (clause 7).
Finally, the agreement provides for a Service Level Agreement between Singapore Airlines and Flight Centre’s corporate branch, which sees mutually agreed joint marketing projects to be carried out between Singapore Airlines and Flight Centre corporate (clause 9).
SQ AGREEMENT 2006-2007
In the main, the SQ Agreement 2006-2007 was the same as the 2005-2006 agreement, subject to the following distinctions.
First, a new clause 2.2 was inserted, providing for a “catch-all parameter” concerning the growth incentive which – relevant for present purposes – tightened Flight Centre’s eligibility criteria for this type of commission.
Second, the SQ Agreement 2006-2007 also introduced (clause 3) a “European Traffic Growth Incentive”, which was comparable to the First/Business Class Growth Incentive of the 2005-2006 year.
Third, a “Bonus Gravity Payment” clause was inserted (clause 5), providing for a payment of AUD 465,000 to be paid as incentive for the 2006-2007 year in recognition of fuel surcharges collected by Flight Centre on behalf of Singapore Airlines.
SQ AGREEMENT 2007-2008
Save for the following notable points of distinction, the 2006-2007 agreement was materially the same as the 2005-2006 and 2006-2007 agreements.
First, the agreement provided for an “Annual Growth Incentive Bonus” of AUD 500,000 to be paid, determined by the amount of the total flown revenue produced in 2007-2008 relative to the preceding year. Payment is made only if the target set out (15%) is reached (clause 4).
Second, a “Front Line Incentive Commission” was also provided for, in recognition of the activities of Flight Centre’s “Front Line Consultants”. Within Flight Centre, staff who dealt with such would-be passengers at, typically, its shop fronts were known as travel consultants. The term “Front Line Consultants” covers this class of person. Under this agreement, a commission of 0.2% on total flown revenue generated by the Flight Centre was to be paid directly to the travel consultants. The existence of this incentive commission, it was agreed, could be conveyed by Singapore Airlines to these travel consultants so as to, “communicate the benefits of selling Singapore Airlines” (clause 5.3).
Third, a Bonus Gravity Payment for fuel surcharges, similar to that seen in the SQ Agreement 2006-2007, was also provided. The gravity payment for the 2007-2008 year was AUD 505,000 (clause 6).
EMIRATES AGREEMENTS 2007-2008 AND 2008-2009
The Incentive agreements with Emirates were based on nett flown revenue. There are three types of incentives provided for in the 2007-2008 and 2008-2009 years.
First, a Loyalty Inventive, at a flat rate of 1% calculated and paid on eligible revenue, triggered upon achievement of 70% of the quarterly base target (10.5%) greater than previous year revenue in that quarter.
Second, a Growth Incentive, varying between 1-4.5% calculated and paid on “Total Eligible Revenue”, upon achievement of relevant growth percentage above the Annual Base target (10.5%) than previous year’s revenue.
Third, a Growth Inventive calculated and paid on total eligible First/Business Class (combined) revenue by reference to previous years first and business class revenue.
MALAYSIA AIRLINES AGREEMENT 2009-2010
Flight Centre’s agreement with Malaysia Airlines is the most detailed of the agreements in question. Clause 1.3 characterises the legal relationship between Malaysia Airlines (termed, “MH”) and Flight Centre such that, subject to the provisions of the agreement, Flight Centre, as agent:
…shall represent MH on a non-exclusive basis in the air passenger transportation services provided by MH. The air passenger transportation may include wherever applicable, any tour and ground arrangements.
The appointment of Flight Centre as agent is made subject to compliance with two key obligations:
(a)compliance with the Service Level Agreement; and
(b)that Flight Centre uses all reasonable endeavours to achieve the targets in the incentive scheme.
Further detail as to the agency relationship created by the agreement is supplied by clauses 4 and 5.
Clause 4 provides:
4.AGENCY DESIGNATION
The Agent may represent itself on letterheads, advertising, telephone listings and classifications or internet based communications, portals or booking engines, office signage or otherwise to position their identify as an “Agent” or “Booking Agent” representing MH, but shall not represent itself as “General Agent” or use any other designation, such as “Malaysia Air Line Ticket Office” or “Malaysia Consolidated Air Lines Ticket Office” which would indicate or imply in any way that its office is an office of MH.
Clause 5 provides:
5. COMPLIANCE WITH CARRIER REGULATIONS
5.1 The Agent shall be responsible to comply with the governing terms and conditions stipulated by the parties contracted to MH in all their dealings. Reference is made to the applicable IATA Resolutions, Travel Agents Handbook and BSP Manual which are within the principle [sic] documents on compliance within the travel industry.
5.2Valid travel documents, visa, health clearance and other regulatory requirements required for travel by the passenger to and within the country/countries involved are to be verified by the Agent. The Agent will ensure that it and any third party agent or personnel to whom tickets are sold or issued by the Agent comply with the obligations within this clause.
5.3MH accepts all reservations made by the Agent in good faith and any misrepresentation with regard to the accuracy of passenger name, schedules, minimum connecting time or reservation status such as duplicate bookings, passive booking segments and issuance of tickets on “GK” segments that are not cancelled immediately after ticketing will incur penalties as determined by MH from time to time.
5.4 The Agent shall be responsible for the fare pricing with the established reservation booking designator booked and ticked on MH. All further communications, changes of date, routings, cabin class, extensions of validity after travel for passenger shall be handled through MH where applicable. The agent must provide details, records or other relevant information pertaining to the passenger needs.
Apart from compliance with carrier regulations (clause 5), Flight Centre agreed to remit moneys owing to Malaysia Airlines and to hold those monies on trust for that airline (clause 6), as well as only to make refund payments to customers with the airline’s written instructions and in accordance with its tariff conditions (clause 7).
A joint marketing fund was established under the agreement, as well as a bonus payment in recognition of fuel surcharges (clause 11).
