Flight Centre has responded defiantly to ACCC accusations of price-fixing.
“We’re not interested in a settlement,” Flight Centre CEO Graham Turner bluntly tells LeadingCompany.
“We‘ll fight this to the end. There’s no way we’d contemplate a settlement. We need to look after our customers and ensure they have the best fares. We make no apology for that.”
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But legal experts say it would have been in Flight Centre’s best interests to bite its tongue.
“If there was any chance of the ACCC backing down, it has just been blown out of the water,” says legal consultant and former ACCC lawyer Michael Terceiro, referring to an article in The Australian where Turner referred to the charges as “stupid” and “trumped up”.
On Friday the ACCC announced it was taking Flight Centre to court, alleging that the online travel agent had attempted to induce airlines to enter into price-fixing arrangements. The competition regulator claims that on six occasions between 2005 and 2009, Flight Centre attempted to induce Singapore Airlines, Malaysian Airlines and Emirates to agree to stop offering prices cheaper than those offered by Flight Centre.
As part of its case, the ACCC alleges Flight Centre’s prices include both its commission and the cost of the flight. It says discouraging airlines from selling below this price prevents competition between Flight Centre and the airline’s internal sales divisions.
Turner says Flight Centre’s methods allow it to get the best prices for its customers.
“We make no apology for not having a preferred relationship with an airline or cruise-line or hotel chain unless we get all their prices and their fares,” he says. “We will downgrade them to non-preferred if they don’t give us all their prices. Obviously that’s best for our customers.”
It’s not the first time Flight Centre has clashed with the ACCC. In 2005 the regulator disputed the company’s ‘lowest price guaranteed’ slogan, saying it could be misleading to customers. On that occasion, Flight Centre agreed to a court-enforceable promise not to use the slogan again “without admissions”. It had been used for 17 years previously.
Terceiro, who supervised the ACCC investigation into the use of the slogan, tells LeadingCompany that in that instance Flight Centre’s conduct was “far more low-key”. In this case, Flight Centre appears to believe it is on more solid ground.
Terceiro says “if the legal advice [Flight Centre] received said that the ACCC’s case was terrible, that might have fuelled their rejection.”
Terceiro says the penalties, should the case go against Flight Centre, would be devastating. Under the Corporations and Consumer Act 2010, companies found guilty of price-fixing can be fined either $10 million, three times the benefit of their illegal conduct, or 10% of their total revenues – whichever is greatest. Terceiro says given the difficulty of calculating the benefit of the illegal conduct, and Flight Centre’s large revenues, the ACCC is likely to pursue 10% of the travel agent’s revenues.
Terceiro says the laws are modelled on their counterparts in Europe. He says no large Australian company has previously been charged under them. “It’s a matter of time before someone gets successfully sued for 10% of their revenue,” he says.
The case is not likely to be concluded for several years, providing no quick guidance to others in similar industries.
“Industries that are struggling with competition will be tempted to go to their suppliers and ask them to help in some way,” says Terceiro. “If they ask the supplier to charge an online seller a higher price, or not compete directly in the market, then the ACCC is going to be all over that. It looks like price-fixing.”
Should the case be decided in Flight Centre’s favour, Terceiro says it is still likely to be damaging for the travel agent.
“Going to court for a company like Flight Centre is something you’ve got to avoid,” he says.
“[Their customers] won’t understand what the case is about. They’ll just see ‘price-fixing’ and assume they’re being ripped off.”
But that doesn’t faze Turner, who says the ACCC contacted the company initially almost three years ago.
“If [the ACCC] genuinely thought they had a problem, they would have come up with a charge earlier, or got an undertaking from us to [stop what] we were doing that was supposedly wrong. I think it is really surprising.”
“We’re very well prepared and we’ll fight this to the end.”