Attempts by Flight Centre, the country’s largest travel agency to fix the value of tickets with three airlines so its “price beat guarantee” didn’t reduce the company’s profits has rebounded badly with the Full Federal Court fining it $12.5 million in a decision handed down yesterday.
The court decision came after Flight Centre’s long-running legal battle with the Australian Competition and Consumer Commission over five breaches of the Trade Practices Act between 2005 and 2009.
The matter was sent back to the Full Federal Court for determination of penalty, following the ACCC’s successful appeal to the High Court of Australia in December 2016.
The $12.5 million in penalties imposed today is an increase from the original $11 million imposed on Flight Centre by the trial judge in March 2014. Both the ACCC and Flight Centre appealed from these penalty orders.
The news though had little impact on Flight Centre’s shares – they eased 1% to $56.61, cutting the value of the company to $5.76 billion. In other words the market reaction was equal to a fall of around $57 million in the value of Flight Centre for the total fine and penalties of $12.5 million.
In a separate statement Flight Centre said it was studying the judgement for ground for further legal action such as an appeal, and that the penalty will be included in its statutory results for the year to June, but not in its underlying result with the guidance remaining at a profit before tax of $360 million to $380 million.
The judgement reveals that the ACCC didn’t get the penalties it wanted – at paragraph 41 of the judgement the court lists a total of $17 to $22 million in penalties sought by the ACCC for the six breaches.
“In its judgement, the Full federal Court unanimously rejected submissions that Flight Centre had intentionally breached the law saying “We reject the ACCC’s submission that there was a deliberate contravention of the act”.
But the Full Bench did did go on to say in paragraph 61 of 76 in the judgement that "The conduct was, of course, deliberate, but it was done apparently believing in its lawfulness. But that “innocence” should not be overstated. The precise basis of this belief in innocence (over an extended period of four years) was unexplained.”
And at paragraph 62, the judgement said “Flight Centre engaged in conduct, on this hypothesis, that it must have known, would or could deny to consumers the benefit of a price reduction."
The ACCC claimed Flight Centre had attempted to induce three international airlines to enter into price fixing arrangements between 2005 and 2009 by seeking to have each airline agree not to offer airfares on its own website that were less than those offered by Flight Centre.
“The ACCC appealed from the initial $11m penalty orders because it considered that this level of penalty was inadequate to achieve a strong deterrence message for Flight Centre and other businesses,” ACCC Chairman Rod Sims said in a statement yesterday.
“Flight Centre is Australia’s largest travel agency, with $2.6b in annual revenue. 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.
"To achieve deterrence, we need penalties that are large enough to be noticed by senior management, company boards, and also shareholders,” ACCC Chairman Rod Sims said.
