It all started when Flight Centre tried to get airlines not to undercut it on ticket prices. The ACCC investigated, prosecution ensued, and it boiled up into one of the biggest competition cases ever.
The prosecution was for price fixing, or attempted price fixing at least, because the airlines didn't come to Flight Centre's party. The prohibition on price fixing applies if the parties are competitors (in a market).
There was a whole lot of debate about this. Was Flight Centre just the airlines' agent, or were they actually competing? In which market? Questions! Law! The High Court had to decide in the end and it said that the airlines and Flight Centre were competitors in the market for the sale of international airline tickets.
The next question was the size of the penalty for Flight Centre. First, the court said $11M was the number. Both parties appealed, and just last week the appeal court said wait no it should absolutely definitely be $12.5M.
Big numbers? No, not really.
The Flight Centre was liable for 5 separate contraventions – one for each time they tried to get an airline to price fix. The penalties ranged from $2M - $3M per contravention, and the $1.5M increase on appeal reflected a $500k increase on the penalty for three of the contraventions. The maximum penalty per contravention was $10M.
Flight Centre paid only 20-30% of the maximum penalty per contravention. Had the price fixing worked, it stood to protect around $20M in commissions. And the $11M penalty reflected just 0.64% of its annual revenue. All of that makes both penalty numbers seem a bit puny really.
The penalty appeal judgment came hot on the heels of an OECD report saying that Australian competition penalties are, on average, less than a tenth of what's handed out in comparable jurisdictions. Our average penalty is $25M, where as elsewhere it is over $300M.
Following the report the ACCC has said it will rethink its approach to assessing penalties. Focus may shift more heavily to the value of the commerce affected. Penalties are likely to increase, in some cases by a lot. Stay tuned.
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