Flight Centre chief Graham Turner remains defiant after his company lost a case brought against it by the ACCC on Friday.
The Brisbane Federal Court found Flight Centre guilty of six counts of attempting to induce competitors to enter into price-fixing arrangements with it.
The competition regulator argued 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 (all three airlines rejected the advances).
As part of its case, the ACCC argued that as Flight Centre’s prices include both its commission and the cost of the flight, discouraging airlines from selling below this price has the effect of preventing competition between Flight Centre and the airline’s internal sales divisions.
Speaking to SmartCompany when the case was first brought against the travel company last year, Turner was adamant he wouldn’t seek a settlement.
“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,” he said.
Turner was overseas when the judgement was delivered and so unable to speak to SmartCompany this time around. But in a written statement, Turner again signalled his intention to continue fighting the case.
“Having access to all offers is a logical and natural business request for an agent to make to ensure the customers it serves are not disadvantaged,” he said.
“[The] ruling is likely to have implications for the travel industry and for many retailers and agents in other sectors.”
In a statement to the Australian Securities Exchange, Flight Centre indicated it would appeal the Federal Court ruling.
“Based on a preliminary analysis of the judge’s findings, the company believes there are errors of law that will form the basis of its appeal.
“The company does not expect the test case ruling to affect its operations or its business model, as the focus was on a narrow area of activity between 2005 and 2009.”
The case was largely decided on internal and external Flight Centre emails, many of them written by Turner, which Justice Logan said showed Flight Centre and the airlines were in clear competition with each other, and thus an attempt to reach an agreement on pricing was price-fixing.
One email, sent to Singapore airlines, made reference to instances where the airline had “undercut” Flight Centre’s prices.
“These reduced margins this year have made it difficult at times for us… [and] recognition of this issue will help us to achieve our collective goals,” it said.
Flight Centre’s lawyers argued it was not in direct competition with the airlines. But based on the emails, Justice Logan disagreed.
Michael Terceiro, a legal consultant and former ACCC lawyer who worked on the ACCC’s case against Flight Centre, says Turner appears to have “shot himself in the foot” with the emails.
“Justice Logan made quite a big deal of internal Flight Centre documents, which he said showed a competitive mindset.”
By basing his judgement on such documents, Justice Logan has made it difficult for Flight Centre to appeal, Terceiro added.
In an appeal, Flight Centre wouldn’t be able to have the evidence re-evaluated, but would instead have to base its argument on a point of law. If the ruling, however, was largely based on witness evidence, it narrows the scope of an appeal.
Penalties for price-fixing behaviour can be hefty. At a penalty hearing, Justice Logan will decide between a penalty of $10 million, 10% of Flight Centre’s yearly revenue, or three times the financial gain from the price-fixing.
Flight Centre was not successful in its price-fixing attempts, which leaves the first two potential penalties. It is quite likely the ACCC will push for Flight Centre to be fined 10% of its revenue, Terceiro says.
“Flight Centre didn’t succeed, so that suggests a low penalty. But a couple of factors hurt Flight Centre. One of them is that Graham Turner himself was involved in the conduct, and there’ll be no discounts for cooperation or contrition.
“Once the penalty is decided on, Flight Centre can appeal. But they might decide not to.”
The case bears remarkable similarities to one recently brought by the ACCC against ANZ, which it lost last November, Terceiro adds.
In that case, the ACCC alleged that ANZ had engaged in price-fixing behaviour when threatened to remove Mortgage Refunds’ accreditation to sell its mortgages unless the broker capped its refunds at $600, allowing ANZ to match the price.
That case was also decided on whether or not ANZ and Mortgage Refunds were competitors. After six years, the Federal Court ultimately decided they were not.