Flight Centre has been ordered to pay $12.5 million in penalties for attempting to induce three airlines – Malaysia Airlines, Singapore Airlines and Emirates – into price fixing arrangements between 2005 and 2009.

As part of the arrangements, the travel agency group is accused of attempting to have each airline agree to not offer airfares on their websites that were lower than those available through Flight Centre.

According to a release from the Australian Competition and Consumer Commission (ACCC), the Full Federal Court of Australia’s decision will see Flight Centre pay $1.5 million more than the original $11 million imposed on the group by a trial judge in March 2014 – a judgement both Flight Centre and the ACCC appealed.

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Rod Sims, ACCC’s Chairman, explained that the appeal for a higher penalty was because the Commission “considered that this level of penalty was inadequate to achieve a strong deterrence message for Flight Centre and other businesses”.

“Flight Centre is Australia’s largest travel agency, with $2.6b in annual revenue,” he said. “We will continue to argue for stronger penalties which we consider better reflect the size of the company, as well as the economic impact and seriousness of the conduct. Significant, large penalties act also as a general deterrent to other businesses that may be considering such conduct themselves.”

“The ACCC wants to ensure that penalties for breaches of competition laws are not seen as an acceptable cost of doing business.”

Rod Sims, ACCC Chairman

“To achieve deterrence, we need penalties that are large enough to be noticed by senior management, company boards, and also shareholders.”

 

Flight Centre’s response

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Flight Centre’s Managing Director, Graham Turner, responded to the ruling in an ASX update, saying that the company is examining the judgement and would consider whether there are grounds for seeking leave to appeal against the latest penalty judgement.

“This was a complex test case as evidenced by the contrasting judgments during the past six years,” Mr Turner said

“Flight Centre at all relevant times believed that it was acting lawfully and that its conduct did not contravene the Trade Practices Act, given that its interactions took place within the context of commercial negotiations as to agency arrangements with its principals. It is pleasing that the court also accepted this point in its decision.

“The company respects the court’s ultimate decision and will continue to adhere to the policies and practices that it put in place when the ACCC’s possible concerns first became evident.

“As we said when the ACCC initiated this test case, for more than 30 years Flight Centre has sought to deliver cheaper airfares to the travelling public. The company is not in the business of attempting to make airfares more expensive.

“In fact, Flight Centre often suggests to airlines that they lower prices to stimulate demand. As an agent that provides considerable free advice and help to the travelling public, and extensive marketing for airlines, FLT asks for appropriate commissions from suppliers and also reasonable access to all deals that they release to the market.

“This is a logical and natural business request for an agent to make to ensure the customers it serves on behalf of airlines are not disadvantaged.”

Flight Centre added that the penalty would not affect the group’s market guidance for FY18 of an underlying profit before tax of between $360m and $385m. However, the penalty will be included in Flight Centre’s statutory results for the year.

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