By virtue of Annexure 1 of the agreement, the Service Level Agreement, Flight Centre agreed to position Malaysia Airlines as its preferred airline carrier. Flight Centre was required to:
(i)feature the airline as preferred airline carrier in all its accounts, offices and subsidiaries;
(ii)designate the airline as preferred carrier in its fare systems and/or its website.
(iii)include, subject to mutual consent, Malaysia Airlines’ consumer press releases in its newsletters (including electronic forms) and/or printed media;
(iv)prominently position Malaysia Airlines’ ad hoc promotions in its website, newsletters (including electronic forms), consumer mailings and any other means of communications by Flight Centre to its customers;
(v)grant access to Malaysia Airlines’ representatives to all Flight Centre offices for purposes of verifying compliance with the above.
Penalties, in the event of any breach of such rules, were imposed in clause 3 of Annexure 1.
Annexure 2 of the agreement was directed to two particular types of incentive for which Flight Centre could become eligible - a “Retention and Growth Incentive” and a “Front End Incentive”.
The Retention and Growth Incentive was calculated by multiplying the total Net Revenue for the relevant quarter by the incentive percentage of the level achieved. This incentive was paid on all Net Revenue and not just the Net Revenue which exceeds the target Net Revenue growth.
The Front End Incentive was payable on net revenue concerning first and business class only.
Another crucial fact is the promotion and giving effect to by Flight Centre of its corporate pricing policy, which it termed during the material period its “Price Beat Guarantee”. This policy antedated the material period. Though known by previous names in the past, its substance remained the same. It had long formed part of Flight Centre’s marketing strategy. Flight Centre’s administration and implementation of the policy extended to air travel to which its preferred airline agreements related.
The Price Beat Guarantee policy provided that Flight Centre would offer to better the price of any fare offered by anyone else, in circumstances where the customer had evidence of a legitimate quote from an Australian travel agent or website stating the price and conditions of the services that the customer wished to acquire from a particular airline and where that fare was available and able to be booked by the general public when the customer presented the quote to it (paras 33-34, ASOC; paras 33-34, Defence). In such circumstances, Flight Centre would implement the policy bettering the alternative fare by $1 plus giving the passenger a voucher for $20 (Mr Parker, T.246, LL43-45; T.247, LL1-9).
When would-be passengers sought to avail themselves of its Price Beat Guarantee this doubtless also offered a source for Flight Centre, though an unwelcome one financially, of intelligence as to fares being made available by others offering air travel to retail customers.
The remuneration of Flight Centre’s travel consultant staff included a sales volume commission component (a share of the margin that Flight Centre made on the sale of air travel). Its travel consultants were bound to uphold Flight Centre’s Price Beat Guarantee policy but otherwise they enjoyed relative autonomy in their dealings with would-be passengers. Thus, subject to the Price Beat Guarantee policy, a travel consultant was permitted to sell air travel for a fare either above or below the published fare on the GDS (s 155 Examination of Mr Turner, 26/07/12, p 34, LL1-9).
Nonetheless, it is only to be expected that a sale of air travel for a fare which yielded for a travel consultant a reduced commission component in his or her income carried with it an obvious disincentive for that consultant to sell that air travel with the airline concerned. In turn, it is only to be expected that such reduced volume of sales of air travel via that airline might adversely affect Flight Centre’s ability successfully to negotiate with that airline for the payment of any back-end commission or for the payment of such a commission on terms satisfactory or suitable to Flight Centre. For example, a past pattern of low sales volumes might mean that any back-end commission offered by an airline in a new preferred airline agreement would be tied to sales targets being met, i.e. on elastic, as opposed to the inelastic terms more desired by Flight Centre.
I turn then to the more detailed findings of fact which I make in respect of the six alleged contraventions, to related issues of law and to the conclusions which I have reached as to those alleged contraventions.
ALLEGED ATTEMPT 1 - SINGAPORE AIRLINES
This alleged attempt relates to an email sent on 19 August 2005 by Mr Darren Burgess to Mr Kieran O’Toole of Singapore Airlines (Ex 1, Tab A25). That this email was sent is not contested. In sending that email, Mr Burgess did so on behalf of Flight Centre.
The email of 19 August 2005 is not the only evidence relevant to whether this particular alleged attempt is proved. That same observation applies, mutatis mutandis, to each of the other Flight Centre communications which respectively form the centrepiece of the other alleged contraventions. Considering the evidence as a whole, what is revealed is 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. Events after 19 August 2005 cast light on what to make of the email sent that day and, by the same token, what to make of the later allegedly contravening communications is relevantly measured by viewing them as part of a continuum of conduct by Flight Centre. Each of the parties conducted their cases on that footing as, for example, will be seen in the way in which Mr Burgess was examined in chief as to the email of 19 August 2005 in a passage which I set out below.
For these reasons, it is also convenient to make, in the course of considering whether or not alleged attempt 1 is proved, some general findings as to the nature of the market in which Flight Centre operated and to discuss issues of law of general relevance.
In the email of 19 August 2005, Mr Burgess stated:
I would like to formally express our opposition & concern at the recent Singapore Airlines internet initiative.
At a time where we are going out of our way to sell SQ [Singapore Airlines], we are faced with being uncompetitive to the effect of some AUD150-200 per person to a wide range of destinations.
Whilst you may not be seeing a significant increase in web sales the main problem with these initiatives is the enquiry they generate to our stores - more and more consumers use the internet to shop then bring to us to match. The losses we are incurring matchings this offer are significant.
As I am sure you are aware a carrier of SQ’s [Singapore Airlines’] size commands significant market power and the precedent this sets for other carriers is of great concern. We have already seen MH [Malaysia Airlines] come out with something similar using SQ [Singapore Airlines] as their justification. If these initiatives continue no doubt all major carriers would follow.
Whilst our current initiatives have not met our sales expectations to date, they should be seen in the light of an overall slowing in the outbound international market. We have both committed significant money to these initiatives and I am frankly at a loss as to why SQ [Singapore Airlines] would want to undermine these initiatives not to mention alienate our front-line consultants at a time of significant SQ [Singapore Airlines] focus and when we are about to begin a major campaign. The other question is why you would go out of your way to undercut travel agents in general by such a large amount – is a nett nett not enough?
