Australian Competition and Consumer Commission v Qantas Airways Ltd - [2002] FCA 1354

FEDERAL COURT OF AUSTRALIA
Australian Competition & Consumer Commission v Qantas Airways Ltd [2002] FCA 1354
TRADE PRACTICE – PRACTICE & PROCEDURE – pleadings – motion to strike out amended statement of claim – claim under Trade Practices Act 1974 (Cth) s 46 – whether failure to adequately plead close substitutes – whether failure to adequately plead indirect airline service – whether failure to adequately plead the functional or time dimensions of markets alleged – whether failure to adequately distinguish between lawful competitive conduct and illegal activity – whether pleading that “substantial” barriers to entry into relevant market imprecise or embarrassing – whether failure to provide adequate particulars.
Trade Practices Act 1974 (Cth) ss 46, 76, 80 and 83
Goldsmith v Sandilands (2002) 190 ALR 370 applied
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION V QANTAS AIRWAYS LIMITED
N 408 OF 2002
BEAUMONT J
1 NOVEMBER 2002
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 408 OF 2002

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

QANTAS AIRWAYS LIMITED
RESPONDENT

JUDGE:

BEAUMONT J

DATE OF ORDER:

1 NOVEMBER 2002

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1. The matter is stood over to a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 408 OF 2002

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

QANTAS AIRWAYS LIMITED
RESPONDENT

JUDGE:

BEAUMONT J

DATE:

1 NOVEMBER 2002

PLACE:

SYDNEY

REASONS FOR JUDGMENT
(ON QANTAS’ MOTION TO STRIKE OUT THE WHOLE OR PART OF THE STATEMENT OF CLAIM AS A DEFECTIVE PLEADING)
BEAUMONT J:
INTRODUCTION