As you know we are not growing at the same rate as we have historically and therefore need to be more strategic in our control of distribution so it is important for us know SQ’s [Singapore Airlines’] future intentions here and be assured of your commitment to the agency distribution network. It is difficult to be both friend and foe.
I look forward to your response.
In the course of Mr Burgess’ evidence during at trial it emerged and I find that, at time this email was sent, he was negotiating, on behalf of Flight Centre, with Singapore Airlines about entry into a preferred airline agreement (cf. T.274, LL37-42). Ultimately, such an agreement was reached for the 2006-2007 year (T.283, LL29-31) - the SQ Agreement 2006-2007.
Three days before this email was sent, Mr Burgess sent internal emails to another Flight Centre employee, a Mr Tim Hayden, about a number of “price beats” that Flight Centre had been granting to customers in order to match a promotion that Singapore Airlines was then inviting on that airline’s website would-be passengers to take up directly with it. These “price beats” had been offered in accordance with Flight Centre’s “Price Beat Guarantee” policy. On 16 August 2005, Mr Hayden sent an email to Mr O’Toole of Singapore Airlines asking if he [Mr O’Toole] could “help us with price beats?” (Ex 1, Tab 22). Mr O’Toole, who inferentially well understood what a “price beat” was, replied the next day, “these online fares are a short term initiative associated with our major sponsorship of the City to Surf in Sydney and the launch of our new website.” (Ex 1, Tab 22). The reply from Mr Burgess, on behalf of Flight Centre, reproduced above, is what followed.
The Commission’s case (para 38, ASOC) is that the effect of the email of 19 August 2005 was to propose that:
·Flight Centre and Singapore Airlines make an arrangement or arrive at an understanding;
·a provision of that arrangement or understanding would be that any particular fare that Singapore Airlines offered through its Internal Sales Division to customers:
(i)would also be made available to be purchased through Flight Centre; and
(ii)would be sold by Singapore Airlines at a total price, including any charge for its booking services, of no less than the total of:
(a)the nett fare; plus
(b)the commission that Flight Centre would be entitled to be paid for its services if Flight Centre had sold that fare to a customer.
The reference to an “Internal Sales Division” of Singapore Airlines is something of a distraction. That, organisationally and internally, Singapore Airlines may have ordered its affairs such that a particular division within the airline had responsibility for direct retailing of air travel cannot alter the position that, in law, when that airline sold air travel directly to the public it was the airline itself as a legal entity which was so selling air travel, not its “Internal Sales Division”. It is also air travel by that airline, not any “Internal Sales Division”, which Flight Centre offered to would-be passengers and, on the basis and at the fares set out by Mr Burgess in his email, wanted to offer.
The Commission submitted that, having regard to the terms of the email, it should be concluded that Mr Burgess and thus Flight Centre:
(a)was asking Singapore Airlines to agree to something, namely to commit to the agency distribution network, i.e. to permit Flight Centre to sell all fares on behalf of the airline;
(b)was asking Singapore Airlines not to do something, namely to stop selling fares on the internet at a price lower than that which was available to Flight Centre (to the extent of $150 - $200 per person);
(c)was stating to the airline that its (the airline’s) conduct was causing Flight Centre significant losses;
(d)was stating (at least implicitly) that if the airline did not alter its behaviour, the Flight Centre would be ‘more strategic in our control of distribution’, which should be read as that Flight Centre would act in a way that would adversely affect the airline.
For its part, Flight Centre submitted that the alleged attempt could not be established because Mr Burgess’ email omitted matters that one would expect to find in it, having regard to the provision said to form part of the arrangement pleaded by the Commission. More particularly, Flight Centre submitted that the email is silent as to the following:
(a)the nett fare;
(b)the commission to which Flight Centre would be entitled; and
(c)logistical arrangements regarding the arrangement including:
(i)how the Flight Centre would be given access to direct fares;
(ii)the amount Flight Centre would need to remit to the Singapore Airlines for the fares; and
(iii)whether back-end commission would be earned on those fares.
In his evidence, Mr Burgess accepted that low direct fares presented at least three problems for Flight Centre: the potential loss of a sale; the potential loss of a commission; and they operated as a disincentive to its employed, partially commission share rewarded consultants (T.316).
Flight Centre further submitted that, if an airline sought to sell at a lower fare than the published fare, it was not Mr Burgess’s purpose to prevent it, but rather to have access to that fare. In this regard, Flight Centre relied on an exchange on this subject between its senior counsel, Mr Doyle SC and Mr Burgess in re-examination (T.329, LL42-47):
MR DOYLE SC: Okay. What I wanted to ask you was if the airline, whichever it was, sought to sell for less than that published fare, were you seeking to have that lower fare made available to you?
MR BURGESS: Yes.
MR DOYLE SC: Thank you. And tell me if we need to differentiate. Is that true of each of the various dealings, the episodes that you have been taken to?
MR BURGESS: Yes.
The latter question and answer exemplifies why I made the earlier observations as to a revelation of a concerted course of reactive corporate conduct by Flight Centre and as to the basis upon which the case was conducted.
Viewed in isolation, this account by Mr Burgess as to the reason for his sending this email and each of the others authored by him is consistent with a statement made by Mr Turner, who was the personification of the highest level of management in Flight Centre, in the latter part of an answer which he gave the course of his evidence in chief (T.344):
MR DOYLE SC: Did you seek to have them [Singapore Airlines] withdraw particular fares from the market?
MR TURNER: No. We wanted access. That was our whole point if they [were] having other fares - cheaper fares.
The extent, if at all, to which the blunt negative which formed the first part of Mr Turner’s answer should be accepted requires further analysis in light of other evidence in the case, including his own. Was it “access” at all or alone which was sought or did Flight Centre seek or at least additionally or alternatively seek that the airlines in question withdraw from undercutting by direct sale fares the published fares on the GDS for particular flights? Further, the question posed of Mr Turner leaves unidentified the market concerned.
Over the material period, the financial cost to Flight Centre of honouring to its customers its “Price Beat Guarantee” policy, arising from the ability of those customers to cite to it a lower fare directly available from an airline via that airline’s website, was of enduring and increasing commercial concern to Flight Centre. Mr Turner confirmed as much in the course of his cross examination (T.349). The operations of each of the three airlines in question in the present case, but especially those of Singapore Airlines, gave rise to such consequential “price beat” costs and that concern. A separate but not unrelated concern of Flight Centre was never seeing “the sale” at all, because of a choice made by a would-be customer, in light of the availability of a lower fare, to deal directly with an airline via its website.
That is not to say that addressing these adverse financial impacts on Flight Centre, which included consequential “price beat” costs, were the only imperative in its dealings with each airline, only that it was one consideration for Flight Centre in those dealings and an important one at that. The amount, nature, eligibility criteria (revenue or ticket targets, for example) and composition of commissions and other income to be earned by Flight Centre were other considerations in those dealings.
The importance to Flight Centre of addressing the impact of loss of “sales” and of consequential “price beat” costs is most starkly illustrated in the negotiations with Singapore Airlines in relation to a preferred airline agreement for the 2009/2010 year but it was a commercial consideration for Flight Centre throughout the whole of the material period. An aide memoire was prepared within Flight Centre in preparation for a meeting on 6 April 2009 with Singapore Airlines representatives concerning that proposed agreement (Ex 1, Tab 77). The following items appear in that aide memoire:
Under the heading “Questions”
·Will FCL [Flight Centre] have parity with all SQ [Singapore Airlines] web offers including frequent flyer offers?
·Can SQ guarantee FCL that we won’t be undercut later special offers? If subsequent offers are available will SQ refund the difference?
Under the heading, “Wish list”
· Allow FCL access to all competitor fares for price beat purposes only.
This aide memoire was prepared at a time when no proceedings by the Commission were in prospect. It is not a contrived document. Rather, it gives a contemporary insight into Flight Centre’s corporate thinking. The “Questions” set out in this document were questions which Flight Centre sought to have answered in its negotiations with Singapore Airlines. Those questions were posed because their subjects were then commercial concerns held by and related, remedial aspirations of, Flight Centre. The “wish list” items were also aspirations of Flight Centre. This aide memoire nicely encapsulates the two, not one, goals of Flight Centre, which endured throughout the material period and which permeated each of its dealings with the airlines in question - access and parity (“won’t be undercut”).
Another contemporary insight into Flight Centre’s concerns and aspirations is offered by an email of 6 April 2009 (Ex 1, Tab 82) sent by Mr Turner to Mr Subbas Menon, a senior officer of Singapore Airlines and copied to other officers of that airline. This email, too, was generated in the context of negotiations with respect to a proposed preferred airline agreement for the 2009/2010 year. Mr Turner sent the email on behalf of Flight Centre. It was responsive to an email which Mr Menon had earlier sent in which proposals were made on behalf of Singapore Airlines as to the terms of a 2009/2010 agreement. One of the comments which Mr Turner made (item 4) was this:
4.The web is an issue and may be the clincher why may be best to go our separate ways. In this case we may allow consultants to book anything they have to through the SQ website.
In concluding this email, Mr Turner observed:
Subbas in the current market with all the seats around we can’t go with all carriers. I would like to hope we can resolve this but I accept we may be out of your court. …
In the course of his cross-examination, the following exchange occurred between the Commission’s senior counsel, Mr Wilson SC, and Mr Turner:
MR WILSON SC: But when you were having these discussions either via email or at a meeting with representatives of Singapore Airlines, your position is we want these fares on the GDS as published fares?
MR TURNER: Yes, and for two reasons, one because we want the price on that and we want the distribution through the GDS for ease of distribution for us.
MR WILSON SC: And so that Flight Centre earns a commission?
MR TURNER: Well, that would be assumed, yes, but, as I say, it’s not always the case. We do have a fallback, even if we don’t get the actual fully commissionable fares and different fares have different commission levels on at time, it’s the access that’s important as well as the actual airfare itself and the margin.
MR WILSON SC: I accept what you’ve just said, but what you were proposing to Singapore, that is, your desire was that it be loaded onto the GDS as a commissionable fare?
MR TURNER Yes.
Mr Turner later in his oral evidence downplayed the importance in negotiations for Flight Centre of Singapore Airlines making available to Flight Centre the same fare as that airline offered directly to the public via its website. That struck me as at odds with the language - “may be the clincher” - Mr Turner had himself used in his email of 6 April 2009. I prefer Mr Turner’s contemporary assessment in his email of 6 April 2009 of the importance of the issue to that which he gave in his oral evidence. The significance of the passage from his oral evidence just quoted lies in its confirmation that two factors were at large in Flight Centre’s dealings with Singapore Airlines. Flight Centre did not just want access to the same fare as the airline sold the air travel directly to the public; it wanted that fare to be made available to the GDS as a “published fare” on which it would earn commission. In short, it wanted Singapore Airlines to stop undercutting, by the fares it offered directly via its website, the published fare on the GDS for the same flight. In that way, Flight Centre’s commission margin on the fare would not be subject to the dramatic reduction that would occur if the fare were not made available to the GDS and, instead, Flight Centre were faced with the prospect, via its “Price Beat” policy, of having to better it as a fare otherwise available to customers via direct sale by the airline. Further, fare parity would reduce for Flight Centre the prospect of never seeing the would-be passenger at all, because of an attraction offered by a lower fare directly from the airline. What Mr Turner’s answer as to “wanting access” concealed but his email of 6 April 2009 revealed was that Flight Centre wanted Singapore Airlines to cease offering directly to the world at large via its website fares that were lower than the published fares it made available to Flight Centre via the GDS.