Before the Court is a motion by a respondent to strike out the whole or part of a statement of claim in the following circumstances.
By its amended application dated 11 October 2002 (“the Application”), the applicant, the Australian Competition and Consumer Commission (“the ACCC”), seeks declarations, injunctions, pecuniary penalties, findings of facts and other orders pursuant to ss 76, 80 and 83 of the Trade Practices Act 1974 (Cth) (“the TPA”) and s 21 of the Federal Court of Australia Act 1976 (Cth) against the respondent, Qantas Airways Limited (“Qantas”), in respect of its provision of airline services in a manner alleged to be contrary to s 46 of the TPA.
Section 46 provides:
“46     Misuse of market power
(1)A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
(a)eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
(b)preventing the entry of a person into that or any other market; or
(c)deterring or preventing a person from engaging in competitive conduct in that or any other market.
(1A)     For the purposes of subsection (1):
(a)the reference in paragraph (1)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and
(b)the reference in paragraphs (1)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.
…
(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:
(a)competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or
(b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.
(4)      In this section:
(a)a reference to power is a reference to market power;
(b)a reference to a market is a reference to a market for goods or services; and
(c)a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.
…
(7)Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.”
The details of the ACCC’s claim specified in the application are:
“1.A declaration that ... Qantas, having a substantial degree of power in the market for the supply to the public of scheduled passenger air transport services (‘airline services’) between places in Australia that have airports and associated facilities for the operation of commercial passenger aircraft (‘the Australian airline market’), has taken advantage of that power by, in response to the commencement of airline services between Adelaide and Brisbane by a competitor, ... Virgin Blue Airlines Pty Limited (‘Virgin’):
(a)adding additional direct capacity on 1 February 2001 to services between Adelaide and Brisbane and reducing fares, including continuing to offer fares at or below Virgin’s lowest fares for its Adelaide – Brisbane services while continuing to offer the benefits and additional services of a full service airline; and
(b)continuing to maintain the additional direct capacity between Adelaide and Brisbane that it introduced on 1 February 2001 and continuing to offer reduced fares including continuing to offer fares at or below Virgin’s lowest fares for its Adelaide – Brisbane services while continuing to offer the benefits and additional services of a full service airline, for a period of approximately 7 to 8 months,
where a substantial purpose of Qantas so doing was to:
(c)eliminate or substantially damage its competitor, Virgin; or
(d)deter or prevent its competitor, Virgin, from commencing airline services between other cities in Australia in competition with Qantas; or
(e)deter or prevent its competitor, Virgin, from engaging in competitive conduct,
and has thereby contravened section 46 of the Act.
2.Alternatively, a declaration that Qantas, having a substantial degree of power in the market for the supply to the public of airline services between Adelaide and Brisbane (‘the Adelaide – Brisbane market’), has taken advantage of that power by, in response to the commencement of airline services between Adelaide and Brisbane by a competitor, namely Virgin:
(a)adding additional direct capacity on 1 February 2001 to services between Adelaide and Brisbane and reducing fares, including continuing to offer fares at or below Virgin’s lowest fares for its Adelaide – Brisbane services while continuing to offer the benefits and additional services of a full service airline; and
(b)continuing to maintain the additional direct capacity between Adelaide and Brisbane that it introduced on 1 February 2001 and continuing to offer reduced fares including continuing to offer fares at or below Virgin’s lowest fares for its Adelaide – Brisbane services while continuing to offer the benefits and additional services of a full service airline, for a period of approximately 7 to 8 months,
where a substantial purpose of Qantas so doing was to:
(c)eliminate or substantially damage its competitor Virgin; or
(d)deter or prevent its competitor, Virgin, from commencing airline services between other cities in Australia in competition with Qantas; or
(e)deter or prevent its competitor, Virgin, from engaging in competitive conduct,
and has thereby contravened section 46 of the Act.
3.An injunction restraining Qantas for a period of five years ..., whether by itself, its servants, agents or otherwise howsoever from:
(a)adding additional flights or otherwise adding capacity between any places in Australia; or
(b)reducing its fares for airline services between any places in Australia; or
(c)increasing the number of seats offered at reduced fares between any places in Australia
when it has a substantial purpose in so doing of
(d)eliminating or substantially damaging a competitor of either Qantas or a body corporate related to Qantas; or
(e)preventing any person supplying airline services between any places in Australia; or
(f)deterring or preventing a person from engaging in competitive conduct in the Australian airline market or any other market in Australia for scheduled passenger airline transport services.
4.An order that Qantas pay to the Commonwealth of Australia such pecuniary penalty or penalties as the Court determines to be appropriate.
5.An order that Qantas develop and implement a new trade practices compliance program, or revise and update its existing trade practices compliance program, in relation to Part IV of the [TPA] in accordance with Australian Standard 3806, designed to prevent the repetition of the conduct declared to be in contravention of the [TPA], and to cause an independent audit of the application and effectiveness of the program to be conducted annually for a period of two years, with a report of such audit to be sent to the [ACCC].
6.Findings of fact pursuant to s 83 of the [TPA].
.... .”
By its present motion, Qantas seeks an order striking out the whole or part of the ACCC’s amended statement of claim dated 5 September 2002 (“the S/C”), on several grounds. In the first instance, Qantas has relied, in this connection, on “pleading”, as distinct from “demurrer”, grounds. That is to say, whilst Qantas contends that, on any interpretation of the S/C, no reasonable cause of action is therein disclosed, these reasons will consider only the logical anterior questions, that is to say, whether (to state Qantas’ argument compendiously here) the S/C lacks the requisite clarity, or is otherwise embarrassing to plead to.
THE ALLEGATIONS PLEADED
The S/C is a lengthy document, and, given the nature of the arguments now advanced for Qantas, it will be necessary to set out the material allegations in the S/C in full.
The S/C pleads the following:
“5.At all material times there has been a demand in Australia for supply to the public of scheduled passenger air transport services between places in Australia that have airports and associated facilities for the operation of commercial passenger aircraft (‘Australian airline services’) including, in each direction, between Adelaide and Brisbane.
6.Further, or alternatively, at all material times there has been a demand in Australia, or alternatively in Adelaide and Brisbane, for supply to the public of scheduled passenger air transport services in each direction between Adelaide and Brisbane (‘Adelaide – Brisbane services’).
7.By reason of its relative speed compared to other forms of public transport, there is no close substitute for scheduled passenger air transport services for members of the public wishing to travel between places in Australia that are more than 200 km apart, including for persons wishing to travel between Adelaide and Brisbane.
8.In the premises:
(a)there is a market for Australian airline services (‘the Australian airline market’), the geographic extent of which is Australia; or alternatively
(b)there is a market for Adelaide – Brisbane services (‘the Adelaide – Brisbane market’), the geographic extent of which is Australia or, alternatively, Adelaide and Brisbane.
9.Between 1 June 1999 and 14 September 2001, the demand for Australian airline services was met by the following airlines, in competition with each other:
(a)Qantas and its subsidiaries Airlink, Eastern Australia Airlines, Southern Australia Airlines and Sunstate Airlines;
(b)Ansett and its subsidiaries Aeropelican Air Services, Hazelton Airlines, Kendell Airlines and Skywest Airlines;
(c)from 31 August 2000 Virgin;
(d)until 14 May 2001, when it leased all its aircraft to Qantas, Impulse Airlines Pty Ltd (‘Impulse’); and
(e)various regional airlines, which do not primarily or substantially operate between capital cities in Australia.
10.Between 1 June 1999 and 1 November 2000, the demand for Adelaide – Brisbane services was met by the following airlines, in competition with each other:
(a)       Qantas, which operated:
(i)approximately 13 direct services per week from Adelaide to Brisbane;
(ii)approximately 10 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide‑Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(b)        Ansett, which operated:
(i)approximately 7 direct services per week from Adelaide to Brisbane;
(ii)approximately 7 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide ‑ Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra,
a total of approximately 37 direct services per week between Adelaide and Brisbane plus various indirect services via Sydney, Melbourne or Canberra.
11.Between 1 November 2000 and 7 December 2000 the demand for Adelaide – Brisbane services was met by the following airlines, in competition with each other:
(a)       Qantas, which operated:
(i)approximately 13 direct services per week from Adelaide to Brisbane;
(ii)approximately 13 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide ‑ Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(b)       Ansett, which operated:
(i)approximately 7 direct services per week from Adelaide to Brisbane;
(ii)approximately 7 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide ‑ Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra,
a total of approximately 40 direct services per week between Adelaide and Brisbane plus various indirect services via Sydney, Melbourne or Canberra.
12.Between 7 December 2000 and 15 December 2000 the demand for Adelaide – Brisbane services was met by the following airlines, in competition with each other:
(a)       Qantas, which operated:
(i)approximately 13 direct services per week from Adelaide to Brisbane;
(ii)approximately 13 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide ‑ Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(b)       Ansett, which operated:
(i)approximately 7 direct services per week from Adelaide to Brisbane;
(ii)approximately 7 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide ‑ Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(c)       Virgin, which operated:
(i)approximately 7 direct services per week from Adelaide to Brisbane; and
(ii)approximately 7 direct services per week from Brisbane to Adelaide,
a total of approximately 54 direct services per week between Adelaide and Brisbane plus various indirect services via Sydney, Melbourne or Canberra.
13.Between 15 December 2000 and 1 February 2001 the demand for Adelaide – Brisbane services was met by the following airlines, in competition with each other:
(a)       Qantas, which operated:
(i)approximately 13 direct services per week from Adelaide to Brisbane;
(ii)approximately 13 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide ‑ Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(b)       Ansett, which operated:
(i)approximately 7 direct services per week from Adelaide to Brisbane;
(ii)approximately 7 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide – Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(c)       Virgin, which operated:
(i)approximately 14 direct services per week from Adelaide to Brisbane; and
(ii)approximately 14 direct services per week from Brisbane to Adelaide,
a total of approximately 68 direct services per week between Adelaide and Brisbane plus various indirect services via Sydney, Melbourne or Canberra.
14.Between 1 February 2001 and 14 September 2001 the demand for Adelaide – Brisbane services was met by the following airlines, in competition with each other:
(a)       Qantas, which operated:
(i)approximately 19 direct services per week from Adelaide to Brisbane;
(ii)approximately 20 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide – Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(b)       Ansett, which operated:
(i)approximately 7 direct services per week from Adelaide to Brisbane;
(ii)approximately 7 direct services per week from Brisbane to Adelaide; and
(iii)various indirect services which were marketed to the public as Adelaide – Brisbane services but which travelled between Adelaide and Brisbane via Sydney, Melbourne or Canberra;
(c)       Virgin, which operated:
(i)approximately 14 direct services per week from Adelaide to Brisbane; and
(ii)approximately 14 direct services per week from Brisbane to Adelaide,
a total of approximately 81 direct services per week between Adelaide and Brisbane plus various indirect services via Sydney, Melbourne or Canberra.
15.Airlines prepare their schedules and market their services on the basis that most potential passengers prefer, other things being equal, for reasons of time and convenience, to travel on a direct service to their destination rather than an indirect service.
16.At all material times Australian government regulation permitted only Australian‑based airlines to carry domestic passengers and freight. International airlines were prohibited from transporting domestic passengers. These restrictions are collectively termed ‘cabotage’.
17.At all material times, in order to commence offering scheduled passenger air transport services in Australia between specific destinations, a new entrant required inter alia:
(a)an air operating certificate to operate such service which was granted only upon condition that, inter alia:
(i)all aircraft and facilities proposed to be used are inspected and approved;
(ii)       a compliance statement is prepared and approved;
(iii)the person’s identity, financial position and corporate management is established and approved;
(iv)flight manuals for each type of aircraft proposed to be used are prepared and approved;
(v)flight attendant operations manuals are prepared and approved;
(vi)training and checking manuals are prepared and approved;
(b)approval of the Foreign Investment Review Board, if the carrier has substantial foreign investment;
(c)sufficient aircraft and appropriately trained staff to provide the service;
(d)access to sufficient capital to enable the person to carry on business until it becomes established;
(e)the ability to incur substantial sunk costs, including advertising and promotional fares, to develop customer awareness of the service;
(f)access to airport terminals, hangars, baggage handlers, ticket counters and associated operating and maintenance facilities within Australia at all those cities to and from which the entrant proposes to operate;
(g)information and computer systems necessary to support an airline; and
(h)landing rights (‘slots’) at airports to and from which the entrant proposes to operate at times that are attractive to customers. If services to or from Sydney are to be offered, there are only a limited number of slots available at Sydney airport which are offered by way of a ‘bid’ system.
18.At all material times, in order to commence offering scheduled passenger air transport services between Adelaide and Brisbane, a new entrant required inter alia:
(a)the matters referred to in paragraph 17(a) ‑ (e);
(b)access to airport terminals, hangars, baggage handlers, ticket counters and associated operating and maintenance facilities in Adelaide and Brisbane; and
(c)information and computer systems necessary to support an airline operating between Adelaide and Brisbane; and
(d)slots at Adelaide airport and Brisbane airport at times that are attractive to customers.
19.At all material times, an airline that had entered the Australian airline market and wished to expand its operations or network by competing on a new route, including between, in each direction, Adelaide and Brisbane, or which wished to enter the Adelaide ‑ Brisbane market, incurs higher costs relative to those of an incumbent, of switching the use of its aircraft between the various routes on which it could seek to operate including:
(a)sunk costs of obtaining an air operating certificate and approvals that authorise it to operate on the new route;
(b)costs of acquiring sufficient additional aircraft and appropriately trained staff to provide the service or, if aircraft are taken from an existing route and not replaced, losing its investment on that existing route;
(c)sunk costs of acquiring and maintaining terminal and other operating facilities in the airports it proposes to operate to and from; and
(d)sunk costs of advertising and promotional fares to establish awareness of operations on the new route.
20.At all material times, a barrier to entry into the Australian airline market or the Adelaide ‑ Brisbane market, and, or alternatively, to expansion within the Australian airline market, was the presence in the market of Qantas, which had and has the competitive strengths and advantages pleaded in paragraph 25.
21.At all material times, a barrier to entry into the Australian airline market or the Adelaide ‑ Brisbane market, and, or alternatively, to expansion within the Australian airline market, was the known risk of Qantas increasing the capacity it offered on such routes that a new entrant may seek to operate on and, or alternatively, reducing its fares on those routes (including by matching or undercutting those of a new entrant), even if the new entrant had substantially lower operating costs than Qantas and even if Qantas sustained substantial losses on such route in so doing, thereby making it unprofitable for the new entrant to operate on that route.
22.At all material times, a barrier to entry into the Australian airline market or the Adelaide ‑ Brisbane market, and, or alternatively, to expansion within the Australian airline market, was the known risk of entering a market with a history of repeated failed entry by new competitors.
23.By reason of the matters pleaded in paragraphs 16 ‑ 17 and 19 ‑ 22, at all material times, including in the period 1 June 1999 to 14 September 2001, there were substantial barriers to entry into and, or alternatively, expansion in the Australian airline market.
24.By reason of the matters pleaded in paragraphs 16 and 18 ‑ 22, at all material times, including in the period 1 June 1999 to 14 September 2001, there were substantial barriers to entry into the Adelaide ‑ Brisbane market.
25.      At all material times since June 1999, Qantas has had:
(a)an operating licence to carry domestic passengers in Australia;
(b)a large fleet of aircraft operating both domestically and internationally, which as at 30 June 2000 comprised approximately 147 aircraft, as at 31 December 2000 approximately 156 aircraft and as at 24 August 2001 approximately 178 aircraft;
(c)the ability to keep its fleet fully and properly maintained at all times in accordance with Civil Aviation Safety Authority (‘CASA’) requirements;
(d)the ability to use its international fleet domestically, and vice versa, if desired;
(e)the ability to exchange readily and efficiently its aircraft upon various routes in Australia so as to change the frequency and capacity of its services between various cities (subject to operating constraints such as available slots in those cities) as it wished;
(f)the ability to add, readily and without incurring substantial sunk costs, additional aircraft to a route on which it operated in the event that a competitor commenced airline services on that route;
(g)the ability to expand its fleet and to invest in new aircraft, equipment and operating systems;
(h)terminal facilities and associated infrastructure at all major airports in Australia;
(i)slots at major airports at times attractive to customers;
(j)slots available at attractive times in Sydney;
(k)a national network offering services between all major centres in Australia which made it unattractive or inconvenient for passengers, other than origin/destination passengers, to switch to a competitor that did not have such a network;
(1)the greatest number and frequency of flights in the Australian airline market;
(m)access to capital through its ability to issue shares, through its ability to borrow against its very substantial net assets, and strong cashflows from its domestic and international operations;
(n)the ability to price discriminate between the various routes on which it offered airline services so that, in the event there was a new entrant on one of those routes, it could greatly reduce its fares on that route and even thereby incur losses on that route whilst retaining its profitability on other routes and remaining profitable overall;
(o)the ability to operate on a particular route or operate a particular flight or service which generates revenue levels that are below its total cost and below its average variable cost and below its avoidable cost of operating on that route or operating that flight or service and nevertheless remain profitable overall;
(p)the ability, by reason of its financial position, to sustain losses on any particular route in Australia longer than any of its competitors on that route;
(q)established distribution channels through travel agents and other commission agents;
(r)vertical integration in support functions such as repair, maintenance and catering;
(s)vertical integration into holiday destinations and resorts;
(t)a very strong brand that has been established for 80 years and that is and has been very well recognised and respected and is and has been maintained by extensive corporate advertising;
(u)a reputation in the world for safe operation;
(v)loyalty programs including a frequent flyer program;
(w)special lounges for frequent and business travellers which provide telephone, computer and fax services together with conference rooms and meeting rooms and complimentary food and beverages;
(x)special seating and configuration on its aircraft for business travellers offering a higher level of comfort and service;
(y)access to customers through its interconnectivity with both its international and domestic network;
(z)access to customers through its alliances with other airlines, including international airlines;
(aa)access to customers through its codesharing agreements with other international airlines;
(bb)interlining, that is, the ability to have tickets for its flights issued by other international and domestic carriers and to book its passengers on flights with other international and domestic carriers;
(cc)long term corporate and government contracts by which those entities contracted to use its services for terms of years;
(dd)the ability, through its brand, safety reputation, special lounges and seating, loyalty programs, network and long term contracts, to make it unattractive, inconvenient or impossible for some of its customers, and particularly its high fare category customers, to switch to a competitor;
(ee)a market share substantially in excess of that of its competitors.
26.At all material times prior to 14 September 2001, and in the period 1 June 1999 to 14 September 2001, Ansett:
(a)had an operating licence to carry domestic passengers in Australia;
(b)had a fleet of aircraft operating both domestically and internationally which was substantially smaller than Qantas’ fleet but substantially in excess of that of its other competitors, comprising approximately 122 aircraft as at 30 June 1999 and approximately 129 aircraft as at 12 September 2001;
(c)did not have the ability to keep its fleet fully and properly maintained at all times in accordance with CASA requirements;
(d)had the ability to use its international fleet of approximately 3 aircraft domestically, and vice versa, if desired, however by reason of its small international fleet it was significantly less able to do so than Qantas;
(e)had the ability to readily and efficiently exchange its aircraft upon various routes in Australia so as to change the frequency and capacity of its services between various cities (subject to operating constraints such as available slots in those cities) as it wished, however by reason of its smaller fleet had less ability to do so than Qantas;
(f)had the ability to readily and without incurring substantial sunk costs, add additional aircraft to a route in the event that a competitor commenced airline services on that route, however by reason of its financial position and smaller fleet had significantly less ability to do so than Qantas;
(g)had no substantial ability to expand its fleet and to invest in new aircraft, equipment and operating systems due to its financial position;
(h)had terminal facilities and associated infrastructure at all major airports in Australia;
(i)had slots at major airports at times attractive to customers;
(j)had slots available at attractive times in Sydney;
(k)had a national network offering services between all major centres in Australia which made it unattractive or inconvenient for passengers, other than origin/destination passengers to switch to a competitor that did not have such a network;
(1)had the second largest number and frequency of flights in the Australian airline market;
(m)had higher operating costs than Qantas;
(n)did not have significant access to capital either through its ability to issue shares or through its ability to borrow against its net assets, and did not have strong cashflows from its domestic or international operations;
(o)had some ability to price discriminate between the various routes on which it offered airline services so that, in the event there was a new entrant on one of those routes, it could greatly reduce its fares on that route and even thereby incur losses on that route whilst retaining its profitability on other routes and remaining profitable overall, however due to its financial position had significantly less ability to do so, and to sustain doing so, than Qantas;
(p)had some ability to operate on a particular route or operate a particular flight or service which generated revenue levels that were below its total cost and below its average variable cost and below its avoidable cost of operating on that route or operating that flight or service and nevertheless remain profitable overall, however due to its financial position had significantly less ability to do so, and to sustain doing so, than Qantas;
(q)did not have the ability, by reason of its financial position, to sustain losses on any particular route in Australia longer than any of its competitors on that route, including Qantas;
(r)had established distribution channels through travel agents and other commission agents;
(s)had vertical integration in support functions such as repair, maintenance and catering;
(t)had vertical integration into holiday destinations and resorts;
(u)had a strong brand that was well recognised and was maintained by extensive corporate advertising;
(v)prior to December 2000 did not have as strong a reputation for safety as Qantas, and subsequent to December 2000, January 2001 and April 2001 had a further diminished reputation for safety by reason of the matters pleaded at paragraphs 31 and 32;
(w)had loyalty programs including a frequent flyer program;
(x)had special lounges for frequent and business travellers which provided telephone, computer and fax services together with conference rooms and meeting rooms and complimentary food and beverages;
(y)had special seating and configuration on its aircraft for business travellers offering a higher level of comfort and service;
(z)had, although to a lesser degree than Qantas because of its very limited international operations, access to customers through its interconnectivity with both its international and domestic network;
(aa)had access to customers through its alliances with other airlines, including the Star Alliance;
(bb)had access to customers through its codesharing agreements with other international airlines;
(cc)had long term corporate and government contracts by which those entities contracted to use its services for terms of years;
(dd)had the ability to offer interlining;
(ee)had the ability, through its brand, special lounges and seating, loyalty programs, network and long term contracts to make it unattractive, inconvenient or impossible for some of its customers, and particularly its high fare category customers, to switch to a competitor;
(ff)had a market share substantially smaller than Qantas but substantially in excess of that of its other competitors.
27.      Between 1 June 1999 and 14 September 2001 Virgin:
(a)entered the Australian airline market with a fleet of approximately 6 aircraft operating domestically only, which fleet increased to approximately 9 aircraft by 14 September 2001;
(b)had the ability to keep its fleet fully and properly maintained at all times in accordance with CASA requirements;
(c)had very limited ability to exchange its aircraft upon routes between the cities listed in subparagraph (e) so as to change the frequency and capacity of its services between those cities (subject to operating constraints such as available slots in those cities) due to the relatively small number of aircraft it operated;
(d)had a limited ability to expand its fleet and to invest in new aircraft, equipment and operating systems;
(e)had access to terminal facilities at Brisbane and Sydney when it entered the Australian airline market and subsequently by 14 September 2001 had also obtained access to terminal facilities at Melbourne, Adelaide, Townsville, Coolangatta and Canberra;
(f)had obtained, as required, an operating licence to carry domestic passengers in Australia between the cities listed in subparagraph (e);
(g)had slots available at airports in the cities listed in subparagraph (e) at times attractive to customers;
(h)had slots available at attractive times in Sydney, although less than Qantas or Ansett;
(i)had limited ability to borrow against its net assets and limited cashflows, but had access to its set up capital;