The relative advantages and disadvantages for Flight Centre of an airline either making its direct sale fare available to Flight Centre via the GDS, or at least not selling directly to the public air travel at less than its published fare on the GDS, as opposed to that airline adhering to selling directly to the public at a fare less than the published fare on the GDS, were candidly and accurately explained by Mr Burgess in an example which he gave in the course of an examination of him conducted under s 155 of the TPA the transcript of which was in evidence:
MR BURGESS: They pay pretty much everyone nine per cent commission, and then you’ve got an agreement over and above that which is based on volume – agreed volume targets. So they pretty much pay everyone the same. So in this instance, they would be offering a four per cent discount, so the consumer would get the fare for 960, using the $1,000 example. We’re getting if for 910. They’re not really giving us nine per cent, was my point. So instead of the $90 commission that we would normally make, we were only making 50, or the consultant’s only making 50. Our consultants try and make as much money as they can, and if they continually come up against a situation where their earnings are inhibited, they’re less likely to offer that product, which means we’re probably less likely to reach out the targets that we’ve agreed to.
…
MR BURGESS: We have to beat the fare that’s put in front of us. So it would be, in this instance, 960, not 1000.
MR KELLY:And you are able to beat that price in this instance by acquiring the fare that Emirates still for 910 - - -
MR BURGESS: Yes.
MR KELLY:- - - but with a reduced margin payable. Is that what you’re saying?
MR BURGESS: That’s correct.
…
MR KELLY:- - - is that when it comes to remit the margin, you ordinarily say you’re automatically entitled on an Emirates sale to remit nine per cent, as I understand it.
MR BURGESS: Yes.
MR KELLY:That’s pursuant to some – is that a contract with Emirates, or just the terms on which Emirate make their fares available on the GDS?
MR BURGESS: Yes, it’s not really a contract, no. It’s not written anywhere that we get nine per cent, but that’s the standard industry rate that every travel agent gets.
MR KELLY:Right. An so when you remit the margin at the point of $960 ticket being processed, what is the margin on that?
MR BURGESS: Still nine – it’s nine per cent off the gross level. So we would be remitting, whether a customer came into our store with an Emirates quote giving a four per cent discount, or whether we’re quoting them direct, it doesn’t make any difference to the nett level. It’s still $910 in this example.
MR KELLY:Right
MR BURGESS: So we just would not make as much money on that customer.
Extrapolating this example so as to illustrate the benefit to Flight Centre of an airline making the direct sale fare available to Flight Centre via the GDS, or at least not selling directly to the public air travel at less than its published fare on the GDS, were the same, lower fare of $960 made available by the airline to the GDS with the customary 9% commission retained, Flight Centre’s commission income would be $86.40.
These relative advantages and disadvantages for Flight Centre were not confined to any one of the airlines in question but were, instead, pervasive during the material period. The three “problems” mentioned by Mr Burgess are highlighted by the examples given in the preceding paragraph. A would-be passenger, aware of the lower fare directly available from the airline, may not go to Flight Centre at all, thus depriving Flight Centre of undertaking a transaction (making the “sale”) that would yield or count towards the yielding of commission for it from the airline. If the would-be passenger, aware of the lower direct fare chose to deal with Flight Centre and brought that to its attention, Flight Centre’s “Price Beat Guarantee” policy would be applied and inevitably lead to lower net income for it from the transaction for the booking of that air travel.
When these “problems” for Flight Centre are understood, its “Price Beat Guarantee” policy appreciated and contemporary communications by Flight Centre with the airlines and the aide memoire are examined, Mr Turner’s negative answer to whether Flight Centre wanted the airlines to withdraw and his statement that, “We wanted access” truly does, as I have explained, conceal as much as it reveals. The word which is common to Mr Burgess’ email of 19 August 2005 early in the material period and the internal aide memoire prepared late in the material period is “undercut”. That is what Flight Centre was seeking to prevent by arrangement or understanding with each of the airlines concerned. The following answers (T.317) given by Mr Burgess in the course of cross examination concerning each of the five emails authored by him, which respectively form the basis of five of the alleged contraventions reveal rather than conceal this:
MR WILSON SC: And that in the five instances or the five occasions to which you were specifically taken yesterday, when you were asking for a fare to be made available to Flight Centre, it carried with it that meaning, that is, a fare that was going to be loaded onto the GDS and would attract a commission?
MR BURGESS: Ideally, yes.
MR WILSON SC: That’s what you were asking for?
MR BURGESS: Yes.
MR WILSON SC: And if the fare was then made available – I appreciate you said that sometimes it wasn’t, but if it was made available, Flight Centre would know at the time it sold that fare the percentage at-source commission it was entitled to?
MR BURGESS: Yes.
MR WILSON SC: Thank you. Now, we’re aware from documents, and you gave some evidence about this yesterday, that from time to time, international airlines offer to sell flights – or fares, I should say, directly to customers via their websites at a price lower than the published fare?
MR BURGESS: Yes.
MR WILSON SC: Can I suggest to you that when you use the word “undercut”, what you mean is what I’ve just described to you, that is, that the airline is offering for sale the flight, or the – I’m sorry, the fare at a price less than the published fare?
MR BURGESS: Yes.
Overall, I found Mr Burgess to be a more candid witness than Mr Turner.
Flight Centre put forward (para 28, Defence) that the relevant market was the market for the supply of international air passenger services. That market was but one of a number of alternative markets postulated by the Commission. Others were a market for booking services in respect of air travel and a market for the distribution of air travel.
Was the market in which Mr Burgess sent each of his emails and in which Mr Turner sent his email of 6 April 2009, as Flight Centre’s contended, aptly described as “the market for the supply of international air passenger services”? Or was so to describe the market to conflate separate but closely inter-related markets, a market for the provision by air carriers of air travel itself, i.e. a flight between given destinations and a market for the distribution and a market for the distributing to the would-be passenger/consumer of the flights made available by air carriers and the booking of the same?
The Commission submitted that the effect of this email was to propose the same kind of contract, arrangement or understanding as that the subject of charges 1 to 3. I agree.
Flight Centre on the other hand contended that, at its highest, the 31 December 2008 email should be seen merely as containing enquiries regarding various matters, including access to direct online fares, but that no proposal for arrangement or understanding can be derived from that email. Yet again, it submitted that the email omitted matters necessary to establish the alleged contract, agreement or understanding.
In his examination in chief (T.295, LL42-47 – T.296, LL1-4), Mr Burgess was asked about his purpose in sending the email of 31 December 2008:
MR DOYLE SC: …when you sent that [the 31 December 2008 email], did you intend to prevent [Emirates] from being able to determine the price of which it sold its direct fares?
MR BURGESS: No.
Mr DOYLE SC: Did you intend to constrain or restrict their decisions about what commission they paid you for those fares?
MR BURGESS: No.
MR DOYLE SC: What were you after?
MR BURGESS: Ideally, the same as what they were distributing direct. Ideally, with the commission that they said they paid us.
MR DOYLE SC: When you say the same do you mean access to be able to sell it?
MR BURGESS: Yes.
By contrast, in cross examination (T.325.33 - T.326.2), the following exchange took place:
MR WILSON SC: Do I understand that correctly to mean that Emirates was offering a price which was effectively four per cent less than Flight Centre could offer the fare for?
MR BURGESS: Yes, yes.
MR WILSON SC: And can I suggest to you that you are requesting Emirates not to do that?
MR BURGESS: I was requesting them to give the margin that they said they were giving us, yes.
MR WILSON SC: The - -
MR BURGESS: They – sorry. If they said that they were paying us seven per cent, I wanted seven per cent, effectively, yes.
MR WILSON SC: Well, there’s two propositions, I suggest, tied up in that answer. The first is that you wanted them to – when I say “them”, Emirates – to make available the fare to Flight Centre?
MR BURGESS: Yes.
MR WILSON SC: And you wanted it to be made available as a published fare, which carried with it the entitlement to a seven per cent commission?
MR BURGESS: Yes.
MR WILSON SC: You must agree, must you not, that that carried with it the request, if only inferentially, that Emirates not sell that same fare for a lesser price?
MR BURGESS: Yes.
Mr Burgess’ answers in cross-examination as to this email were candid and consistent with the language he employed in his email of 31 December 2008. In that email, it is the discounting of online fares directly available to the public which is one of the issues he puts to Emirates which needs to be addressed. The persuasive incentive or threat is overt, Flight Centre consultants will “steer” clients away from booking air travel with Emirates. Yet again, Flight Centre is endeavouring to persuade Emirates to eliminate air fare differentiation so as to retain its role as intermediary and so as to fix, control or maintain its reward for so acting, the retail or distribution margin. Further, the likely effect of any arrangement or understanding or as proposed would have been just that.
I consider that charge 4 is proved with the arrangement or understanding concerned being the same as with the earlier charges.
ALLEGED ATTEMPT 5
Malaysia Airlines Conduct (Mr Burgess)
The fifth alleged attempt relates to five emails sent on behalf Flight Centre by Mr Burgess to various members of Malaysia Airlines in the period February/March 2009. The emails were sent by him in the context of his seeking to negotiate on behalf Flight Centre a preferred airline agreement with Malaysia Airlines for 2009.
On 23 February 2009, Mr Burgess sent the following email to Ms Julia Loong of Malaysia Airlines:
Hi Julia,
I look forward to seeing you at 1100 on Wednesday to discuss this years [sic] agreement.
Following please find another example of online fares being significantly cheaper than we have available, see attached – and this time it is against your so called expo special.
I can assure you that if this practice continues MH [Malaysia Airlines] will not be invited to participate in any future events as I am sure you will understand – this situation is clearly now hurting our brand.
On 25 February 2009, Mr Burgess sent the another email to Ms Loong:
Hi Julia,
Following please find a brief summary of what I would like to discuss with you and Michael later this morning.
…
Online fears
Whilst I appreciate that MH [Malaysia Airlines] is finally looking at giving us acess [sic] to these fares, we do require a margin in order to be able to operate. As I am sure you can appreciate, we do what we do to make money.
As you are aware, half our consultants [sic] wage is based on commission, so if they are continually being put in a situation wh[ere] they are not able to make money they will stop offering the product which again will effect [sic] the amount of Business we can gi[ve] you this year.
...
I look forward to seeing both yourself and Manaf later this morning to discuss the above.
On 27 February 2009, Mr Burgess then sent the following email to various representatives of Malaysia Airlines:
Gentlemen,
Just a quick note to thank you again for lunch last Friday as well as for taking the time to come to BNE to listen to our grievances.
As discussed, I have no doubt that if you (MH) [Malaysia Airlines] change your pricing policies as discussed, 2009 could be relatively good year for you in Australia. I do however fear that unless this happens now, the damage that will be done to the MH [Malaysia Airlines] brand, certainly within Flight Centre, will some time to repair.
Continuing offers online such as the one outlined below only serve to alienate MH [Malaysia Airlines] with our consultants.
Once again, thank you for your time last week and I do hope to meet you all again sometime in the near future, hopefully to discuss how well we are doing on MH [Malaysia Airlines] this time!
About two hours later on 27 February 2009, Mr Burgess then sent the following email to Ms Loong:
Hi Julia, Manaf,
It was good to see you both on Wednesday.
I will send a summary in more detail about our meeting shortly. Prior to that however I do need to get a commitment from you in relation to your current online offers. These offers a [sic] continuing to cause us great pain financially with literally dozens of requests coming in each day for differences of between AUD400-500 per person.
As discussed with you these offers are also doing you a great deal of harm when it comes to our front line consultants.
A few questions:
Will these offers continue [sic]?
When will your fares be the same online as through the GDS?