(j)had very limited ability to price discriminate between the various routes on which it offered airline services due to its small network and intense competition on all routes on which it operated;
(k)had very limited ability to operate on a particular route or operate a particular flight or service which generated revenue levels that were below its total cost and below its average variable cost and below its avoidable cost of operating on that route or operating that flight or service and nevertheless remain profitable overall due to its small network and the relatively small number of aircraft it operated and intense competition on all routes it operated;
(1)did not have any of the attributes or abilities listed in paragraphs 25(d), (f), (k), (1), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (aa), (bb), (cc), (dd) and (ee).
28.      At all material times until 14 May 2001 Impulse:
(a)had a fleet of aircraft operating on regional routes within Australia and, from 5 June 2000, operating on some routes between capital cities in Australia in competition with Qantas and Ansett, such fleet comprising 21 aircraft as at 14 May 2001;
(b)had the ability to keep its fleet fully and properly maintained at all times in accordance with CASA requirements;
(c)had very limited ability to exchange its aircraft upon routes between the cities listed in subparagraph (e) so as to change the frequency and capacity of its services between those cities (subject to operating constraints such as available slots in those cities) due to the relatively small number of aircraft it operated;
(d)had a limited ability to expand its fleet and to invest in new aircraft, equipment and operating systems;
(e)had access to terminal facilities at various regional airports and at some airports in capital cities for the purposes of its regional services and, between 5 June 2000 when it expanded onto routes between capital cities in Australia in competition with Qantas and Ansett and 14 May 2001 when it leased all its aircraft to Qantas, gained access to terminal facilities at Brisbane, Sydney, Melbourne, Canberra and Hobart for the purposes of operating services on routes between capital cities in Australia in competition with Qantas and Ansett;
(f)had obtained, as required, an operating licence to carry domestic passengers in Australia between the cities listed in subparagraph (e);
(g)had slots available at airports in the cities listed in subparagraph (e) at times attractive to customers;
(h)had slots available at attractive times in Sydney, although less than Qantas or Ansett;
(i)had limited ability to borrow against its net assets and limited cashflows, but had access to its set up capital;
(j)had very limited ability to price discriminate between the various routes on which it offered airline services due to its small network and intense competition on all routes on which it operated in competition with Qantas and Ansett;
(k)had very limited ability to operate on a particular route or operate a particular flight or service which generated revenue levels that were below its total cost and below its average variable cost and below its avoidable cost of operating on that route or operating that flight or service and nevertheless remain profitable overall due to its small network and the relatively small number of aircraft it operated;
(1)did not have any of the attributes or abilities listed in paragraphs 25(d), (f), (k), (1), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (aa), (bb), (cc), (dd) and (ee).
29.Prior to Impulse expanding its services onto routes between capital cities in Australia in competition with Qantas and Ansett, and Virgin entering the Australian airline market, Qantas’ market share in the Australian airline market was increasing and Ansett’s was declining.
30.      The matters pleaded in paragraphs 25 ‑ 29 were known to Qantas.
31.Shortly prior to Christmas 2000 seven of Ansett’s fleet of ten Boeing 767 aircraft were grounded by CASA because of Ansett’s failure to undertake required inspection and maintenance in respect of those aircraft. On or about 18 January 2001, CASA again grounded three of these aircraft.
32.On 12 April 2001, all ten of Ansett’s 767 fleet were grounded by CASA over the Easter period because of Ansett’s further failure to undertake required inspection and maintenance.
33.The groundings by CASA, and in particular those occurring at times of peak customer demand at Christmas and Easter, lessened Ansett’s ability to compete with Qantas.
34.By reason of the matters pleaded in paragraphs 26(b), (c), (d), (e), (f), (g), (1), (m), (n), (o), (p), (q), (v), (z) and (ff) and 31 ‑ 33, at no material time in the period 1 June 1999 to 14 September 2001 was Ansett financially able to sustain a prolonged price war with Qantas in the Australian airline market or the Adelaide ‑ Brisbane market.
35.Between about 30 October 1993 when Southern Cross Airlines Pty Ltd, trading as Compass, ceased competing in the Australian airline market and about 5 June 2000 when Impulse expanded its services onto routes between capital cities in Australia in competition with Qantas and Ansett, each of Qantas and Ansett had generally offered fares in the Australian airline market at the same levels and on the same conditions. Those fares were overall substantially above the cost of providing the services including in the case of Adelaide ‑ Brisbane services.
36.Since at least 19 December 2000, Qantas believed, by reason of the matters pleaded in paragraphs 25, 26, 29, 34, 35, 40, 41, 42 and 45, that if Virgin and Impulse could be deterred from supplying airline services on a particular route within the Australian airline market, then the average fare on that route (that is, the total fare revenue from all passengers on the route divided by the total number of passengers) would remain at, or return to, the level or substantially the level of average fare attained by it prior to Virgin’s entry into, or Impulse’s expansion in, the Australian airline market because Ansett would not act, or alternatively was unlikely to act, to restrain Qantas from attaining that level of average fare.
37.By reason of the matters pleaded in paragraphs 25, 26 and 29 ‑ 36, at all material times in the period 1 June 1999 to 14 September 2001 Ansett had insufficient power to materially constrain Qantas in the Australian airline market or in the Adelaide – Brisbane market.
38.By reason of the matters pleaded in paragraphs 25, 27, 28 and 30, at all material times in the period 1 June 1999 to 14 September 2001 Virgin and Impulse had insufficient power to materially constrain Qantas in the Australian airline market or in the Adelaide ‑ Brisbane market.
39.By reason of the matters pleaded in paragraphs 16 ‑ 38, at all material times Qantas had a substantial degree of power in the Australian airline market or alternatively the Adelaide ‑ Brisbane market.
40.At all material times, Qantas (and Ansett, when it was operating) directed its services to all segments of the Australian airline market or alternatively the Adelaide ‑ Brisbane market, including business travellers and others who travel frequently as well as leisure travellers and those who travel infrequently.
41.Full service airlines are airlines which generally provide their passengers with certain benefits or services in addition to the carriage of passengers including offering:
(a)their own well appointed terminals with lounges for customers;
(b)special or exclusive lounges for frequent travellers such as the Chairmans Lounge and Qantas Club in the case of Qantas and the Golden Wing lounge in the case of Ansett which provide telephone, computer and fax services together with conference rooms and meeting rooms and complimentary food and beverages;
(c)frequent flyer and other loyalty programmes which offer customers free travel or other benefits by reason of their repeated use of a particular airline;
(d)a business class section of the cabin that offers seats that are larger and have more leg room and high levels of service;
(e)seats in economy class that have a minimum pitch or distance between them of 32 inches;
(f)aero bridges at terminals for boarding and disembarking aircraft;
(g)complimentary meals and beverages during flights;
(h)inflight entertainment such as movies, television and a selection of music and radio programmes;
(i)more cabin staff than the minimum legal requirements;
(j)additional services such as valet parking;
(k)hard copy tickets if so required by customers;
(1)the ability to book flights through travel agents, as well as by telephone or by the internet; and
(m)interlining.
42.At all material times in the provision of Australian airline services, Qantas and Ansett operated as full service airlines and provided the benefits and additional services referred to in paragraph 41 above, or a substantial number of these benefits and additional services.
43.Low cost airlines, as opposed to full service airlines, are airlines which do not provide the benefits and additional services referred to in paragraph 41, or alternatively do not provide most of those benefits and additional services.
44.At all material times, Virgin operated as a low cost airline, in that it did not offer the benefits and additional services pleaded in paragraph 41, other than it offered bookings through travel agents as well as by telephone or by the internet.
45.Because of their provision of the benefits and additional services referred to in paragraph 41, at all material times the operating costs of full service airlines including Qantas (and Ansett when it was operating) were substantially higher than those of low cost airlines including Virgin.
46.The business model used by low cost airlines, including Virgin, is to have very low costs compared to full service airlines and, therefore, to be in a position to offer profitably regular fare categories which are substantially lower than the nearest equivalent in all fare categories offered by full service airlines, disregarding promotional fares and fares introduced by full service airlines as a response to low cost airlines.
47.Low cost airlines, including Virgin, also seek to stimulate additional demand in the markets in which they operate by offering low fares and thereby inducing more people to travel who otherwise would not.
48.Low cost airlines, including Virgin, must offer lower fares than full service airlines in order to attract customers because of the lower standard of their service, comfort and facilities.