When will your fuel be the same online as through the GDS?
What do we do with the current bookings we are holding – there is some AUD500 difference between our fare to LON and the fare online at present for example and we have a number of bookings that we are holding off on ticketening [sic].
[J]ulia, if you really want us to help you with the various promotions you have planned in the coming months, i.e. the 2 for 1 offer, swithching [sic] groups, “Preferred Rewards” etc. then this activity MUST stop. Until this happens we will not be able to commit to any activity.
I look forward to your urgent reply.
Finally, on 11 March 2009, Mr Burgess sent the following email to Ms Loong:
My apologies again for the delay in formally replying.
Following please find a brief summary of what was agreed as well as some suggestions on some other issues not agreed at our meeting of 25 February. Please let me know if there is anything that I have misunderstood.
…
Online fears
Whilst it is great that you will commonrate [sic] fares on the internet with GDS fares from 17 March I must again impress on you that we are not a charity and need a margin to operate.
I would like to suggest a margin of AUD30 on your cheapest (internet) fares.
This will ensure that you (MH) [Malaysia Airlines] do not alienate our frontline consultants by not providing any margin and therefore no earn for them personally. As explained, if our consultants are consistently not earning money by selling any given product, they will stop offering it as an option to potential clients. It is then very difficult to break this habit and get them selling the product again.
Whilst I acknowledge that they way we pay our staff is our concern, it is also yours in that it will limit the amount of business you receive from us if it is not acknowledged and embraced.
Julia, I am mindful of your deadline and provided we can agree on the above I am confident of getting the agreement signed off internally. I am also confident that we will have a relatively good year.
I am in SYD again on Tuesday if you would like to catch up to discuss anything further.
I look forward to your reply.
The Commission’s submission is that, read together, these five emails disclose an attempt to induce the making of a contract, arrangement or understanding having a provision which, as with other alleged contraventions, had two features - a pricing formula and an application of that formula to all direct fares (para 69, ASOC).
In cross-examination, Mr Burgess was asked about the collective effect of the above series of emails (T.323, LL23-36):
MR WILSON SC: Thank you. And can I put it in these terms, Mr Burgess, in this instance, and I’ve taken you across a number of emails several days apart, what you were proposing was that Flight Centre and Malaysia Airlines make an agreement or perhaps reach an understanding?
MR BURGESS: Yes, an understanding.
MR WILSON SC: And one of the elements of that understanding was that any particular fare Malaysia Airlines offered directly through its website would also be able to – would also be made available to be purchased through Flight Centre?
MR BURGESS: Yes.
MR WILSON SC: As a published fare?
MR BURGESS: Yes.
MR WILSON SC: And can I suggest to you that that carried with it the consequence, I say, obviously, and if you don’t agree with me, say so. The converse of that was that Malaysia Airlines would not sell that same fare for less than the published fare?
MR BURGESS: Yes.
Once again, I consider that Mr Burgess’ evidence in the passage quoted is candid and consistent with the contemporary language he employed in the five emails which he authored. The “commitment” Mr Burgess is seeking is the ending of air fare differentiation or as he put it, “online fares being significantly cheaper than we have available”. In so doing and as explained above, Mr Burgess was once more not just seeking access but to fix, control or maintain the retail or distribution margin which was a source of Flight Centre’s income and to eliminate the injurious consequences of lower direct fares on Flight Centre via its “price beat” policy. This purpose of Mr Burgess was also the likely effect of any resultant contract, arrangement or understanding which eliminated air fare differentiation as between Flight Centre and the airline. Mr Burgess’ persuader was, also once again, the exclusion of the airline from having flights with it promoted to would-be passengers via Flight Centre’s distribution network.
Flight Centre’s position with respect to these emails was the same as its position with respect to alleged attempts 1 to 4. It submitted that all that Mr Burgess sought in these emails was access to all fares, and that at no time did he seek to restrict the capacity of Malaysia Airlines to set its own fares or sell them. I disagree, as did Mr Burgess when pressed in cross-examination.
My conclusion is that charge 5 is proved and proved in a like way to the earlier charges.
ALLEGED ATTEMPT 6
3rd Singapore Airlines Conduct (Mr Turner)
On 12 May 2009 and on behalf of Flight Centre, Mr Turner sent an email to Mr Subhas Menon of Singapore Airlines:
Thanks Subhas,
I met with Theong in Singapore and we had a good discussion and I will follow up with some of the other geographies as and when it is needed.
As for Australia and NZ contracts I believe that we are meeting on Friday at lunch to either stitch up a mutally [sic] agreed arrangement or to go our separate ways.
If we at FCL can’t get agreement we will move in either of 2 ways. Neither we want to as first preference but we cannot in this environment take unjustified [sic] punts when there are plenty of carriers offering good product with a reasonable supply of seats available.
1.Stop Sell-with the help of Gal [Galileo] our consultants will see no availability in any SQ [Singapore Airlines] classes. If consultants want to book they do it through the SQ [Singapore Airlines] we site. (this is the favoured method by our contracting team)
Or
2.a Slow Sell-we work out the approx amount in earnings we are missing on an Airline and multiply it by 10 to come up with the amount of decreased revenue we will give the airline. eg for every $1m in decreased earning we will lose $10m of revenue on the carrier. Eg if we feel for a certain say 10% (excl soft) for any say $200m (for an example only) then every 1% under this we are not guaranteed we will take off $20m in sales. We are happy to show you exactly what and how we will do this. (tis [sic] is my favoured action as means we can still work together just at a lower level).
Subhas, I would like to get most things agreed before we meet on Friday or the visit may well be wasted. Then Friday would be about tying up loose ends or agreeing to walk away. The basics we want is very similar to other major carriers that we are continuing to work with as well as Hotel chains and Tour Operators.
1.A total guaranteed Margin on SQ [Singapore Airlines]. (we are happy to give an indicative volumne [sic] expectation but not to have it related to earnings as yield is too uncertain)
2.An agreement that we will not be undercut on the web. (This works against you and means we cannot get any even indicative volume targets as consultants cross sell when they fell they cant [sic] compete).