49.By reason of:
(a)the fact that, at all material times, Virgin operated as a low cost airline and did not provide the benefits and additional services that Qantas or Ansett did, as referred to in paragraph 41, other than it offered bookings through travel agents as well as by telephone or by the internet;
(b)the fact that Virgin entered into flexible enterprise agreements with staff which kept overall staff costs significantly lower than the staff costs incurred by Qantas and Ansett;
(c)the fact that Virgin operated only one type of aircraft and thereby reduced additional staff training and ongoing operational costs; and
(d)the fact that Virgin did not use aerobridges where this could be avoided and thus could embark and disembark passengers faster and did not require the use of tugs,
at all material times Virgin's operating costs were substantially lower than the operating costs of Qantas and Ansett.
50.The profitability of an airline (including Qantas, Ansett and Virgin) on a particular route is and was at all material times dependent upon it obtaining a sufficient number of passengers on its flight (the ‘load factor’ or ‘seat factor’) at a sufficient yield per passenger (the average revenue per passenger, generally expressed in cents per kilometre travelled) to exceed its operating costs.
51.In order to maximise the revenue obtained from any particular flight, airlines (including Qantas, Ansett and Virgin) offer a range of fare categories or ‘buckets’ at different fares. The fare categories are distinguished by the class of seat (business or economy) offered, the conditions that may attach to the fare or simply the number of seats at a particular fare an airline chooses to offer. The conditions on tickets include:
(a)the period in advance that the fare must be booked and paid for;
(b)requirements such as overnight or weekend stays at the destination before returning;
(c)restrictions on the ability to change or cancel a booking and/or the imposition of additional charges for doing so; and
(d)permitting booking only via the internet instead of using a travel agent (which charges a commission to the airline).
52.Business class is a fare category that is and was at all material times offered by full service airlines including Qantas (and, when it was operating, Ansett) and differs from economy class in that it includes within the fare additional benefits such as larger and more comfortable seats, greater distance between the seats, complimentary alcoholic and other beverages and better in flight service with a higher ratio of flight attendants to passengers. It is also located at the front of the aircraft so that such passengers can be the last to board and the first to disembark.
53.At all material times Virgin only offered one class in its aircraft and did not offer or have a business class fare category.
54.The most expensive fare categories offered by airlines, including Qantas and Virgin (and, when it was operating, Ansett), are those in the highest class offered with the least restrictive conditions and, generally, those booked nearest the time of departure. The cheapest fare categories are, conversely, those in the lowest class with the most restrictive conditions which generally are available only well in advance of the time of departure.
55.The system by which airlines, including Qantas and Virgin (and, when it was operating, Ansett), seek to optimise the revenue derived from the mix of high, medium and low fare categories for any particular flight is known as a yield management system. Yield management operates by:
(a)restricting the number of seats offered in low fare categories so that, once these are taken, customers requiring travel on a particular flight must either pay a higher fare to travel on the flight they want or travel at another time;
(b)if, for a particular flight, there are insufficient advance bookings to fill a particular higher fare category, increasing the number of seats available in a cheaper category;
(c)if, for a particular flight, there is strong demand for a higher fare category, reducing the numbers of seats in the cheaper fare categories;
(d)in periods of peak demand or on flights at historically popular times, such as Christmas, Easter and the beginning and end of school holidays, offering no or very few low fare category seats;
(e)permitting no or very few passengers who are entitled to free travel by virtue of their participation in a frequent flyer program to travel on flights for which there is strong demand or which are at historically popular times;
(f)constantly monitoring the airline’s bookings and loadings to adjust the number of seats available in particular categories to ensure, as far as the airline is able, that the highest number of customers travel in the most expensive fare category those customers are prepared to.
56.As part of managing their own yield and anticipating demand for various fare categories, airlines, including Qantas and Virgin (and, when it was operating, Ansett), also constantly monitor, or attempt to monitor, the fares and conditions offered by their competitors and the number of seats each competitor is offering in a particular category at a particular fare.
57.The effect of adding substantial capacity on a particular route serviced by an airline, that is, offering, additional seats by either increasing the size of operating aircraft or offering additional flights or both, is to lower the seat factors of all the competitors on that route unless this is offset by reducing average fares to induce additional persons to travel or there is unmet demand at least equivalent to the amount of capacity added.
58.The effect of reducing average fares is to lower the yield per passenger.
59.If there is no substantial unmet demand for travel on a particular airline route at existing fares, and substantial additional capacity is made available on that route, the yield management systems used by airlines, including Qantas and Virgin (and, when it was operating, Ansett), will operate to make more low fare category seats available on that route.
60.Since at least August 1999, Qantas instructed its staff, including senior staff, to:
(a)research the likely impacts on it of the entry of a low cost airline into the Australian airline market;
(b)monitor possible entry of a low cost airline into the Australian airline market;
(c)develop strategies to deal with or respond to the entry of a low cost airline into the Australian airline market;
(d)report variously to its Board, its Executive Committee and its senior managers on that research, monitoring and the proposed strategies.
61.Virgin entered the Australian airline market and commenced offering services between Brisbane and Sydney on 31 August 2000.
62.On 9 September 2000 Virgin announced it would commence two daily direct services each way between Adelaide and Brisbane by 1 February 2001.
63.At the time of that announcement, Qantas operated approximately thirteen direct services per week from Adelaide to Brisbane and approximately ten direct services per week from Brisbane to Adelaide, as well as indirect services via Sydney, Melbourne and/or Canberra. Ansett offered one daily direct service each way as well as indirect services via Sydney, Melbourne and/or Canberra.
64.By about 1 November 2000 Qantas had added a further three direct services per week from Brisbane to Adelaide, thereby offering a double daily direct service each way on that route, in addition to indirect services via Sydney, Melbourne and/or Canberra.
65.On or about 2 November 2000 Virgin announced that it would move its commencement of two daily direct services each way between Adelaide and Brisbane forward to 15 December 2000. It also announced that the highest fare to be offered by Virgin for Adelaide ‑ Brisbane services was $598.00 return.
66.As at 2 November 2000, the full economy fare offered by both Qantas and Ansett for travel between Adelaide and Brisbane was $1,104.40 return.
67.On 7 December 2000 Virgin commenced operations between Adelaide and Brisbane with a single daily direct service each way.
68.On 15 December 2000 Virgin commenced operating a double daily direct service each way between Adelaide and Brisbane.
69.On or about 19 December 2000, the Executive Committee of Qantas (which included from time to time Qantas’ Chief Executive Officer, Deputy Chief Executive Officer, Chief Financial Officer, Deputy Chief Financial Officer and the Executive General Managers of each of Qantas’ operational branches) considered a report and recommendations to it concerning possible responses to Virgin and Impulse entering into the Australian airline market.
70.On 22 December 2000 Qantas gave effect to a decision, in response to the commencement of airline services by Virgin between Adelaide and Brisbane, to implement a third daily direct service each way between Adelaide and Brisbane from 1 February 2001 by announcing the third daily direct service to the public and travel agents and accepting bookings for those flights.
71.On or about 1 February 2001, Qantas increased its own direct capacity between Adelaide and Brisbane by approximately 50% by adding a further daily direct service each way between Adelaide and Brisbane and thereby from 1 February 2001 operated a triple daily direct service each way on that route.
72.Since at least 31 August 2000 and until at least 14 September 2001, Qantas adopted and implemented a policy of matching the lowest fare offered by Virgin from time to time for Australian airline services, apart from possibly Virgin’s very low introductory fares, notwithstanding that it continued to operate as and offer the benefits and additional services of, a full service airline and that Virgin was, and operated as, a low cost airline.
73.Since at least 3 November 2000 and until at least 14 September 2001, Qantas adopted and implemented a policy of matching the lowest fare offered by Virgin from time to time for Adelaide ‑ Brisbane services, notwithstanding that it continued to operate as, and offer the benefits and additional services of, a full service airline, and that Virgin was, and operated as, a low cost airline.
Particulars
Virgin's lowest fares were as follows:
(i)on 2 November 2000 Virgin announced that it would commence operating its service on 15 December 2000 with a range of fares, the lowest regular fare being $149.00 one way;
(ii)as part of its promotion of the launch of its new service, Virgin offered seats for $99.00 each way between 7 and 15 December 2000;
(iii)on 10 January 2001 Virgin offered a one way fare of $119.00 for travel before 24 March 2001 if booked between 11 and 28 January 2001;
(iv)on 24 January 2001 Virgin offered a promotional fare of $99.00 one way for nine days, which was valid from 1 March 2001;
(v)on 13 February 2001 Virgin offered a one way fare of $114.30 for travel after 25 March 2001 if purchased by telephone or through an agent and $113.30 if purchased over the internet;
(vi)on 15 March 2001 Virgin reduced its lowest fare on the route to $110.90 for travel during a specific period.
The applicant reserves the right to supplement these particulars after subpoenas and discovery.
74.Moreover, from time to time between 3 November 2000 and 14 September 2001 Qantas offered fares for Adelaide ‑ Brisbane services that were lower than Virgin’s lowest fares for Adelaide ‑ Brisbane services, while continuing to offer the benefits and additional services of a full service airline.
75.Moreover, from 3 November 2000 Qantas reduced its fares for Adelaide – Brisbane services for travel after 7 December 2000 (the date that Virgin commenced offering Adelaide ‑ Brisbane services) from its fares offered for those services prior to 3 November 2000 such that Qantas’ average fare on that route substantially reduced and remained at that substantially reduced level until about 14 September 2001. This conduct is subsequently referred to as ‘reducing fares’.
76.At all material times, Qantas knew that Virgin was a low cost airline and that Virgin’s operating costs both generally and in operating its Adelaide ‑ Brisbane services were substantially lower than those of Qantas.
77.From at least December 2000 it was the fact, and from that time, or alternatively from a time prior to July 2001, Qantas knew that:
(a)the effect of adding a further daily direct flight each way to the route would be to cause a very substantial excess of available capacity for direct services in each direction between Adelaide and Brisbane;
(b)other things being equal, the addition of this capacity would substantially diminish the seat factors for all of the competitors;
(c)the effect of the yield management systems operated by the competitors, given the substantial excess capacity, would be to substantially increase the proportion of low fare category seats offered by them;
(d)that increase would cause the average revenue per passenger to decline;
(e)the additional daily direct flight each way was not likely to substantially increase the total number of high fare category passengers available to it;
(f)in any case, any increase in high fare category passengers would not be sufficient to cover the costs of adding an additional daily direct flight each way;
(g)if Qantas offered substantial capacity at the same or lower fares than Virgin or Ansett, it was likely to attract the major share of passengers;
(h)by reason of its lower levels of services and benefits, in order to attract sufficient customers to be viable, Virgin had to offer lower fares than Qantas;
(i)the likely effect of reducing fares, including matching or undercutting the fares of a low cost airline, and adding substantial capacity between Adelaide and Brisbane was and would be that all competitors would operate at a loss on that route;
(j)Qantas had the financial resources and strength to sustain losses on the route longer than its competitors;
(k)the likely effect of its conduct would be to cause one or more the competitors to withdraw capacity or withdraw entirely from providing Adelaide ‑ Brisbane services if it continued to maintain the additional daily direct flight each way;
(1)if Virgin withdrew entirely from offering Adelaide ‑ Brisbane services, the fares it could then charge would return substantially to the levels obtaining prior to Virgin commencing services and that Ansett would not adopt any course to prevent this happening; and
(m)if it responded aggressively to any new entrant (including a low cost airline and including Virgin) commencing to offer airline services on a route other than one between Brisbane, Sydney and Melbourne by adding additional capacity to that route and reducing fares including matching or undercutting those of the new entrant and by continuing to offer the benefits and additional services of a full service airline, then it was likely that the new entrant on that route would eventually be deterred from operating on that route and would be deterred from seeking to build or expand its network by commencing to offer airline services on other new routes.
78.By reason of the above matters, it was not rational or profit maximising for Qantas to add substantial capacity between Adelaide and Brisbane whilst reducing fares and matching or undercutting the lowest fares of Virgin on that route, and whilst continuing to offer the benefits and additional services of a full service airline, except to eliminate or substantially damage Virgin or to deter or prevent Virgin or other competitors from engaging in competitive conduct on that or another route.
79.From or shortly after 1 February 2001 Qantas knew that the effect of adding substantial capacity between Adelaide and Brisbane and reducing fares on that route including offering fares at or below those of Virgin, while continuing to offer the benefits and additional services of a full service airline, was and would be that all competitors would operate at a substantial loss on Adelaide ‑ Brisbane services until one of them withdrew capacity from that route.
80. Notwithstanding the matters referred to in paragraphs 78 and 79, Qantas:
(a)maintained the additional capacity between Adelaide and Brisbane that it introduced on 1 February 2001; and
(b)continued to offer reduced fares, including fares at or below Virgin’s lowest fares, for Adelaide ‑ Brisbane services while continuing to offer the benefits and additional services of a full service airline
for a period of approximately 7 to 8 months.
81.As a result of the matters pleaded in paragraph 80, each of Qantas, Virgin and Ansett were operating at a loss on that route until Ansett ceased trading on 14 September 2001, save that Qantas made a small profit in the month of April 2001 when CASA grounded Ansett flights over the Easter period over its failure to conduct required inspection and maintenance on its fleet.
82.When Ansett ceased offering airline services between Adelaide and Brisbane on or around 14 September 2001, the direct capacity on the route was reduced by one daily direct service each way. From around 14 September 2001, each of Qantas and Virgin ceased operating at a loss on the route and their operations on the route became profitable.
83.Qantas’ ability to engage in the conduct alleged in paragraphs 70, 71, 73 ‑ 75 and 80 was made possible or materially facilitated by its market power, including:
(a)by use of its extensive network, its existing facilities and infrastructure at all airports, its ability to switch planes from route to route both domestically and internationally and its large fleet of aircraft, as pleaded in paragraphs 25(a), (b), (d), (e), (f), (g), (h), (i), (k) and (1), which enabled it to add capacity on any route in Australia quickly and without sinking the substantial costs that a new entrant would in adding capacity;
(b)by its extensive network, its high market share, its ability to price discriminate, its ability to price below total cost and below avoidable cost on a particular route and its financial strengths, as pleaded in paragraphs 25(k), (1), (m), (n), (o), (p) and (ee) which allowed it to reduce fares and to sustain losses on the Adelaide – Brisbane route longer than its competitors;
(c)by its ability to protect a substantial proportion of its customer base, including its potential customers, from new entrants by reason of the matters pleaded in paragraphs 25(k), (q), (s) and (t) ‑ (dd),
which conduct it would not have engaged in had it lacked a substantial degree of power in the Australian airline market or the Adelaide ‑ Brisbane market.
84.By reason of the matters pleaded in paragraph 83 Qantas:
(a)in adding the additional direct capacity on 1 February 2001 to services between Adelaide and Brisbane and in reducing fares, including continuing to offer fares at or below Virgin’s lowest fares for its Adelaide ‑ Brisbane services while continuing to offer the benefits and additional services of a full service airline;
and further or alternatively,
(b)in continuing to maintain the additional direct capacity between Adelaide and Brisbane that it introduced on 1 February 2001 and in continuing to offer reduced fares including continuing to offer fares at or below Virgin’s lowest fares for its Adelaide ‑ Brisbane services while continuing to offer the benefits and additional services of a full service airline, for a period of approximately 7 to 8 months,
took advantage of its power in the Australian airline market or alternatively in the Adelaide ‑ Brisbane market.
85. The purpose, or alternatively a substantial purpose, of Qantas engaging in the said conduct was to:
(a)eliminate or substantially damage Virgin as a competitor in the Australian airline market or alternatively in the Adelaide ‑ Brisbane market; and, or alternatively
(b)if Virgin was operating in the Adelaide ‑ Brisbane market, prevent the entry of Virgin into other markets in Australia for the provision to the public of scheduled passenger air transport services between cities, areas or locations, that is, the expansion of its network; and, or alternatively
(c)if Virgin was operating in the Australian airline market, deter or prevent Virgin (and, or alternatively, any other new entrants) from engaging in competitive conduct, including expansion of its network, in the Australian airline market, including by demonstrating that it had the ability and the willingness to increase its capacity and match or undercut fares on all routes on which new entrants commenced and to thereby cause those new entrants to operate at a loss or very low level of profitability on those routes.
86. In the premises, Qantas has contravened section 46 of the Act.”

It will be convenient to describe the particular complaints made by Qantas at this stage, and to attempt to arrive at a conclusion upon each of them in turn. As has been mentioned, these complaints are confined, at this point, to “pleading” questions, that is to say, complaints of lack of clarity, lack of particularity, irrelevance or embarrassment. But, as will appear, even at this preliminary stage, the written submissions will need to be clarified by oral argument.
CONCLUSION ON THE “PLEADING” QUESTIONS
I will deal with Qantas’ submissions in the sequence in its written submission dated 20 September 2002.
1. Paragraphs 6, 7, 10 – 14, 47 of the S/C
Qantas submits that the pleading of the absence of close substitutes in par 7 of the S/C is inconsistent with what is pleaded in pars 10 – 14 and 47. It is said that the reference in par 6 to the “scheduled ... services in each direction between Adelaide and Brisbane” relates to direct services between Adelaide and Brisbane and vice versa. Yet, it is said, pars 10 – 14 allege that demand in the relevant markets is met by indirect services via Melbourne, Sydney and Canberra; thus these indirect services must be close substitutes in meeting the demand for “Adelaide – Brisbane services”; so that, in contradiction of par 7, the S/C itself identifies close substitutes.
On behalf of the ACCC, it is contended that par 6 is not, in terms, limited to “direct” services; and that pars 10 – 14 allege that demand in the relevant markets is addressed by “indirect” services.
In my opinion, par 6 does lack clarity. If, as the ACCC contends, par 6 is intended to include “indirect”, as well as “direct”, services, this should be clarified by pleading this explicitly in par 6.
2. Paragraphs 5 – 8 of the S/C
Qantas submits that pars 5 – 8 of the S/C do not identify clearly the product, functional or time dimensions of the markets alleged.
As has been said, I agree these pars (including of course par 7) should clarify that “indirect” services are included.
As with respect to “temporal dimensions”, Qantas argues that, in the light of the claim in par 47 of the S/C, low prices stimulate demand by inducing more people to travel, that is, that for some consumers, travel by air becomes an option at certain prices; and, if this be correct, at those prices air travel competes with other forms of transport. Qantas’ complaint then is that there is no pleading as to inclusion, or exclusion, of potential suppliers, and acquirers, in the markets, having regard to its temporal dimension. Qantas contends that identifying the temporal dimension of a market is “essential” in assessing many relevant factors including the identification of the correct product dimension, the degree of market power of the participants in the market, and whether there has been any “taking advantage”.
It appears, on analysis, that this complaint is one of omission of what is said to be an essential ingredient of the statutory cause of action sued upon as such, in my opinion, it is more properly characterised as a “demurrer” point than a “pleading” point. Accordingly, it should be dealt with at the next [“demurrer”] stage of the argument on the motion. (I express no view on its merits in that context here.)
Qantas then submits that, since there are no limits on the geographical area within which the relevant services can be acquired (for instance, air fare information is available by telephone or on the internet), the “geographic dimension” of the market “properly understood”, could not be limited to Adelaide and Brisbane, as alleged in par 8(b) of the S/C.
Again, in my view, this is a “demurrer”, rather than a “pleading” point.
3. Paragraphs 10 – 14 of the S/C
Qantas then points to the several references here to “various indirect services via Sydney, Melbourne or Canberra” without providing details.
In my view, those particulars ought to be provided by the ACCC, “not to expand the issues defined by the pleadings, but ‘to fill in the picture of the [ACCC’s] cause of action with information sufficiently detailed to put [Qantas] on [its] guard as to the case [it] has to meet and to enable [it] to prepare for trial’ ” (per Gleeson CJ in Goldsmith v Sandilands (2002) 190 ALR 370 at 371; [2]).
4. Paragraph 16 of the S/C
Qantas submits that the specific form of “government regulation” should be particularised.
I agree.
5. Paragraph 21 of the S/C
Qantas contends that par 21 of the S/C is an impermissible pleading, essentially because it fails to recognise any distinction between lawful competitive conduct on the one hand, and illegal activity taking the form of increasing capacity or reducing fares (with a view to eliminating a competitor).
I cannot accept that par 21 should be read other than literally. Read literally, par 21 alleges, in the form of a contention of fact, that a barrier to entry was constituted by the “known risk” that Qantas could increase capacity, or reduce fares, even if it had the consequences pleaded. Whether such conduct did, or did not, have any particular character, in terms of its legality or illegality, simply does not arise at this pleading issue stage. As has been said, par 21 is no more than an assertion of fact. It does not, and need not, claim (here) that Qantas’ conduct in this context was illegal.
However, in my opinion, the ACCC should specify, by way of particulars, how the “risk” alleged is to be “known”.
6. Paragraphs 23 and 24 of the S/C
Qantas submits that the use of the term “substantial” here is imprecise, ambiguous and confusing.
Looked at (as I now must) as a “pleading” issue only at this stage, I cannot agree. The term is a familiar one and should not embarrass a pleader. Its ultimate legal significance is another matter, which may arise on the “demurrer” aspect of the motion.
7. Paragraphs 25(ee) and 26(ff) of the S/C
Qantas here complains that “the quite unspecific allegations concerning [its] and Ansett’s market shares in [these sub-pars] fall far short of [an allegation of] material facts. They are only ... vague comparative statements that permit no assessment of what the [ACCC’s] case actually is ... ”.
It may be accepted that the ACCC’s claims here are generally expressed, but relevant details may be requested by way of appropriate particulars, if still needed. Subject to that, I see no pleading deficiency.
The “demurrer” aspect of the motion will be the occasion to debate the relationship, if any, between market share and market power.
8. Paragraphs 9 – 11, 12, 13, 15, 47, 51 – 55, 65 – 66, 73
In its written submission, Qantas attempts (in pars 71 and following) an analysis of what it believes to be the material allegations made in the S/C and then argues as follows:
“73.The question is necessarily posed: what was it about Qantas’ conduct which differentiated it from an ordinary competitive response? What did it do which it was only able to do by reason of alleged market power? What did it do which it would not have done in a competitive market?
74.The proposition that there is an inhibition in the Trade Practices Act against an incumbent responding to price competition by lowering its own prices is so dangerously antithetical to the fundamental aim of the Act to benefit consumers by price competition that any allegation which relies on such price competition must, of necessity, precisely define the conduct so that it can be recognised or understood as contrary to section 46.”
Argument of this kind is for the “demurrer” aspect of the motion.
9. The whole of the S/C
Qantas further submits (written submission pp 21 – 22):
“76.Qantas is entitled to know the nature of the alleged impermissible conduct. When it is accused of matching or undercutting fares, is the allegation that it sold every fare on all or some or one of its flights at the same prices as every fare on all or some or one of Virgin’s flights? On the face of the allegations in the Amended Statement of Claim, it would not have been possible for Qantas to know how many seats at particular prices and on particular conditions Virgin was actually selling on a particular flight. Is the allegation merely that Qantas offered some fares at the same prices as some of Virgin’s fares? What is the precise amount of capacity increase which is said to have been impermissibly added and why? When it is alleged that Qantas reduced its fares for Adelaide-Brisbane services, which particular fares are referred to? By how much were they reduced? By how much was the average fare reduced? Why was such reduction impermissible? Why are these not legitimate competitive responses to Virgin’s conduct? Why are these actions not beneficial for consumers and the very result which competition is designed to foster?”
Similar concerns are expressed in par 78 of Qantas’ written submission.
Whilst these concerns might properly be the subject of a specific request for further particulars, they would need first to be anchored in a particular context in the S/C, unless raised as “demurrer” points. I do not see any deficiency, at least in “pleading” terms.
10. Paragraphs 76 – 79, 81 – 82 of the S/C
Qantas submits (written submission pp 22 – 23):
“80.As the Respondent understands the pleading, the impugned conduct is identified in paragraphs 70, 71, 73, 74 and 75 and 80. These paragraphs are pleaded in paragraphs 83 and 84 as the conduct that constitutes the taking advantage of market power. Similarly, the reference to the ‘said conduct’ in paragraph 85, whilst imprecise, must be a reference to the same conduct described in paragraphs 83 and 84. It is also important to note that paragraphs 76 – 79 and 81 – 82 do not form part of the impugned conduct. This raises the relevance of these paragraphs to the case pleaded, an issue which is discussed below. Paragraphs 60 to 70 appear to provide the context in which the impugned conduct took place.”
I cannot accept the submission. Although pars 76 – 79 and 81 – 82 do not, in their terms, speak of Qantas’ conduct, upon analysis, it appears that these pars are allegations of material facts, their relevance being their connection with the purpose of Qantas in engaging in the conduct sued upon.
11. Paragraphs 60 – 70 of the S/C
In its written submission (pp 24 – 27), Qantas develops an elaborate argument seeking to challenge what it believes to be an assumption made by the ACCC in these pars. It is not feasible to summarise the argument here, and in any event, the argument makes a number of its own assumptions, especially that the appropriate measure of capacity is “Available Seat Kilometres” (“ASK”). It appears that the only possible “pleading” point raised is that stated in par 94 of the submission:
“94.Notwithstanding that the Applicant is aware of the importance not only of identifying the number of available seats as well as the number of flights in describing capacity and the use of ASK as a common measure of capacity, the Amended Statement of Claim leaves the Respondent and the Court without any answers to fundamentally important questions in this regard:
(a)What capacity, that is, how many ASK or even available seats does the Applicant allege that Qantas and the other airlines provided on the Adelaide-Brisbane route prior to 1 February 2001?
(b)What capacity, that is, how many ASK or even available seats does the Applicant allege that Qantas and the other airlines provided on the Adelaide-Brisbane route after 1 February 2001?”
In its written submission, the ACCC states (pp 29 – 30) that it is implicit in par 71 of the S/C that it alleges that the aircraft employed on and after 1 February 2001 by Qantas were of the same general seating capacity as the aircraft it employed on the route immediately prior to 1 February 2001.
Given the provision of those particulars, it is not appropriate to direct that the ACCC answer the generalised interrogatories stated in par 94 of Qantas’ submission.
13. Paragraphs 10 – 14 and 63 – 64 of the S/C
Qantas again develops an elaborate argument in its written submission (pp 28 – 31) on the issue of “indirect” capacity. Again, assumptions are involved. I have already ruled that the ACCC must plead in the area of “indirect” services with more specificity. That apart, I cannot see any “pleading” point in the present context. If the particularisation of “indirect” services or capacity remains contentious, I will hear that dispute on specific oral argument.
14. Paragraphs 73 – 75 and 80 – 84 of the S/C
First, Qantas submits, in essence, that in respect of fare matching, “[n]o ‘material facts’ are pleaded”; it is then said that “[o]nly the vaguest generalisation is pleaded” (written submission par 113). Reference is made to “[a] general time frame” in par 73 of the S/C; and to conduct “merely identified in general terms”. This aspect is developed in the submissions.
In my opinion, if Qantas has a valid ground for complaint here, it lies in a lack of particularity, not in an embarrassing pleading. In its written submission, the ACCC has provided some further particulars (ACCC’s written submission pp 33 and following). Again, if this area (of particulars) remains contentious, it will be dealt with on specific oral argument.
A similar complaint is made by Qantas in respect of “fare undercutting” (written submission pp 34 – 36) and “fare reduction” (written submission pp 36 – 37). Again, I will, if required, hear oral argument on any complaint about particulars. I note that, in its written submission (pp 36 and following) the ACCC has provided some further information already.
Qantas has also advanced an elaborate argument (written submission pp 37 and following) on the question it poses: “Is loss an element of the impugned conduct?”. Again, it is not feasible to attempt to summarise the argument, but a range of complaints are made, including lack of particularity, perceived inconsistency between the Application and the S/C, and irrelevance of some allegations in the S/C. On any view, the starting point is the particulars argument. Again, the ACCC’s submission (pp 38 and following) provides some further information. Once more, if required, I will rule on all or any of these complaints on specific oral argument.
15. Paragraphs 76 – 78 of the S/C
Again, it is not feasible to attempt a summary of Qantas’ elaborate submission here (at pp 41 and following). Amongst a range of complaints, lack of particulars (to be viewed against the ACCC’s submission at pp 40 and following) will need to be addressed first, if required, on specific oral argument.
16. Paragraphs 83 – 84 of the S/C
The position here is the same (Qantas’ written submission pp 44 – 45).
17. Paragraphs 84 – 85 of the S/C
The position here is the same (see Qantas’ written submission pp 47; 50 and following; cf. ACCC’s submission pp 45; 47 and following).
18. Paragraphs 40 – 59 of the S/C
The position here is the same (see Qantas’ written submission pp 52 and following; cf. ACCC’s submission pp 48 and following).
GENERAL
The matter will be stood over to a date to be fixed for specific oral argument on the issues mentioned in these reasons, before the “demurrer” points are addressed.

I certify that the preceding fifty (50) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont
Associate:
Dated: November 2002

Counsel for the Applicant: Mr D Yates QC
Mr P Renehan

Solicitor for the Applicant: Australian Government Solicitor

Counsel for the Respondent: Mr A Bannon SC
Mr R Wright SC
Mr M O’Bryan

Solicitor for the Respondent: Blake Dawson Waldron

Date of Hearing: 16 August 2002; 10 October 2002

Date of Judgment: 1 November 2002

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 408 OF 2002

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	QANTAS AIRWAYS LIMITED RESPONDENT
JUDGE:	BEAUMONT J
DATE OF ORDER:	1 NOVEMBER 2002
WHERE MADE:	SYDNEY

JUDGE:	BEAUMONT J
DATE:	1 NOVEMBER 2002
PLACE:	SYDNEY

Counsel for the Applicant:	Mr D Yates QC Mr P Renehan
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	Mr A Bannon SC Mr R Wright SC Mr M O’Bryan
Solicitor for the Respondent:	Blake Dawson Waldron
Date of Hearing:	16 August 2002; 10 October 2002
Date of Judgment:	1 November 2002