3. An indication of Fuel being included in the fare.
4.We would want an agreement that the deal and structure would have [sic] no bearing to other Retailers and it would be totally confidential-eg we were treated uniquely.
The same sort of issues will need to be agreed in NZ as well if possible.
Thank Subjhas [sic]- Graham Turner (Skroo)
Having received a reply to his earlier email of 12 May 2009, Mr Turner sent the following email to Mr Menon on 14 May 2009:
Subhas,
Thanks for your email – I have not looked at attachments as only access [sic] to blackberry so can’t comment except for a few generalisations.
…
4.The web is an issue and may be the clincher why may be best to go our separate ways. In this case we may allow consultants to book anything they have to through the SQ [Singapore Airlines] web site.
…
Subhas in the current market with all the seats around we can’t go with all carriers. I would like to hope we can resolve this but I accept what we need may be out of your court. So let’s see how we go and as long as we have a good discussion and conversation and explore all avenues we can’t do more. Be good to see you and chat tomorrow anyway. Regards Skroo (GT) …
On 16 May 2009, Mr Turner sent the following email to Mr Menon of Singapore Airlines:
Subhas,
Thanks to you and Dale for coming to Brisbane and having a chat with us. I know it is now easy at this time of the year. Also if we can come to an arrangement that is in the interests of both parties having an eye to eye meeting is a key ingredient I think. I will put to you what we would be willing to do. This is based on the fact that the paradigm on air product in these times have changed. We as retailers have a lot more control on who people fly with whilst Airlines which control pricing and yield and capacity, are currently fairly unpredictable in what sort of yield, capacity and pricing strategies they will use hence making targets meaningless to both parties.
These are the rates and conditions we will have to have SQ [Singapore Airlines] as a preferred carrier …
1. FULL PREFERRED CARRIER STATUS
…
f.Web Fares-the same conditions in the GDS as in the SQ [Singapore Airlines] web.
…
Overall as told to you before Subhas, we work on the basis that for every $1m under the income we are guaranteed that is a satisfactory amount to us we will take off some $10-$15m in revenue to the carrier-not to be mean but so we can put it into a carrier that is paying more generously so we are not out of pocket.
Thanks and Regards Skroo
These three above emails are said by the Commission collectively to constitute an attempt to induce Singapore Airlines to enter into a contract, agreement or understanding of the same kind as each of the other alleged attempts. They must be read in light of Mr Turner’s earlier email of 6 April 2009, which I have discussed above.
In his examination in chief, Mr Turner was asked about his purpose in writing the emails the subject of the sixth alleged attempt. The following exchange took place (at T.344, LL3-15):
MR DOYLE SC: Mr Turner, in your dealings with Singapore Airlines in relation to this year, that is, the 2009 year that we were talking about?
MR TURNER: Yes.
MR DOYLE SC: Did you seek to place a restriction on the airline’s ability to determine the price levels for the fares it offered?
MR TURNER: No.
MR DOYLE SC: Did you seek to prevent it from offering fares at a particular price on its website or through travel agents specialising in VFR fares?
MR TURNER: No. No.
MR DOYLE SC: Did you seek to have them withdraw particular fares from the market?
MR TURNER: No. We wanted access. That was our whole point if they were having other fares – cheaper fares.
MR DOYLE SC: Right. And for the reasons you’ve already given us?
MR TURNER: Yes.
The Commission relies on the following exchange from the cross examination of Mr Turner (T.353, LL4-28):
MR WILSON SC: But when you were having these discussions either via email or at a meeting with representatives of Singapore Airlines, your position is we want these fares on the GDS as published fares?
MR TURNER: Yes, and for two reasons, one because we want the price on that and we want the distribution through the GDS for ease of distribution for us.
MR WILSON SC: And so that Flight Centre earns a commission?
MR TURNER: Well, that would be assumed, yes, but as I say, it’s not always the case. We do not have a fallback, even if we don’t get the actual fully commissionable fares and different fares have different commission levels on at time, it’s the access that’s important as well as the actual airfare itself and the margin.
MR WILSON SC: I accept what you’ve just said, but what you were proposing to Singapore, that is, your desire was that it be loaded onto the GDS as a commissionable fare?
MR TURNER: Yes.
Mr Turner’s oral evidence, notably “it’s the access that’s important as well as the actual airfare itself and the margin” told only part of the story, the other he made crystal clear in item 2 of his email of 12 May 2009, “[a]n agreement that we will not be undercut on the web.” Viewed collectively, I consider that this email chain evidences the most blatant of all the charged attempts to induce. Mr Turner’s use of the word “undercut” is eloquent as to his purpose. He was seeking to eliminate air fare differentiation and thereby to fix, control or maintain Flight Centre’s retail or distribution margin. The threat or persuader is overt – Flight Centre and Singapore Airlines will go their separate ways with the airline not just losing the benefit of Flight Centre’s distribution network but having travel with other airlines promoted to would-be passengers. I consider that charge 6 is proved. The arrangement or understanding proposed is the same as with the other charges.
In summary, what is revealed is not an attempt induce the making of a contract, arrangement or understanding with respect to the supply of international air travel but rather one directed to the end removing air fare differentiation so as to eliminate or reduce competition by a substitute, an airline, for the retail or distribution margin for distribution and booking services. In this way, Flight Centre sought at least to maintain or control that margin and that was the likely effect of its attempts. Its conduct was an attempt to induce a contravention of s 45 of the TPA, as that section is read with s 45A.
There is a strong public interest in granting the Commission declaratory relief by reference to the basis of its alternative case. To that end, I propose to direct the parties to bring in short minutes of orders to give effect to the conclusions reached in these reasons for judgement. It will also be necessary to hear the parties on questions as to penalty and ancillary orders.
I certify that the preceding one hundred and ninety-eight (198) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 6 December 2013
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